Malaysia Airlines has found what could be the least-bad solution for its Airbus A380 conundrum: a separate subsidiary carrier focusing on religious pilgrimage charter flights to Saudi Arabia.
Since the start of its wrenching restructuring in 2014 following its two infamous twin air disasters, MH370 and MH17, the carrier has identified the disposal of the operationally-expensive A380s as a key factor towards its re-growth.
Airbus
However, MAS has seen little success in its various endeavors to get rid of the aircraft. It was rumored that the carrier has been in the market to wet-lease or sub-lease the aircraft, but that it found no takers. There were also suggestions that Chinese carriers might have been interested given their high-density domestic networks.
MAS also talked with lessors about the potential disposal of two A380s either through a sale, lease, or a sale-and leaseback scheme.
In an interview with FlightGlobal in 2015, MAS’ former chief executive Christoph Mueller said that it has had problems filling the aircraft since they entered the airline’s fleet in 2012.
"The world has changed since the A380s were ordered in 2003," he said. "Airlines now question if [the aircraft type] is still the correct size for the market."
MAS' six A380s are powered by Rolls-Royce Trent 900 engines. The aircraft have 496 seats in a three-class configuration.
Fast-forward to the present day, Mueller’s successor Peter Bellew has earmarked the aircraft to undergo a cabin refurbishment to increase seat capacity by around 200 to 700, giving it an all-economy configuration.
The refurbishments will be carried out by Airbus “in a low-cost manner”, Bellew adds.
The new unit will have a separate AOC with a sales office operational by December 2016 and flight operations to commence by the third-quarter of 2018.
The carrier will focus on mainly the seasonal Hajj and year-round Umrah pilgrimage services.
SOME REASONS FOR OPTIMISM...
MAS does have reasons to be optimistic for its latest venture.
Besides the overwhelming mass of Hajj pilgrims numbering around two million annually, Saudi Arabia is reportedly seeking to ban aircraft older than 20 years old for pilgrimage flights. MAS' A380s are built in 2011.
Furthermore, data from FlightMaps Analytics shows that in Southeast Asia, only Singapore, Jakarta and Manila offer direct flights to Jeddah and Madinah.
This translates into MAS competing with Saudia, Scoot and Garuda Indonesia – which represents its only great threat given the archipelago’s predominately Muslim population.
Jeddah-Madinah to Asia routes, October 2016
FlightMaps Analytics
Bellew tells FlightGlobal that MAS is confident that the unit’s pilgrimage flights will be able to record positive load factors: “We have seen extremely predictable passenger flows in and around the region, and expect the same for the next 20 years”.
"A substantial number of widebody aircraft, including other A380s and Boeing 747s will be needing C and D-checks by 2018 and further aircraft will come off-lease,” adds the former director of flight operations at RyanAir. “The new airline will be able to provide the much-needed capacity during that period of time”.
Capstats, based on FlightGlobal schedules data, shows that MAS’ ASKs have been on a steady decline since 2014. At the end of 2016, it is estimated that the carrier could record around 529 million ASKs, down from 573.8 million two years prior.
On scheduled flights, the Boeing 777-200 has been the mainstay of its Kuala Lumpur-Jeddah route [besides operating a mix of 747-400s and A330-300s]. Only until this year did the carrier switch all services to the A330-300. MAS’ Kuala Lumpur-Madinah route is a charter service.
CapStats
When deployed on pilgrimage routes, the A380 will offer more than double the capacity from the A330-300.
“The six A380s will provide economies of scale and no other carrier is doing this type of operation. There is a huge business opportunity,” says Bellew.
Establishing the new business unit means that MAS can smoothly induct its six incoming A350-900s into its sole Kuala Lumpur-London service, when they start to arrive in 2018.
“The A380s may also be chartered by operators in Europe or Africa,” elaborates Bellew on the business flexibility of the new unit. “It could go from Birmingham [given its largest Muslim population outside London] to Saudi Arabia and onward to Dhaka make a return back to Saudia then Birmingham.”
LINGERING DOUBT
Shukor Yusof, founder of aviation advisory firm Endau Analytics admits there is a huge global demand for such operations into Saudi Arabia, even despite a visa issuance cap and recently increased visa processing fees.
However, he says that even operating under a new carrier, MAS will find it “not impossible… but very, very difficult to make the numbers work on the A380” with yields to be particularly challenging.
First, the size of the Malaysian market is relatively small. According to the latest population indices, nearly 19 million of Malaysia’s 31 million citizens are Muslims, as compared to Indonesia, which has the world’s largest Muslim population at 203 million.
Secondly, the price to lease an A380 is one-third more than that of a 777 of similar vintage. FlightGlobal’s Ascend Values shows that the monthly lease rate for a 2011-built A380 is around $1.2 million, as compared to a 2011-built 777-200LR which is at around $770,000.
“If it was truly such a good proposition, Garuda would have done it already,” Shukor adds. “Even they can’t fully meet the demand for this and have to outsource the Umrah services to wet-lease airlines.”
In addition, he describes MAS’ short-term partnership with Airbus to add more seats as two companies “desperately trying keep the A380 flying through novel means,” and to “portray the aircraft still as a viable option [for future orders]”.
Flight Fleets Analyzer shows that MAS' six A380s are owned by Turus Pesawat, a special-purpose company owned by Malaysia's finance ministry, and the aircraft purchase was financed through Islamic bonds issued by the government.
MAS has always been a politically expedient airline, with national sovereign wealth fund Khazanah Nasional overseeing the company's operations.
By offering pilgrimage services, the unit could serve as Malaysian government's 'olive branch' to the rest of the global Muslim community, thus fostering closer relations with each other.
Source: Cirium Dashboard
