What’s Firefly’s role after tie-up?

By Kang Siew Li, The Sun

PETALING JAYA (Aug 14, 2011): The unprecedented tie-up between Malaysia Airlines (MAS) and rivals AirAsia and AirAsia X last week has thrust the future of Firefly – the budget carrier of the national airline – into the limelight.

Even Firefly’s top executives are in the dark over the role the budget carrier will play in this tie-up although there is talk of the airline exiting the low-cost segment.

Senior executives from MAS and AirAsia have so far only said MAS will focus on premium travel, AirAsia on the short-haul low-cost segment and AirAsia X the medium- and long-haul budget segment under the comprehensive collaboration framework (CCF).

“Firefly’s resources would be refocused to launch a new regional full service airline operation,” MAS chairman Tan Sri Md Nor Yusof had said at the press conference, but did not elaborate.

“What does regional mean? Will it (Firefly) cover countries in Asean, Asia or Asia-Pacific? Will it continue to operate a mix of turboprops and jets or only turboprops? Will it be like Silk Air, the full service regional airline wing of Singapore Airlines?” asked an industry observer.

When contacted by SunBiz, Firefly managing director Datuk Eddy Leong said he doesn’t know.

“I don’t know yet. Until we are asked to do something else by MAS’s new executive committee (set up to oversee the management of the airline until a new managing director is appointed), our operations must proceed as normal,” he said.

Firefly began its operations in 2007, initially operating turboprops from Subang before expanding into jet aircraft operation out of the KL International Airport (KLIA) early this year. It currently operates a fleet of 10 ATR 72-500 turboprops, four Boeing 737-800s and one 737-400.

The rise of Firefly has intensified the competition and rivalry between MAS and AirAsia, and has hurt yields for AirAsia, especially on routes from KLIA to Kuching and Kota Kinabalu.

Maybank Investment Bank believes that Firefly’s jet operation days are numbered and that its turbo-prop operations will be rebranded as a full service regional service.

“There will only be one full service carrier (MAS) and one low-cost carrier (AirAsia) in Malaysia, while AirAsia X will focus on being a medium-to-long haul low-cost carrier,” the research firm said in a report.

“There will be a clear demarcation of clientele and the business overlap will be reduced to benign. MAS’s short-haul full service carrier business may be undertaken through a new subsidiary by the name of Sapphire, and MAS has the flexibility to re-designate capacity, assets and resources from Firefly to Sapphire,” it added.

Some analysts believe that Firefly will exit the low-cost segment by the first quarter of next year, thereby reducing the overall competitive pricing pressures and be positive for yields.

However, Standard & Poor’s aviation analyst Shukor Yusof said it would not make sense for MAS’s new management to hive off its budget business into a new subsidiary.

“Why? I can’t think of a reason why you would want to remove a unit that is showing promise and actually making profits. The Firefly brand is doing quite well. I would seriously question the rationale behind completely removing Firefly from the present operations,” he told SunBiz.

Shukor believes that Firefly would still do well with its fleet of turboprops, offering premium travel in the Asean region.

“After all, it was created in the first place to fly domestically and to Singapore. It should not be a problem,” he said.

“There’s still a lot of uncertainties as a result of the (MAS-AirAsia) partnership. There are many questions that have yet to be answered, but in due course they will have to explain how they are going to rationalise not just the fleet and the operations, but the staff,” he added.