Accommodative Operating Environment For Airline Industry In 2017

By BERNAMA / Pic By HUSSEIN SHAHARUDDIN

Airlines in Malaysia had a good 2017, thanks to an accommodating operating environment, given the strong tourism growth and a continued depressed oil market throughout most of the year.

Minority Shareholder Watchdog Group (MSWG) Chief Executive Officer, Devanesan Evanson said furthermore, the strengthening of the ringgit vis-à- vis the greenback since early 2017 also favoured airlines with regard to fuel and other operating costs priced in US dollars.

“Among the key challenges faced by airlines in Malaysia during the year were increasing operating costs and intensifying competition from capacity expansion,” he told Bernama.

The International Air Transport Association (IATA) on the other hand, said that one bright spot for Asia-Pacific carriers was in freight, whereby a strong uptick in the cargo markets had provided support for the region with regional carriers accounting for almost 40 per cent of global cargo capacity.

During the third quarter of the year, Malaysia Airlines’ revenue average seat per kilometer (RASK) improved by two per cent year-on-year, on the back of a higher passenger revenue of 3.5 per cent, with load factors remaining stable at 77.5 per cent.

Echoing similar sentiment towards demand for travel, AirAsia said the airline managed to deliver a set of very positive results for the third quarter, despite it being a seasonally weaker quarter of the year, with RASK averaging at 14.76 sen and load factor at 87 per cent.

On prospects for 2018, Devanesan said the performance of airlines would likely continue to be good if tourism also continued to grow barring any significant increase in fuel prices. 

However, he said there was a potential fear that any substantial delivery of aircraft to correspond with the  aggressive growth plans of airlines, might result in overcapacity and hurt profits.

Malaysia Airlines received its second Airbus A350-900 aircraft, out of six orders on Dec 23 to facilitate further growth plans, improve customer experience and generate better revenue.

On top of that, the national carrier, in September, signed a memorandum of understanding with Boeing in Washington D.C to acquire 16 aircraft, namely eight 787 Dreamliners and eight 737 MAXs, which would give the airline an unmatched fuel efficiency, economics and a superior passenger experience.

AirAsia will also widen the group’s fleet by 22 aircraft for the full year of 2017 and 33 aircraft planned for 2018, in conjunction with plans to expand its fleet to 500 by 2027.

On other developments, the local industry also saw a new player coming in when UMW Holdings Bhd exited the oil and gas business in early 2017.

In November, UMW Holdings Bhd announced that its wholly-owned subsidiary, UMW Aerospace Sdn Bhd, had delivered its first fan case for Rolls Royce aircraft engines, produced at its RM750 million plant in Selangor and expected to hit full production capacity of 250 fan cases annually in 2020.

Meanwhile, the Malaysian Aviation Commission (MAVCOM) is reviewing the Passenger Service Charge (PSC) to standardise it at RM73 from RM50 currently for the Kuala Lumpur International Airport (KLIA) and KLIA2, with implementation likely from January 2018. 

While most industry players were on board with the proposal, as this would establish a level playing field for airlines operating in the country, AirAsia urged MAVCOM to come up with airport-specific calculation of PSCs given the difference in facilities and services between the two airports.

Meanwhile, among the highlights of the year was senior leadership changes in both Malaysia Airlines and AirAsia.

Captain Izham Ismail was appointed the new Group Chief Executive Officer (CEO) of Malaysia Airlines, replacing Peter Bellew, who had helmed it for less than two years before returning to Ryanair.

Prior to the appointment, Izham was the airline’s Chief Operating Officer and played an integral role in the on-going execution of the turnaround plan for it.

AirAsia also had a shift in its senior management, with the appointment of Riad Asmat as the CEO, replacing Aireen Omar, who was promoted to Deputy Group CEO of digital, transformation, corporate services.

During the year, significant developments were made by airlines to transform into digital airlines, with hopes to beef up operational efficiency, lowering costs as well as generating additional revenue stream from other ancillary services.

In this regard, Malaysia Airlines migrated its data centre to a 100 per cent hybrid-cloud model, which is anticipated to lower costs by 51 per cent over a five-year period, improve productivity for core applications up to 80 per cent and enhanced security.

The national carrier also signalled its readiness to fully embrace digitalisation with the launch of its in-house Innovation Lab, iSpace, which would serve as a testing ground to incorporate multifaceted aspects of the digital experience.

AirAsia has also been investing heavily in this area, including its e-wallet service BIGPay, which allows users to connect up to 10 debit or credit cards to make payments across ASEAN with cheaper foreign exchange rates than that offered by banks at the moment.

The budget airline is also developing an app with facial recognition technology which would ease the passenger check in process, as well as a permanent bag tag for its passengers.

Group CEO, Tan Sri Tony Fernandes said the bag tag would likely make use of Bluetooth to detect the passenger’s location and flight details, as well as Radio-Frequency Identification (RFID) to track the location of the baggage.

Besides investing in technology for the purpose of improving operational efficiency, airlines have also incorporated e-commerce into their business with the launch of “Temptations” by Malaysia Airlines and rokki.com by AirAsia.

Echoing this sentiment, Malaysia Airports Holding Bhd (MAHB) was also eyeing e-commerce as a promising vehicle to drive the future growth of the Kuala Lumpur International Airport (KLIA).

The airports operator teamed up with Cainiao Smart Logistics Network (Hong Kong) Ltd to develop a regional e-commerce and logistics hub at the KLIA Aeropolis, comprising the development of cargo terminals, sorting centres, warehouses and fulfillment centres and other facilities for the e-commerce industry.

The project would be built on 24.28 hectares of land at the KLIA Aeropolis, as part of the Digital Free Trade Zone (DFTZ) initiative.

In terms of passenger traffic, for the January to November period, the total MAHB network of airports registered an 8.1 per cent growth at 116.25 million passengers from 107.6 million recorded during the same period of 2016.

Passenger traffic for the KLIA Main Terminal recorded 25.6 million passengers, an increase of 12.2 per cent, while klia2 improved by 11.6 per cent with 27.4 million passengers recorded within the said period. — Bernama