Malaysia Airlines 2Q17 performance

Malaysia Airlines passenger second quarter revenue up 8%

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KUALA LUMPUR — Malaysia Airlines Bhd experienced a tough second quarter with heightened competition and adverse forex movement. Load factors continued to be strong and passenger revenue saw positive year-on-year (y-o-y) growth amidst the tough operating environment.

Group chief executive officer (CEO) Peter Bellew said: “The second quarter passenger revenue saw an increase of 8%, on the back of 1.8% higher capacity — available seat kilometres (ASK) — compared to same period last year.”

Malaysia Airlines managed to increase international loads compared to last year’s second quarter (2Q16) by a significant 16.9%, whilst only sacrificing a reduction of 4.5% in average fare.

“However, we continue to see a challenging environment in the domestic sector due to overcapacity and relentless competition, which led to a small reduction in domestic loads to 73% from 75.2% in 2Q16.

“Moving forward we remain focused on improving services with a better steer on pricing. We have already seen progress on this front via a 2.6% increase in domestic average fare,” said Bellew.

The Malaysia Airlines CEO said the company saw a healthy forward booking with a y-o-y growth on both the Business and Economy class, despite the tight discipline the company have put on pricing to avoid irrational competition.

“We continue to focus on China, which has tremendous growth potential. The airline’s new routes, Fuzhou, Nanjing, and Wuhan, which were launched in the month of June, are already showing encouraging figures in their early months.

“We will continue to focus on improving the customer experience, develop a stronger and broader alliance network, and increase our focus on the world’s fastest growing aviation region, Asia,” he said.

Fleet

The airlines is still exploring various options for widebodies, for possible delivery in 2018 and 2019, to address the rapid growth in international sales which requires additional widebody aircraft. Discussions are continuing with a range of lessors, other airlines and aircraft manufacturers to acquire good quality aircraft with lie flat beds and high quality inflight entertainment systems.

The airline is looking forward to the delivery of the six leased new Airbus 350 aircraft from Air Lease Corporation, with the first A350 aircraft planned to arrive at the end of 2017. The A350s will operate Malaysia Airlines’ flagship service to London Heathrow from Q1 2018 and are expected to result in a more efficient operating cost on the route.

The A350 is a technologically advanced aircraft and to assist a smooth introduction of this fleet, Malaysia Airlines has entered into a detailed maintenance agreement with Airbus in which the majority of the parts and components for the A350 and A330 will be maintained directly by Airbus in Kuala Lumpur.

Malaysia Airlines will in future pay a fixed price per hour of usage of the aircraft for this comprehensive parts and components support. Airbus will be setting up and staffing a dedicated manufacturer team in Kuala Lumpur to support Malaysia Airlines, which is expected to minimise the future risks of AOG (aircraft on ground) and greatly simplify the procurement of parts for the Airbus fleet.

Cost control

Given the adverse impact on foreign exchange and a challenging competitive environment, reducing costs will remain a focus for 2017. The quarter saw continued cost management initiatives to generate more savings in several areas across the various divisions. This included a total of 77 Operations initiatives registered and tracked for FY2017. To date, the programme has registered a 48% completion rate with estimated savings of nearly RM14 million for the quarter and a total savings of RM16 million for the first half of 2017.

Operational improvements continue

Punctuality dipped in 2Q17, which recorded a lower on-time performance (OTP) of 73.3% mainly due to aircraft constraints which resulted in tight operations and aircraft swap or changes. Other factors affecting OTP included the high consequential delays due to late arrivals of aircraft impacted by external factors (weather in Kuala Lumpur and air traffic control at international stations).

Some of the issues have been addressed which has led to steady improvement of OTP to 78.4% in June 2017. Aircraft utilisation also improved in the quarter with all fleet registering a higher than planned daily average aircraft utilisation.

There are currently 15 fuel initiatives registered for the year with 10 currently running in the quarter. Actual burn off registered better than budget for 2Q17, with a variance of 1.38 million kg against budget. However, fuel cost registered higher than budget due to forex.

Investing in the Customer

Technology driven company

The successful implementation of information technology (IT) is key to the turnaround, with IT being an important tool in improving the airline’s customer experience and overall operational efficiency. The airline has almost completed 70% of its overall planned IT transformation, which began in March 2016.

Malaysia Aviation Group (MAG) has now entered into the third phase of its digital transformation with the launch of its first innovation lab, known as iSpace. The lab, which was launched by the Minister of Science, Technology and Innovation, Datuk Seri Panglima Wilfred Madius Tangau, will serve as a testing ground for staff to incorporate multifaceted aspects of digital solutions, which will benefit the airline’s guests.

Outlook

MAG maintained its cautious outlook in fiscal year 2017. The aggressive price war on the domestic market is expected to continue with a weak ringgit and increased fuel prices adding to an already challenging cost environment.

Advance bookings are far stronger in 2017 than 2016, but the airline is seeing yield pressure across all routes as low fares are available from many legacy carriers as well as the traditional low cost carriers.

For Malaysia Airlines, the market is diverging with consistent growth and improvement on international services, but a loss of market share domestically where fares are increasingly low.

The group will continue to be prudent in controlling capacity and has already scaled back on domestic route frequencies allocating the group’s aircraft where MAG sees the best potential returns. The airline is still on track to be profitable in 2018.