Embattled Malaysia Airlines in US$8 bn fightback

National carrier's new purchases are part of an ambitious "multi initiative strategy" that also includes reducing fuel and maintenance costs and seeking more market share.

By M Jegathesan

KUALA LUMPUR: Under siege at both the budget and high end of the air travel market, Malaysia Airlines is fighting back with a multi-billion-dollar fleet renewal plan in an effort to secure its future.

Analysts say that in recent years the company has been overshadowed by its aggressive upstart rival, Malaysian budget carrier AirAsia, while Singapore Airlines and others remain formidable competitors in the business sector.

A few years ago Malaysia Airlines was on life support, forced to sell off its headquarters, slash unprofitable routes and fire thousands of staff to avoid bankruptcy.

In 2005 it racked up losses of RM1.3 billion ($386 million) over nine months, a dismal performance that forced the introduction of sweeping reforms which saw the airline swing into the black in 2007.

Now the state-owned carrier is looking to build on the recovery with orders for six long-haul Airbus A380 superjumbos, plus 25 Airbus A330-300s and 45 Boeing 737-800s for regional use, with an option to buy 10 more of the US model.

In all, the bill comes to $8.4 billion.

“By 2015, we will have one of the youngest fleets in the world,” the flag-carrier’s managing director, Tengku Azmil Zahruddin Raja Abdul Aziz told AFP in an interview.

The firm has already received five Boeing 737-800s and three Airbus A330s, while the first A380 will arrive in the second quarter of next year, he said.

The double-decker superjumbos, the world’s biggest commercial passenger plane, will be used to serve cities such as London, the airline’s most lucrative destination in Europe.

“What we need to do is to be the best airline serving out of Kuala Lumpur,” said Tengku Azmil. “That is what we want to do.”

The purchases were part of an ambitious “multi initiative strategy” that also includes reducing fuel and maintenance costs and seeking more market share, he said.

“It is a major refleeting programme. The new aircraft will have better fuel efficiency, low maintenance, higher reliability, so we actually will be able to further reduce our unit cost. The aim is to increase the margins.”

Overshadowed by AirAsia

But aviation experts said Malaysia Airlines faces strong headwinds.

AirAsia, launched less than 10 years ago, now already flies to 78 destinations, with its long-haul arm AirAsia X covering another 11, while 64-year-old Malaysia Airlines has more than 110 airports on its route map.

Other prominent low-cost carriers including Jetstar Asia also serve the region, and Singapore Airlines said in May it plans to launch a new medium- to long-haul budget subsidiary within a year.

At the other end of the market, the city-state’s flag-carrier and Hong Kong-based Cathay Pacific are major global operators favoured by business travellers.

“In the business segment, they (Malaysia Airlines) are not in the position to compete with Singapore Airlines” because of the size of its network, Shukor Yusof, an aviation analyst with Standard & Poor’s Equities Research told AFP.

“In the economy section, they are losing out to AirAsia.”

“Absolutely, AirAsia has overshadowed Malaysia Airlines. AirAsia has been eating away their business from day one.”

Holding on to passengers

Shukor, who is based in Singapore, pointed out that despite a staff of 19,000 people, Malaysia Airlines was not as productive as AirAsia, which has around 4,500 employees.

“In a nutshell they have been slow to ride the market. Asia was performing better two to three years ago and they did not do much to take advantage of it,” he added.

But Chris Eng, head of research with Malaysian brokerage OSK Research, welcomed the aircraft orders and said the carrier should focus on preventing its loyal customers from leaving.

“Malaysia Airlines’ efforts should be to contain any bleeding of full-fare passengers to other full-service carriers operating via Singapore or Bangkok,” he said.

As it happens, Tengku Azmil agrees. “In terms of business traffic Singapore has naturally more business traffic than Malaysia. We do not have that many business class seats like Singapore Airlines,” he said.

“It will be a mistake for us to become like Singapore Airlines. Singapore Airlines serves a different market.”

- AFP