Malaysia Airlines has announced it will close eight loss-making routes during the first five weeks of next year as it attempts to cut its growing losses and enhance its regional activities. The network closures are the first stage of a business rationalisation that was announced last week which it hopes will return the carrier to profitability by 2013.
The airline will drop its flights from Kuala Lumpur International Airport (KLIA) to Surabaya in Indonesia; Karachi in Pakistan; Dammam in Saudi Arabia; Cape Town and Johannesburg in South Africa; Rome in Italy and Dubai in the United Arab Emirates (UAE). It will also withdraw from the Langkawi – Penang – Singapore route. The closures are in line with the carrier’s focus of developing a hub-and-spoke network at KLIA and it is in the process of modifying its network and retiming schedules to provide increased direct connectivity between KLIA and its international destinations.
“The withdrawal was based on our own independent internal profitability and yield analysis,” explained Ahmad Jauhari Yahya, Group Chief Executive Officer, Malaysia Airlines. “This accounts for almost 12 per cent of our passenger capacity and we estimate that the ongoing route rationalisation will improve loads, increase yields and have a profit impact of RM220-302 million [$69-$95 million] for 2012.”
Malaysia Airlines will now focus on the core ASEAN region, South Asia, Greater China and North Asia where it says “the demand outlook is strong, fuelled by a burgeoning middle class and increased global and intra-regional trade”. It expects to increase frequencies in a number of these markets redirecting capacity from its closed routes. The closure of the routes will not mean the end of services to these markets, however, and Malaysia Airlines says it is working “aggressively” with partners through codeshare and interline arrangements to promote connectivity between Malaysia and key international destinations.
“The above route rationalisation is expected to have minimal impact on Malaysia's position as a top tourist destination in Asia as we will work aggressively with our code share partners. Through our existing arrangements with them, we will continue to promote connectivity between Malaysia and key international destinations as well as contribute towards the overall efforts by the various authorities to increase tourist arrivals to Malaysia. We also hope to return to these markets after we have stabilised our business,” added Ahmad Jauhari Yahya.
The Asian national carrier says the closures will “stem its losses” on some of its poor performing flights and will begin in the first week of January with closure of its daily Kuala Lumpur – Surabaya service on January 6, 2012. This is a route that the carrier faces strong competition from low-cost carrier AirAsia and its sister venture Indonesia AirAsia. In the past year an estimated 617,000 O&D passengers have travelled on the route, up 25.9 per cent, but Malaysia Airlines on share of the traffic has slipped from 12 to just nine per cent after its own numbers slipped 13.2 per cent. The growth of low-cost competition on the route has also seriously harmed the national carriers yield as its average one-way fares have slipped from $295 to $193 in the past five years.
The airline’s flights into the Middle East will be the next to be cut with its three times weekly Kuala Lumpur – Dubai connection closing on January 10, 2012; its twice weekly route to Dubai via Karachi ending on January 12, 2012 and its twice weekly service to Dubai and onward to Dammam stopping from January 13, 2012. These are all currently operated by Airbus A330 widebodied equipment.
Malaysia Airlines competes directly with Emirates Airline on the Dubai route (a market of around 228,000 O&D passengers but of which it holds just a 15 per cent share) and Pakistan International Airlines to Karachi (where it holds a 37 per cent share of the estimated 61,000 O&D passengers),but it is the sole operator providing ‘direct’ on-stop flights from the Malaysian capital to Dammam (a market of around 28,000 O&D passengers but which has seen only limited movement over the past five years).
On January 30, 2012 the carrier’s daily Langkawi – Penang – Singapore will be withdrawn; the only current route closure not linked to its KLIA hub. Malaysia Airlines has faced strong competition on this route, which links two of Malaysia’s regional cities to Singapore and it now holds just three per cent of the O&D traffic from Penang and nine per cent from Langkawi. AirAsia and SilkAir are the dominant airlines in these markets but Jetstar Asia and Tiger Airways also compete between Penang and Singapore.
On the last day of January and the first of February, Malaysia Airlines will end its operations to South Africa after around 20 years of service. On January 31, 2012 its three times weekly Kuala Lumpur – Johannesburg route will be close, while on February 1, 2012 its twice weekly link from the Malaysian capital to Cape Town will end. This latter route continues to the Argentine capital Buenos Aires. In the past year an estimated 49,000 O&D passengers travelled between Malaysia and South Africa, a market that has grown in the past 12 months, but only back to the levels enjoyed during the last decade.
The last of the eight route closures will take place on February 2, 2012 and will mark the end of the carrier’s three times weekly service between Kuala Lumpur and the Italian capital Rome. The estimated O&D traffic on this route has grown by 12.5 per cent in the past five years, but yields have significantly weakened with Malaysia Airlines’ average fares decreasing during this period by 13.9 per cent despite its costs almost certainly increasing.
In its latest financial results the carrier reported a loss of M$1.25 billion (Approximately $393 million) for the first nine months of this year, leading it to complete its recent business restructuring which alongside the cutting the loss-making routes, will see the airline divest interest in some of its ancillary business and establish a new premium regional carrier during 2012, which will connect Malaysia to ASEAN destinations and key cities in South Asia and Greater China using a fleet of Boeing 737-800s.
“Malaysia Airlines needs to make hard and unpopular decisions simply to survive in order for it to then have the possibility to thrive and realise the airline’s vision,” said Ahmad Jauhari Yahya, at the unveiling of the Business Plan last week. The plan forecasts an expected loss of M$165 million in 2012 but a return to profitability in 2013.
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