Is Malaysia Airlines dumping fares?….(It is quite obvious but WHY, PM?..where are ‘brilliant turnaround’ managers?)

‘Now everyone can fly’ used by AirAsia applies to Malaysia Airlines as well these days. Paradoxically the premium national carrier now comes with budget pricing. Don’t get Tiger wrong; the ongoing airline price war between AirAsia and Malaysia Airlines has done a world of good for consumers. What is worrying though, is that Malaysia Airlines is pricing itself out of profitability for the sake of keeping up with the competition.

Of the few things Tiger – even as apex predator of the jungle – is not able to do, one of them is take to the skies and fly. For that Tiger has to rely on one of two options; national carrier Malaysia Airlines or budget airline dressed in red AirAsia.

Some have said to Tiger: “You should try out Malindo Airways, they have a TV screen at every seat and you can really stretch out on the seats.” But unfortunately Tiger hasn’t found a good excuse for a ‘lawatan sambil belajar’ this past year, unlike this goodfella.

So, what’s ‘news’ this week you may ask? Well, the top most popular stories on KiniBiz this week have got to do with either one of three things; Daim Zainuddin, Syed Mokhtar or Malaysia Airlines.

No surprise, the first two are corporate movers and shakers – past and present – and as for Malaysia Airlines, let’s just say the national carrier is more famous for being unprofitable than moving and shaking up the corporate world.

How can things get any worse for Malaysia Airlines than posting a net loss of RM1.2 billion for the 2013 financial year, more than double the previous year’s losses?

Tiger found a retort to Malaysia Airlines’ heavy losses on his Facebook feed that went something like this: 27% higher passenger traffic and still more losses?

Ahmad Jauhari Yahya

The answer is pretty simple. Malaysia Airlines has been selling below cost. And how may Tiger know this? Malaysia Airlines CEO Ahmad Jauhari Yahya practically admitted it when he reported the national airline’s 2013 unit revenue and cost numbers during an editor’s briefing Wednesday.

For the whole of 2013, Jauhari said, Malaysia Airlines revenue per available seat kilometre (RASK) was 23.5 sen. Meanwhile, cost per available seat kilometre (CASK) was higher at 24.7 sen. Malaysia Airlines’ unit cost exceeding that of its unit revenue is proof enough the airline was operationally unprofitable in 2013.

RASK and CASK figures are more suited for comparison because they are adjusted by dividing revenue and cost respectively by available seat kilometres, which is an industry specific measure that refers to one aircraft seat flown a distance of one kilometre.

So while Jauhari has been driving “revenue, revenue, revenue” and revenue has indeed risen – by 11% in 2013 – that extra revenue hardly kept up with the 27% increase in passenger traffic.

If you’re a frequent flyer, you would have noticed MAS ticket prices have been significantly lower in the recent year. Malaysia Airlines flights – especially domestic ones – continue to be cheap, the result of a price war that has stretched on for over a year.

Tiger had the privilege of time last night to make a few dummy same-day return bookings to compare AirAsia and Malaysia Airlines ticket prices. As a control measure, the departing flights are restricted to the cheapest flight between 8:30am to 10am while for return flights Tiger picked the cheapest early evening flight on the same day.

To Kota Kinabalu from Kuala Lumpur, the nation’s busiest domestic air route, Malaysia Airlines flights were slightly more expensive than AirAsia’s after baggage allowance of 20kg, an inflight meal and counter check-in charges were factored into the AirAsia ticket price.

Don’t blame Tiger, when Tiger flies, Tiger wants his creature comforts. Not only that, adding in the ‘frills’ would make for a fairer comparison exercise.

Let’s move on to the second busiest domestic route. Flights between the capital and Kuching are a little of a mixed bag. Malaysia Airlines was the cheaper option by far for a booking made a month ahead, actually a huge RM140 cheaper than AirAsia’s RM465. But for a booking made three months ahead AirAsia stood out as the cheaper option on account of promotional fares for flights during that time.

For a view on international flight prices Tiger looked at flights to Jakarta from Kuala Lumpur and found Malaysia Airlines consistently cheaper than AirAsia. Return fights for a month from today and three months from now both cost RM469 with MAS but equivalent itineraries at AirAsia cost RM532 and RM492 respectively. For Jakarta flights, Malaysia Airlines flights are cheaper even without factoring in baggage and an inflight meal to AirAsia’s ticket prices.

From that short analysis, Tiger is more than a little convinced Malaysia Airlines is dumping fares. But whatever for? Malaysia Airlines’ premium status should allow the airline to charge more and get away with it. After all MAS is one of a few 5-Star airlines, as rated by Skytrax, even holding on to that rating for the past seven out of eight years.

Jauhari – got to like him for his bite – wants to hold on to Malaysia Airlines’ market share and “remain relevant as a key player.” To do this, Jauhari claimed, Malaysia Airlines has to increase its seat capacity. In 2013, capacity went up 17%. Estimates point to a slightly lower capacity increase of 12% this year.

We now come full circle. In order to fill those 17% extra seats in 2013, Malaysia Airlines has had to offer steep discounts to entice passengers to fly with them. Hence, the cheap flights to Kota Kinabalu, Kuching and most definitely Jakarta.

Tony Fernandes

The national carrier’s competitors are visibly upset. From the long chain of tweets AirAsia boss Tony Fernandes churns out each day, Tiger found this rare nugget of wisdom: “I wonder if it’s fair that Malaysia Airlines can lose so much money and protect its market share. Can only do that with taxpayers money.”

Tiger feels Fernandes’ pain. Malaysia Airline’s aggressive expansion has spoilt the aviation market for AirAsia. Passenger yield, a measure of average ticket prices, declined by approximately 7% in 2013 at the budget carrier. This is no doubt a symptom of the ongoing price war.

The price war has caused enough heartache for the airlines, so much so that even acting Transport Minister Hishammuddin Hussein is considering intervention. “There is a limit for (airlines) to be competing with each other at the expense of national interest and the national agenda,” Hishammuddin said in January.

Ultimately, consumers are the clear winners from the price war. Competition is healthy, no doubt about it, but can be tricky given the sustainability of the Malaysian aviation industry is at stake.

What needs to be done, and Tiger has said this time and again, is for Jauhari to take a long hard look at his turnaround plan. It’s obvious aggressive expansion and cost-cutting running concurrently has not resulted in a turnaround of fortunes for the national carrier in the two years of the plan.

Jauhari promises a prospect of breaking even by the end of the year, a deadline that still affords him several months to take things in a different direction.

The situation is extremely dire if Tiger were to look at it this way: Malaysia Airlines has not recovered from the blow to its yields and profitability it took during the 2008/9 Global Financial Crisis. Almost all other airlines have, but curiously not MAS.