Can AirAsia save Malaysia Airlines?

Courtesy Reuters

Back in March, AirAsia chief Tony Fernandes said he was not keen on acquiring Malaysia Airlines (MAS).

This came amidst speculation of a likely scenario when Malaysian Prime Minister Mahatir Mohamad mulled over the future of the beleaguered flag carrier, suggesting it might be better off sold if not downsized or expanded as the case may be with a change of management.

Dr Mahatir said: “Although we hired foreign management, MAS still faced losses. Therefore, one of the options is to sell.”

Four turnaround initiatives without success had apparently cost the government MYR250 billion (USD 6.05 billion).

Recent events have led to renewed speculation of AirAsia’s interest. Former AirAsia Group Bhd non-executive chairman Pahamin Rajab is said to have met Dr Mahatir. However, it might well point to Mr Pahamin’s personal interest eyeing the top job at Malaysia Airlines following the resignation of Tan Sri Mohammed Nor Md Yusof as chairman.

But if the acquisition does come about, it would be an interesting case of how a budget carrier came to assimilate a larger national carrier. AirAsia, once itself heavily indebted, had become Asia’s leading budget carrier.

There are clear benefits of such a merger. The two carriers can complement their networks and not compete as rivals on the same routes given AirAsia’s ambition to expand into the long-haul market, unless the products differ substantially in their make-up. This can be modelled after the likes of Singapore Airlines-Scoot and Qantas-Jetstar complement.

The execution is key. The industry has seen one too many examples of assimilation by a legacy carrier of a low-cost operator. For AirAsia, the big question must be one of how its operating culture will mesh with that of MAS, noting in particular that its success lies in the austere budget model although this does not imply it is not inclined to be service-bias.

One can’t help but wonder how and why MAS has failed to change in spite of earlier initiatives at restructuring, so much said about cost-cutting and perhaps not enough focus on the operating culture. So can AirAsia work the magic?

But, of course, only if Mr Fernandes wanted it. He had said: “For low-cost carriers to go full-service… is a mistake.” He had also called Malaysia Airlines “old-fashioned”. For him, the priority is to transform AirAsia into a “travel technology company”. In his words, to be “more than just an airline”.

The real question then is: Is MAS ready for the transformation?

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Time to address rights of travellers affected by lengthy flight delays

https://www.todayonline.com/commentary/time-address-rights-air-travellers-affected-lengthy-delays?cid=emarsys-today_TODAY%27s%20evening%20briefing%20for%20Jan%207,%202019%20%28ACTIVE%29_newsletter_07012019_today

Japan Airlines eyes a bigger slice of budget market

Courtesy Reuters

It is taking Japan Airlines (JAL) a long time to launch a budget subsidiary, but it’s never too late if the budget market continues to grow. One may say that the Japanese carrier is treading with extreme caution, and even if the economic arguments are no stronger now than before, there can be no better reason than the Tokyo Olympics in 2020 for the belated introduction.

At home, rival All Nippon Airways (ANA) has been operating two budget carriers, namely Peach and Vanilla (which was the rebirth of a failed joint venture with AirAsia), and has plans to merge the two carriers in preparation for medium-haul international flights.

Foreign low-cost competitors include AirAsia, Singapore Airlines’ Scoot and Hong Kong Express. And, of course, there is Jetstar, the budget arm of Qantas, in which JAL has a minority share. It is therefore not exactly correct to say that the Japanese national carrier has not tapped into the budget market earlier, though not in as big a way as the others.

The yet-to-be-named budget carrier, to be based at Narita International Airport, will commence operations with two jets in mid-2020, offering medium and long-haul flights to Asia, Europe and the Americas. It will operate to some of the destinations already served by JAL.

The timing cannot be coincidental, as this is when ANA is expanding the operations of Peach into the international market. Until then, JAL seems quite content that the competition is limited to the domestic market, but with Peach offering another option for loyal Japanese travellers besides others to fly beyond and into Japan at lower fares, it cannot be taken lightly.

The budget market in Asia is a growing business. JAL director Masaru Onishi said the airline will cater to a broad group of Japanese and foreign passengers, and will take a more experimental approach to its product than the full-service parent carrier. There will be a mix of budget and premium options for meals and seats. The airline aims to be profitable within three years.

JAL may be Johnny-come-lately, but it has ambitious plans for its budget offspring. The competition is set to intensify, not just with compatriot ANA but also with other foreign carriers.

Qantas continues to fly high, confident about the future

Courtesy Getty Images

Qantas continues to fly high with new confidence while most other airlines cringe at the prospect of reduced profitability or even losses in the wake of rising fuel prices.

The Australian national carrier posted a record profit of A$1.6 billion (US$1.2 billion) for the year up to June 30, 2018 – 14 per cent higher than last year and 5 per cent higher than the last record profit in 2016. All that despite incurring a fuel bill that increased by almost A$200 million, and which is expected to go up another A$690 million the current year.

Qantas chief Alan Joyce said: “We’re facing another increase to our fuel bill for FY19 and we’re confident that we will substantially recover this through a range of capacity, revenue and cost efficiency measures, in addition to our hedging program.”

The confidence is something of a rarity these days as the fortune of the industry becomes increasingly volatile these days, and most airline leaders choose to be conservative in their forecast moving forward, often citing the uncertainty of the fuel price and, of course, competition.

Qantas has risen to become Asia-Pacific’s – if not the world’s – star performer.

The airline’s performance was boosted by a record profit of A$1.1 billion, up 25 per cent, in the domestic market, achieved through the combination of Qantas and Jetstar’s network, schedule and product strengths in key markets.

