Kuala Lumpur International Airport

MAS should reconsider LCC strategy as losses continue while AirAsia reports more leading profits

Malaysian low-cost carrier AirAsia has reported another highly profitable quarter, including the highest operating margin among publicly traded Asian airlines (both LCCs and full service carriers) while restructuring flag carrier Malaysia Airlines (MAS) remains one of Asia’s most unprofitable carriers. The outlook for AirAsia Malaysia is bright, particularly if MAS fails to adjust its strategy following the unbundling earlier this month of the equity swap with AirAsia. The MAS outlook remains bleak as the group continues to push on with its new business plan, which focuses entirely on the challenging premium market just as nearly every other major airline group in Asia is investing significantly in the budget sector.

AirAsia Malaysia is the only publicly traded LCC in Southeast Asia to record an improvement in profitability for 1Q2012. The carrier reported a pre-tax net profit of MYR212 million (USD67 million), an improvement of 5%, while its after tax net profit improved by less than 1% to MYR172 million (USD54 million). Revenues at AirAsia Malaysia increased by 11% to MYR1.17 billion (USD371 million) as passenger traffic and seat capacity both increased by 12% to 4.8 million and 6.1 million, respectively.

Rapidly expanding Kenya Airways charts growth with plan to serve every inhabited continent by 2017

Kenya Airways plans to launch its first services to North America, South America and Australia by 2017, making it one of the few carriers to serve every inhabited continent. While these three continents will give Africa's currently fifth-largest airline by seats a global presence, its future is pegged on Asia, with the carrier over the next 10 years planning to launch seven new routes into China, six in the Indian Subcontinent and three across North and Southeast Asia as well as having a growing presence in Europe and the Middle East. It is poised to become Africa's largest carrier.

Growth will be fuelled by Africa's status as a burgeoning market, as well as reliance on partners: Kenya Airways will open routes to SkyTeam member hubs in Xiamen (Xiamen Airlines), Hanoi (Vietnam Airlines), Seoul (Korean Air), Moscow (Aeroflot) and Prague (Czech Airlines). The intercontinental focus follows Kenya's strong emphasis on regional Africa, with the carrier aiming to serve every African nation by the end of 2013. 

British Airways plans two phases to bring bmi, and its London Heathrow slots, to profitability

International Airlines Group (IAG) is targeting winter 2012/13 as its first opportunity to fully incorporate the 42 daily London Heathrow slots it will acquire as part of its purchase of bmi from Lufthansa, now approved by regulators with only minor concessions. The initial integration will look to bring the predominantly short-haul bmi operation to breakeven by increasing seat capacity on each slot pair, making network changes and leveraging IAG's marketing and distribution power on the inherited bmi network. The medium-term integration will see the short-haul bmi slots allocated for services on IAG carrier British Airways' (BA) long-haul operation, which is smaller than its major European rivals. BA will target emerging markets including Asia, Africa and Latin America.

This new and large increase in Heathrow capacity will require significant fleet adjustments, and already BA plans to delay retirement of Boeing 747 aircraft as well as to re-examine its purchase options, which it holds on 787 and Airbus A380 aircraft. It will also seek clarity from Boeing on its 777 successor programme.

Jetstar Japan receives AOC and plans for 3-Jul-2012 launch as Narita to build new low-cost terminal

Jetstar Japan, a low cost airline joint venture between Qantas subsidiary Jetstar and Japan Airlines, received its Air Operator’s Certificate on 06-Apr-2012 from Japan’s regulatory authority the Ministry of Land, Infrastructure and Transport (MLIT). The AOC will ensure Jetstar can achieve its recently announced launch of 03-Jul-2012, significantly ahead of the Dec-2012 launch date given when the carrier was announced last year. Next Jetstar Japan will commence proving flights and start ticket sales.

Jetstar Japan is one of three new LCCs to commence operating this year in Japan. All Nippon Airways’ LCC subsidiary, Peach, commenced operations on 01-Mar-2012 between Osaka Kansai and Sapporo New Chitose Airport. ANA also has another JV subsidiary, AirAsia Japan, due to commence operating in Aug-2012.

Meanwhile Narita Airport has announced it will build a dedicated LCC terminal, presumably to offer a more attractive proposition to the new industry. Although the airport previously discussed a LCC terminal, it offered no firm commitments or details. The new LCC terminal is expected to open in 2015 with other facilities available in the interim for both domestic and international flights.

MAS adjusts short-haul strategy again as plans for separate premium brand are dropped

Malaysia Airlines (MAS) has dropped plans to establish a new short-haul premium brand, which was slated to take over the carrier’s regional routes and had been a major component of its new business plan. The ongoing restructuring at MAS, which is aimed at restoring profitability at the flag carrier by next year, will now focus primarily on the long-haul operation. By and large it will be business as usual for the flag carrier’s short-haul operation although it will still be separated out as a new division. As part of this separation, MAS will stop entirely the use of widebodies on short-haul routes, which is a common practice in Asia where regional routes are often thick enough to support large aircraft that otherwise sit idle between long-haul flights.

The reversal of last year’s decision to establish a new company and brand for the full-service short-haul sector, under what MAS had called Project Sapphire, raises some questions about the long-term viability of the group’s short-haul operation. But rapid renewal of the MAS narrowbody fleet, network adjustments and anticipated coordination with AirAsia could still lead to the financial improvements required for the new short-haul division to become profitable.

AirAsia X continues concentration theme with Christchurch withdrawal as ultra-long-haul loses favour

AirAsia X is continuing to act on its concentration plan to build scale in key markets rather than spread itself out. The Kuala Lumpur-based low-cost long-haul carrier is withdrawing services to Christchurch and increasing capacity to Perth and Taipei. The withdrawal from Christchurch is despite high load factors, indicating – as with the carrier's withdrawals from London and Paris – the problem is of yield on ultra-long-haul sectors where an LCC's lower cost base has less advantage as fuel comprises a greater share of costs than on shorter sectors.

The withdrawal of four-weekly services to Christchurch, effective at the end of May-2012, will remove AirAsia X's longest flight, leaving all other services – primarily to Australia and North Asia – in a five-to-eight hour range. Previously the carrier's longest flights were to Paris and London, although operated with A340s instead of A330s to Christchurch, but AirAsia X announced in Jan-2012 that Paris and London would be suspended by the end of Mar-2012.