The year ahead is vital for Malaysia Airlines (MAS) as it speeds its transformation into a leaner, more effective operation.
Speaking to FlightGlobal, chief executive Peter Bellew says that, despite a “strong result” in the final quarter of 2016, MAS still has “lots to do to trim the excess fat” around its operations.
Cost control remains MAS’s focus. It has identified another MYR400 million ($90 million)-worth of cost reductions in 2017 to offset the currency issues brought about by the Malaysian ringgit's decline against the US dollar.
Bellew says the carrier will “continue relooking at and negotiating” various contracts, including those for fuel, catering, ground handling, and maintenance, repair and overhaul, as well as seeking to house various operations together.
“If we want to succeed, we need to know that cost-cutting is never, ever ending. Airlines just breed nonsense costs.”
MAS, which has been unlisted since end-2014, recorded a smaller loss than initially projected under the business plan for the fiscal year 2016. It did not disclose its financial numbers.
While MAS previously expected to breakeven in 2017, Bellew admits that the carrier “could still make a small loss this year… [before being] consistently in profit in 2018”. The target of being relisted by March 2019 remains on track, however.
RETURN OF WIDEBODIES
On its widebody requirement, Bellew laments that “MAS is still very, very short on capacity on a large number of routes… especially to North Asia”. This leaves its mainstay fleet of Boeing 737s to operate routes “where there should be widebodies instead”.
The Irishman explains that MAS has to boost its widebody fleet in the near-term for two reasons.
The first is customer feedback, which, he admits, “has not been as good” as hoped – in particular, from business class passengers, who feel that a lie-flat bed on an Airbus 330 “cannot be compared” to a sloped seat on a 737.
“We are re-establishing ourselves as a five-star premium regional Asian airline, and not something else,” he adds.
The second reason is that MAS sees “an excess demand [to and from North Asia]”, which it cannot support without larger aircraft.
In its fourth-quarter 2016 update, MAS said it has reduced its fleet requirements by four 737s thanks to improved turnaround times to 35 minutes. Bellew cites that two narrowbodies have been returned to lessors and that spare capacity will be used on its Chinese expansion plans.
To that end, the Oneworld carrier intends to induct six twin-aisle aircraft over 2017. These will replace older 737s that will be completing lease terms.
Aircraft under consideration include A330ceos and 777s, of which second-hand units are now preferred.
“The prices of those aircraft have dropped about 15% in the last four to five months. The gap has increased greatly in a second-hand machine today, as opposed to a new one,” says Bellew. “There are bargains to be had in this segment and we may end up with some very good deals.”
MAS previously said that it plans to order 25 new widebodies by the end of the year, for deliveries to start in 2018. Fifteen will replace A330-300s coming off lease, 10 will be for growth.
According to Flight Fleets Analyzer, MAS has an operating fleet of 80 aircraft – of which 56 are 737-800s. The rest comprise 15 A330-300s, three A330-200Fs and six A380-800s.
Besides 25 737 Max 8s, it also has six A350-900s on order – of which two widebodies are scheduled to arrive each year between 2017 and 2019.
FIREFLY FIZZING OUT, MASWINGS SOARING
Meanwhile, Bellew has contrasting comments on the group’s turboprop units Firefly and MASwings.
He blames the “irrational, triple overcapacity” at Kuala Lumpur's Sultan Abdul Aziz Shah airport, caused by the airport's only other operator and MAS’s regional rival – Malindo Air.
“It is a very niche operation at Subang and turboprop aircraft are very expensive to operate on a seat-cost basis. Firefly has simply been overwhelmed.”
The turboprop operator has downsized its fleet to 12 ATR 72-500s from 18 as at November 2016, after returning six -600s prematurely to lessors. All orders and options for new aircraft have also been put on hold.
Sources previously said that Firefly has “accumulated debts of over $100 million” and is in a “critical situation”, where a bailout by parent company Malaysia Aviation Group might be its only way out.
However, Bellew declares that MAS will not close Firefly down, despite “never, ever having been profitable”. Although, he adds that the “losses are manageable now”.
The situation looks far rosier for MAS’s other turboprop unit, MASwings, described by Bellew “as perhaps the most important [unit] for the group”.
He explains that MASwings is “more than just a business, but is an essential lifeline” for some passengers living in rural areas in the eastern states of Sabah and Sarawak.
“I couldn’t be prouder of the work that MASwings does. What they do with the little money provided from the Malaysian government under the Essential Air Service scheme… the way they have re-organised themselves financially… is quite remarkable.”
KEEPING THE MAS BRAND
Contrary to earlier plans by Bellew’s predecessor, MAS will not undergo a rebranding exercise in light of the twin air disasters of 2014.
“There was a whole debate [about the rebranding] and a lot of work was done on it. But we simply didn’t have the time,” he adds. “The numbers have proven me to be correct.”
For Q4 2016, passenger load factor improved by 11 percentage points year-on-year to 81% and in December load factor came to 90% – a figure the carrier cites “is higher” than its regional full-service rivals Singapore Airlines, Thai Airways International and Garuda Indonesia.
Bellew cites that one of the carrier’s objectives for the year “is to inject the glamour, romance and excitement of flying” into air travel, a mode of transport that “has become very boring”.
Coupled with MAS’s consistent logging of better-than-expected results since its turnaround, Bellew, who proudly wears the carrier’s lapel pin on his blazer, is confident that MAS’s targets “are not far away”.
“We have shown that we can compete with anyone when we put our minds to it. The only real blockage is us losing focus on the hard work and what we have achieved so far.”
Source: Cirium Dashboard