Internationally, the airline’s earnings rose7 per cent on the back of a 4-per cent increase in capacity, achieving a load factor of 84 per cent. The new Perth-London route is said to be the highest rating service in its network, and this should cause some concern to its rivals plying the kangaroo route, Singapore Airlines being one of them.

Mr Joyce emphasized that “capacity discipline” was key to Qantas’ success. With strong forward bookings, the airline can certainly afford to be optimistic.

Scoot raises fares, but Jetstar and AirAsia are not following suit

IT is only a matter of time before more airlines move to raising their fares, purportedly on the ground of rising fuel costs. The question is when is a good time, as they watch for signs of support in the market.

Courtesy Scoot

Budget carrier Scoot took the lead in announcing a 5-per cent hike in its fares from September 1. According to the airline, fuel makes up on average 32 per cent of its total operating costs and has risen by more than 30 per cent.

What is interesting is how other regional carriers are not ready to jump on the bandwagon, not yet. Jetstar said its fares will remain stable at the moment, while AirAsia said: “We have built a lot of resilience into our business by being vert disciplined about non-fuel costs, and we are confident we have sufficient latitude to manage any change in oil price.”

Has Scoot made the move a little too soon when its competitors are not ready to follow suit? History has shown that the market usually takes the cue from the leading airline. With its closest rivals holding out, one can expect the competition to intensify in a market that is driven by price more than service and brand. Higher fares may also soften the market, and this only adds to the competition. Anyway, do not bet on Jetstar and AirAsia to hold their fares steady if jet fuel costs continue to escalate, but they clearly see an advantage in moving a little slower for now.

Interestingly, Singapore Airlines, which owns Scoot, has said it is not raising its fares.

As fuel prices go up, so will fares

IT looks like the good times are running out. Airlines, faced with rising fuel costs, are raising fares. Delta Air Lines for one is expecting its fuel costs for 2018 to be US$2 billion higher than they were a year ago. Its CEO Ed Bastian warned travellers that “with higher fuel prices, you;re going to expect to see ticket prices go up as well.”

And Delta is not the only airline heading in that direction. Other carriers are likely to follow suit if they have not already done so.

On the other side of the Pacific, Air New Zealand (Air NZ) and Jetstar have raised domestic fares by five per cent, and Air NZ is reviewing fares for international routes. According to Air NZ chief executive Christopher Luxon, every dollar increase for a barrel of fuel “adds $10 million of costs to Air New Zealand’s bottom line.”

Mr Christopher Luxon, Photo courtesy Air New Zealand

International Air Transport Association (IATA) chief executive officer Alexandre de Juniac warned that against this background, “next year will be less positive.”

Mr Luxon of Air NZ painted this picture of the likely scenario: ”The normal cycle in aviation is that fuel goes up, prices rise, demand may fall and capacity gets reduced.”

So what are airlines doing about it, apart from raising fares because that alone has its limitations in view of the competition and the impact it may have on the consumer’s propensity to travel?

Delta has already made known its intention to withdraw flights serving the less popular destinations. So too will other carriers after the summer peak.

Beyond that, many airlines are ramping up hedging. Major European airlines including budget carriers Ryanair and EasyJet, for example, are increasing the ratio of hedged fuel to as high as 90 per cent of needs. Low cost carriers especially, because of their limited ability to hedge, were badly hit the last times when fuel prices careened upwards. But hedging is not a completely safe bet. Equally so, many airlines also reported significant losses when fuel prices came down.

The good news is that with more fuel-efficient aircraft in operation, the impact of the increased fuel costs may not be as hard on the airlines. Higher fares are as good as being ready to be rolled out, but the question is how far can the airlines go without losing customers, particularly at a time when the price of the fare is likely to matter more than allegiance?

Again, to quote Mr Luxon, ”All airlines, whether you’re in Australia or around the world are working hard to see how they can take prices up and ultimately how much of that cost increase can you recover through pricing.”

Qantas continues winning streak

It’s happy days again for airlines, more specifically carriers in Asia Pacific which is identified as a growth potential for the industry.

Just over a week ago, Singapore Airlines announced Q3 (Jan-Mar 2018) group profit of S$330 million (US$250 million), increasing by S$37 million or 12.6 per cent (see Singapore Airlines does better without Tigerair, Feb 15, 2018).

Courtesy Qantas

This is now followed by Australia’s Qantas reporting record half year profits (Jul-Dec 2017) of A$976 million (US$761 million), increasing by 14.6 per cent. This came in the face of higher fuel costs, a competitive domestic market and challenges in international capacity growth. The result beat the previous first half record achieved in 2016.

Impressively, Qantas Domestic and budget subsidiary Jetstar’s domestic flying operations combined posted their highest ever first half Underlying EBIT of A$652 million. Qantas controls nearly two-thirds of the Australian market. However, Qantas International, in the words of Qantas chief Alan Joyce, “held its own” with a six per cent decline in profit against a slight increase in revenue.

Mr Joyce remained upbeat about future earnings propsects – the kind of sentiment that is not often expressed by many an airline CEO these days. Surely the airline must be doing something right, and Mr Joyce would remind you that the Transfomration program he introduced in 2014 has certainly borne good fruit.

As Mr Joyce put it, “After several years of turning this business around, Qantas now has a momentum behind it.” He added: “Today’s result comes from investing in areas that provide margin growth and a network strategy that makes sure we have the right aircraft on the right route.”

After Qantas, Air New Zealand is expecting to also announce record profit, boosted by tourism growth.