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Pilot Career Centre - Global

New Malaysian Airlines Hit by Turbulence

New Malaysian Airlines Hit by Turbulence

2016 09 22

2016 09 22

A handful of investor groups that eyed opportunity amid troubles and tragedies at Malaysia's two major airlines are finding the country's skies too bumpy to navigate.

Between them, Malaysia Airlines and AirAsia experienced three fatal crashes overseas in 2014 and both also saw their financial results decline. Betting that fliers at home and abroad might be looking for alternatives, two new companies moved to enter the market last year and others have made moves to do so this year. Malindo Air, which had launched flights in 2013, began upgrading its offerings and adding international routes.

Malindo is the only one of these challengers now posing a competitive threat. Regulators forced Rayani Air, which launched domestic flights last December as Malaysia's first carrier compliant with Islam's Shariah rules, to suspend operations in April. Flymojo, which had ordered aircraft and planned to launch service in October 2015, has yet to get airborne. Monspace Sky Airlines flew one flight on July 22 but promptly was rebuffed by regulators who said it lacked approval to operate.

"In my opinion, there is no room for another player," said Mohsin Aziz, aviation analyst at Maybank Investment Bank. The market, he said, "is already too crowded. Anyone who wants to start an airline now is either stupid or crazy."

Malaysia Airlines announced Sept. 8 that it expected to report a loss for the financial year that ended Aug. 31 but affirmed that it expected to return to profit by 2018 with the help of cost cuts and operational improvements. AirAsia meanwhile reported on Aug. 29 that its net profit for the April-June quarter rose 41% from a year before to 342 million ringgit (US$82.7 million) with a boost from higher passenger traffic.

Yet Malindo at least is not retreating. The airline is on track to carry 6 million passengers this year, up from about 900,000 in 2013, according to comments by an executive cited by consultancy CAPA - Centre for Aviation; the airline is expanding its fleet this year by 10 planes to 37.

The airline, 51% owned by state company National Aerospace & Defence Industries and 49% by Indonesian low-cost carrier Lion Air Group, has opened a series of new international routes over the past year, including new daily connections this month between its hub in Kuala Lumpur and Taipei and Hanoi. In a sign of its rising ambitions to be seen as a full-service airline, the company is moving its base from the budget terminal at Kuala Lumpur International Airport to the main part of the airport and is signing pacts to cross-sell tickets with foreign airlines.

"Malindo has been very aggressive lately," said Shukor Yusof, founder of aviation research company Endau Analytics in Singapore. "They have been pulling passengers away from AirAsia and Malaysia Airlines with some staggeringly low fares."

Brendan Sobie, CAPA's Singapore-based chief analyst, said he sees a place in the market for all three airlines. "[Malindo Air's] outlook is relatively bright but that doesn't mean the outlook for the other two main players is any bleaker," he said. "There is room for a restructured/reinvigorated Malaysia Airlines, Malindo and AirAsia/AirAsia X. They all need to focus on executing their current business plans and strategy and don't necessarily need to be overly concerned about what the other is doing."

Tony Fernandes, group chief executive of AirAsia, is predictably more skeptical about Malindo, which Lion launched after AirAsia announced plans to set up an Indonesian affiliate. "Malindo could not compete with us" in the low-cost market, Fernandes told Nikkei Asian Review. Malindo officials declined to comment.

Certainly other companies have had trouble competing. Rayani's service suspension was triggered by a pilots' strike over unpaid salaries which Chief Executive Ravi Alagendrran blamed on a lack of funding. Regulators revoked the carrier's licenses in June on finding that it lacked adequate financial or management capacity.

"This episode serves as a reminder that operating a scheduled commercial airline is an exceedingly challenging undertaking and requires a high degree of planning, financial depth, operational know-how and execution capability to stand any chance of succeeding," said Abdullah bin Ahmad, executive chairman of the Malaysian Aviation Commission, at the time. "Strong commercial foundations and depth are therefore necessary prerequisites to be a player in this industry. Mavcom shall strive to ensure only enterprises that are equipped and ready will be allowed to participate."

Alagendrran has continued to seek funding to revive the airline, which is owned by two low-profile commodity companies. The company said on its Facebook page on Aug. 27 that it planned to resume service next year. "No matter whatever happen, we will be on air," it said, while commenters complained about not receiving refunds purchase for flights that did not operate. The company's website continues to advertise current flights, though there are actually none.

Rayani Air initially served five domestic routes with two leased Boeing 737-400 jets. It described itself as the only Sharia-compliant airline in the country, with pork and alcohol prohibited on flights, female staff wearing hijab head coverings and prayers offered before takeoff. It had hoped to start international services by 2017.

Flymojo has yet to get as far as Rayani. Canadian regional jet maker Bombardier announced that it had signed a letter of intent with the airline for the sale of 20 CS100 planes with a list value of US$1.47 billion and for options on 20 more at a March 2015 ceremony with Malaysian Prime Minister Najib Razak.

The airline said it would make Senai International Airport in Johor Bahru, close to Singapore, its primary operating base, with a secondary one in Kota Kinabalu in Borneo, but offered little additional detail about its planned services. "Flymojo will transform Senai into a key regional aviation and logistics hub," said Aziz Kaprawi, deputy transport minister, at the signing event, adding that the airline would boost tourism to Malaysian Borneo.

Airline officials have kept a low-profile since flymojo missed its original launch target and Bombardier has never added the carrier to its book of firm orders. Flymojo's air services license expired May 30 due to its inactivity and Mavcom then declined to a request to extend it. Flymojo's webpage though tells visitors, "Here we are ... almost!"

By contrast, Monspace Sky has flown but with little advance fanfare. It held a launch ceremony in late July featuring celebrities from Hong Kong and Malaysia as it sent off a Boeing 737 jet painted with its name and that of Suasa Airlines from Kuala Lumpur to the northern island of Langkawi.

Mavcom said July 25 that it had filed a police report against Monspace Sky and Suasa for "misleading the public" by operating a commercial flight despite Mavcom's rejecting Suasa's application to do so. It advised consumers not to make any flight arrangements with the two companies. "Suasa Airlines does not possess a valid [air service permit] and therefore cannot perform a commercial air service operation," it said.

Mon Space Group describes itself on its website "as one of the region's leading conglomerate" and "one of Asia's largest diversified multinational corporation." It is led by Malaysian Chinese businesswoman Jessy Lai. Lai has denied to local media that Monspace Sky's flight was improper.

With regulators showing little warmth toward startup carriers and AirAsia and Malaysia Airlines showing signs of recovery, the window of opportunity for new challengers appears to be closing.

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