Malaysia Airlines aims to improve Australia performance

Malaysia Airlines is aiming to improve its performance in Australia by increasing its load factor and through closer relationships with travel agents, particularly in the corporate sector.

The carrier is not planning to resume expansion in Australia or restore any of the capacity it cut in 2H2015 as part of an overall restructuring, when it slashed its Australia operation by more than 40%. There is plenty of room for improvement without increasing capacity, given a lacklustre performance in the Australian market.

There is plenty of room for improvement without increasing capacity, given a lacklustre performance in the Australian market.

Malaysia Airlines currently operates 43 weekly flights to Australia, including 14 to Melbourne, 14 to Sydney, eight to Perth, four to Adelaide and four to Darwin. All the flights are from the carrier’s main hub in Kuala Lumpur, except for one weekly frequency from Kota Kinabalu to Perth. Malaysia Airlines deploys the 737-800 on Kota Kinabalu-Perth and Kuala Lumpur-Darwin flights, while A330-300s are used on all its other Australia routes.

Malaysia Airlines has maintained the same schedule to Australia since Aug-2015, when it cut back from 73 to 43 weekly flights. Brisbane, which had been served daily, was cut entirely. Melbourne and Sydney were both reduced from three to two daily flights while Adelaide was cut from seven to four weekly frequencies. Kuala Lumpur-Perth was cut from 13 to seven weekly flights while maintaining the once per week Kota Kinabalu-Perth flight.

The third daily Melbourne and Sydney frequencies were only introduced in late 2013 following the signing of a new air services agreement between Australia and Malaysia. Malaysian medium/long haul low cost airline AirAsia X also added second daily flights to Melbourne and Sydney at almost the same time, using newly awarded traffic rights. AirAsia X cut capacity to Melbourne and Sydney for most of 2015 and part of 2016 but is now back to year-round daily flights on both routes.

AirAsia X currently operates 53 weekly flights to Australia, including double daily flights to Melbourne, Perth and Sydney as well as 11 weekly flights to Gold Coast (seven of which continue onto Auckland). Based on CAPA and OAG data for the week commencing 3-Apr-2017, AirAsia X has a leading 59% share of nonstop seat capacity from Australia to Malaysia compared to approximately 35% for Malaysia Airlines.

Malaysian full service Malindo Air, which operates 12 weekly flights from Kuala Lumpur to Perth, accounts for the remaining 6% share of Australia-Malaysia capacity. Malindo also recently launched daily flights to Brisbane however as Brisbane is served via Bali with fifth freedom pick-up rights it is not counted under Australia-Malaysia capacity.

Australia-Malaysia one-way capacity by airline: Apr-2014 to Sep-2017

Source: CAPA – Centre for Aviation & OAG

Malaysia Airlines’ passenger traffic to and from Australia has dropped nearly 40% since 2014 – an obvious consequence of the 40% capacity cut. The airline carried a record 1.4 million passengers to and from Australia in 2014 but less than 900,000 passengers in 2016, according to BITRE data.

Malaysia Airlines’ load factor in the Australian market has also been less than stellar since 2014. Malaysia Airlines’ load factor to and from Australia in 2014 was only 69.3% compared to a system-wide average load factor of 74.1%. This is a reflection of the overcapacity which resulted when Malaysia Airlines and AirAsia both pursued significant expansion in the Australia-Malaysia market.

The airline’s load factor on Australia routes only improved slightly in 2015 and 2016 despite the capacity reductions. Its Australia load factor was 73% in 2015 before slipping back to 71.7% in 2016. Its system-wide load factor was 74.4% in 2016.

Malaysia Airlines annual passenger numbers to/from Australia and average seat load factor: 2006 to 2016

Source: CAPA – Centre for Aviation & Australia BITRE

Malaysia Airlines is confident it can push up its system-wide load factor to above 80% in 2017, driven by new commercial initiatives including more promotional fares, improved yield management and closer relationships with agents. Australia, which accounts for more than 10% of its seat capacity and nearly 20% of its ASKs, is a key target market in these initiatives.

In 2H2016 Malaysia Airlines reengaged with the travel agent community, including in Australia. The airline is now offering all its promotional fares to agents, stopping what CEO Peter Bellew describes as a deliberate move under prior management to undercut travel agents on the website. “We had screwed them on that,” Mr Bellew says. “We are now going out of our way to make sure we protect travel agents as a form of distribution.”

Travel agent and corporate bookings have increased significantly in recent months, including in Australia. Malaysia Airlines is working more closely with travel management companies to improve its share of corporate bookings; it is not working directly with corporates. Mr Bellew says Malaysia Airlines has tripled the size of its team dealing with agents and will again double the size of this team over the next 12 months.

Malaysia Airlines is also resuming capacity expansion in 2017 but all the additional capacity is being placed in the Malaysia-China market. No increases are planned for Australia, which will likely continue to be served with the current 43 weekly flights for at least another year.

Malaysia Airlines faces intensifying competition in the Australia-Malaysia market, including from Malindo, which aims to launch services on the Kuala Lumpur to Melbourne and Sydney routes. However, by maintaining a rational level of capacity and implementing several commercial initiatives its performance in the Australia market should improve significantly.