Firefly to add more domestic destinations

PETALING JAYA: Malaysia Airlines (MAS) has finally turned to wholly-owned unit Firefly to compete head-on with low-cost carrier (LCC) AirAsia as Firefly looks to add more domestic destinations now and Asean routes eventually. As the global airline industry recovers, full-service carriers (FSC) in Asia are swiftly looking at ways to enter the low-fare segment and regain lost market share as more travellers opt to fly with LCCs.
While MAS plans to expand aggressively into Asia with its new fleet, it will not want to lose out on the short-haul market given that 78% of the 24 million tourist arrivals in Malaysia last year came from this market (more so neighbouring markets), 15% from medium-haul markets and 7% from long-haul markets. Firefly’s expansion can help address this concern.

StarBiz reported last week that Firefly, which operates turboprop aircraft from Subang, will start flying jets as early as the first quarter next year from KL International Airport. Citing sources, the report said that Firefly will initially use four to six B737-400s to provide cross-over flights to Sabah and Sarawak and add Asean destinations once it receives the relevant approvals.
To facilitate the expansion plan, MAS may continue to lease the B737 aircraft and charge Firefly a fee for the utilisation of these planes. Firefly managing director Datuk Eddy Leong will reveal Firefly’s expansion plan today to the media.

HwangDBS Vickers Research viewed the expansion as positive for MAS, given Firefly’s profitable operations and ability now to help partly subsidise the loss-making routes. “The expansion will also help MAS compete with AirAsia, which is estimated to have a bigger market share in Malaysia compared to MAS,” said the research house in a report last Thursday.

AirAsia Bhd group chief executive officer Datuk Seri Tony Fernandes remains unfazed by the expansion plans. “We are beyond worrying about what legacy airlines do. AirAsia has grown and will continue to grow positively due to a disciplined focus on cost and the short haul single class model,” he told StarBiz. It can be an uphill task for a FSC to operate its own LCC, considering that many LCCs have gone bust or were bought over by LCC rivals. For instance, Easyjet bought over British Airways’ LCC Go for £374mil in 2002 while Europe’s Ryanair purchased KLM Royal Dutch Airline’s loss-making LCC Buzz at £15mil in 2003. Closer to home, Garuda Indonesia is now focused on fixing itself before it looks to mend its LCC Citilink Airlines.
There have been exceptions such as Qantas Airways’ successful LCC Jetstar Airways.

Meanwhile, Singapore Airlines’ associate Tiger Airways has also done well in the regional LCC space. HwangDBS said its main concern with Firefly’s expansion plan was the higher operating costs of the old B737s, which could affect its bottom line despite Firefly’s low-cost business model. A local aviation analyst said the fuel consumption for the older Boeing aircraft was higher, at an average of 10% to 15% more per seat basis than the newer models. Many of the LCCs like Jetstar, Tiger Airways and AirAsia operate relatively newer A320 planes.

Fernandes added that MAS’ decision to move into the LCC space would remove the last hurdle for AirAsia X. “This removes the last blockage for AirAsia X and allows us to build a world class hub. Now MAS has entered our space, the long-haul market should be fully liberalised for AirAsia X,” he said. Fernandes may not be too far off the mark, as the Government has stated its intention under the Economic Transformation Programme to enhance connectivity to priority medium-haul markets. The plan is to increase frequencies to 10 priority cities, which include Beijing, Delhi, Melbourne, Mumbai, Osaka, Seoul, Shanghai, Sydney, Taipei and Tokyo. Malaysia is said to have a double-digit flight frequency gap to most of these cities compared with Singapore and Thailand. The local transport ministry will be working on increasing air rights to the countries that have restricted air rights, primarily Australia, Japan and India. The distribution of subsequent air rights will also be done in a more transparent and liberalised manner, as the transport ministry develops an air rights allocation framework.
-thestar online.