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Routes News

26 Oct 2016

BY Matthew Parsons

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Malaysia Airlines: Small steps to recovery

While it might seem from the outside that nothing has changed, Malaysia Airlines has been completely reborn as a business over the last 18 months. Now, the carrier is planning a growth trajectory across south-east Asia under the stewardship of former Ryanair executive, Peter Bellew. By Richard Maslen

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How Malaysia Airlines has been reborn as a business over the past 18 months

Putting the iconic Airbus A380 Super Jumbo from its fleet is a bold decision that demonstrates Malaysia Airlines’ new commercial vision, and the rebirth of the famous Asian flag carrier on the international stage. For the embattled airline, big may no longer be beautiful after it also recently retired the Boeing 777 in its attempt to become a leader across its home region and capture the air traffic boom across Asia.

 

A current commitment for up to 50 Boeing 737MAX airliners, arriving from 2019, will enable the carrier to operate more competitively against its rivals. The deal comprises a firm order for 25 MAX-8s and options for up to 25 MAX-8s or MAX-9s, which will be used not only to replace older equipment on short-haul routes but also to grow the airline’s network.

 

Recently-appointed chief executive, Peter Bellew, describes the Boeing deal as “a game-changer” for the airline, in terms of costs and efficiency, while it will also be able to fly the craft on longer routes of six to seven hours. This will open up new city-pair options out of Kuala Lumpur and other parts of Malaysia that are not commercially sustainable for widebodied equipment.

 

But while markets such as Australia, India and Pakistan are attractive, Bellew says it is China where the carrier sees the most potential: “Our planes are almost full [to China]. With three, four, five more aircraft, we will be able to make money even next week.”

 

A year of transition
Malaysia Airlines suffered a massive blow to its brand after flight MH370 disappeared in March 2014 and MH17 was shot down over eastern Ukraine in August 2014. These atrocities provided the impetus for a bold restructuring by the state-run airline’s sole shareholder, Khazanah Nasional Berhad.

 

In August 2014, the 12-point Malaysia Airlines Recovery Plan was announced, aimed at stripping out legacy costs, and setting it on a path towards sustainable profitability. Selected assets and liabilities were transferred to a new company, Malaysia Airlines Berhad, which began operations in September 2015.

 

This transformation was led by then-group managing director and chief executive Christoph Mueller, who had built a reputation in the industry for restructuring troubled airlines.

 

However, Mueller resigned in March 2016, less than a year into his contract. Irish national, Peter Bellew, who joined Malaysia Airlines as chief operating officer in September 2015 after 10 years in a variety of roles at Ryanair, replaced Mueller in July 2016.

 

Despite the transition at the top, Bellew insists the turnaround of the airline remains on track, with costs “under control” and the focus now being to “boost revenues”. The airline had a marginally profitable first quarter at operating level, driven by favourable fuel prices, operational improvements, and a strong February, and Bellew is confident the airline will be fully profitable by 2018, and could be listed on Bursa Malaysia as early as spring 2019.

 

Widebodied equipment will still remain part of the fleet, with 13 A330-300s and six A380s being retained after the last of its 777s left in January 2016. The Super Jumbos are earmarked for retirement from 2018, when all six of the carrier’s new A350-900s are due to be delivered on leases from Air Lease Corporation.

 

The A350s will directly replace the A380 on its only remaining scheduled route – Kuala Lumpur-London Heathrow – as well as to serve some stronger medium-haul markets in Asia and into Australasia.

 

The airline has now suspended non-stop services to Amsterdam, Paris and Dubai, and is using its new codeshare partnership with Dubai-based Emirates Airline to connect its passengers to destinations in Europe, Africa and the US. Other destination closures over the past couple of years have included Brisbane, Australia; Kunming, China; Frankfurt, Germany; Cochin, India; Male, Maldives; Krabi, Thailand, and Istanbul, Turkey.

 

A period of stability will now enable the airline to focus on enhancing the customer experience, with new business class and premium economy products being installed on its A330 fleet. More flexible pricing will also help boost loads, while better matching of capacity to demand will help maintain robust yields.

 

This focus will help support a return to network growth, and Bellew confirms that “new routes from various Malaysian airports to new unserved Asean destinations” are under discussion. “But we will stop doing things that lose money,” he adds.

 

While most of the hard work may now seem to have been done, the Irishman warns the airline can’t be complacent in what is a competitive environment.

 

“While demands still run strong in northern Asia, performance is relatively weak in south-east Asia and Australia due to oversupply,” he admits. “I am sure it will be a road with many interesting turns,” he concludes. “But we will fix it.”

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