Home-grown competition poses bigger threat to Malaysia Airlines

Malaysia Airlines groundstaff walk on the tarmac at Kuala Lumpur International Airport in Sepang, on Feb 25, 2016.
Malaysia Airlines groundstaff walk on the tarmac at Kuala Lumpur International Airport in Sepang, on Feb 25, 2016. PHOTO: AFP

The free fall in fuel prices and consistent regional demand growth is giving Malaysia Airlines Berhad (MAB) the breathing space to implement a turnaround plan that is expected to move the beleaguered flag carrier into the black by 2018.

But stiff competition at home may be a bigger threat to its sustainability than the damage caused by the loss of two planes in 2014. The twin disasters of MH370 and MH17 - the first disappearing in March while in mid-flight to China and the second shot down over Ukraine in July - broke the back of the airline, which had already bled RM5 billion (S$1.7 billion) from 2011, and owed a further RM12 billion.

Sovereign wealth fund Khazanah Nasional announced it would take the company private, renaming it from Malaysia Airlines System (MAS) - just a month after MH17 was shot down. It unveiled a six-year rescue package that would entail 6,000 job cuts and injecting another RM6 billion.

 
 

MAB's books are closed to the public, but with oil prices trading at a third of what it was when Khazanah took full ownership, and having cut about a third of its routes, the target of reaching profitability by 2018 could be nearer.

"It's a golden year for the airline industry with demand growth stronger than the historical average," Maybank aviation analyst Mohshin Aziz told The Sunday Times. "It makes things easier and (the turnaround) could be faster."

But he cautioned that MAB cannot take its time to capitalise on Kuala Lumpur airport's attractiveness. It was the 20th busiest airport globally until the 2014 tragedies.

The giant in Malaysian aviation is now Asia's biggest budget carrier, AirAsia. Its main rival is Malindo Air, a relatively new Malaysian-Indonesian venture, Mr Mohshin said.

MAB's recent tie-up with Emirates allowed it to offer destinations not on its menu and to cut down on operations. This gave Malindo room to engage MAB's former code-share partners.

Endau Analytics aviation analyst Shukor Yusof warns that Khazanah's plan is only a downsizing exercise and MAB risks losing its identity as a flag carrier.

"If tomorrow MAB ends its operations, nobody will care as it isn't providing a service that isn't available elsewhere. Nobody will shed a tear, apart from its employees," he said.

Chief executive Christoph Mueller seems to understand the situation, one year into his tenure.

"The biggest challenge is really to go back to the good old times when we won the best customer quality awards," he told Bloomberg. "Our product is a little bit tired. We will do a lot of work on our product this year."

A version of this article appeared in the print edition of The Sunday Times on March 06, 2016, with the headline 'Home-grown competition poses bigger threat to Malaysia Airlines'. Print Edition | Subscribe