Saturday January 23, 2010

MAS modernising fleet


MALAYSIA Airlines (MAS) is embarking on a fleet modernisation and capacity expansion plan to stay ahead of its competitors.

Towards this end, its senior general manager (network and revenue management) Dr Amin Khan says MAS will dispose of some old aircraft and replace them with modern planes.

MAS plans to keep some of its B777 planes.

“We’re spending a lot of money to modernise so we can stay competitive, and at the same time we want growth,” Amin says, adding that MAS is realigning its products with market demand.

MAS currently leases all its aircraft from Pernerbangan Malaysia Bhd (PMB) and will eventually return the aircraft to the latter when the lease expires.

As it stands now, MAS is leasing 81 aircraft. Under its fleet renewal exercise, MAS could potentially own an additional 56 aircraft by 2016 excluding options for 20 B737-800 and 10 A330-300. The aircraft deliveries are scheduled from this year up to 2016.

The rationale is quite clear. Amin points out that leases are generally more expensive than on-balance sheet financing. “We aim to own a third of our fleet to lower our costs. It’s definitely cheaper to own the aircraft than to lease it,” he adds, elaborating that the airline could enjoy cost savings in the “single digit”.

MAS chief executive officer/managing director Tengku Datuk Azmil Zahruddin had earlier said that when the airline starts taking delivery of the A330-300s in 2011, there should be an increase in revenue, besides cost savings of RM649mil from financial years 2010 to 2012. When all the A330s are delivered by 2015, MAS expects additional annual savings of RM300mil, he was reported to have said.

Dr Amin Khan says MAS is realigning its products with market demand.

The fleet modernisation will likely see enhanced product offerings by MAS, arresting previous concerns of an old operating fleet. This means passengers can look forward to better cabins and newer in-flight entertaiment.

“As we move to new aircraft with newer technology, our operating costs will be much lower as it will burn less fuel and is more environment friendly,” he says. And it will cost less to maintain as well. “Just like your brand new car, the maintenance cost will be significantly lower.”

“From the customers’ perspective, they can smell the leather, just like a brand new car. And in terms of reliability it will be better,” he says, adding that MAS can spend more hours on the new aircraft in a day to fly to new destinations or increase flight frequency.

The airline will also be able to minimise the number of fleet type in order to simplify its fleet. Amin says there are more than three engine manufacturers and the carrier is looking at one model for norrowbody, one core family for widebody and one ultra large widebody for selected markets.

Amin says the new A330 will be better than the existing A330s as they have a longer flying range.

“The B737 will be struggling beyond 3.5 hours. We can go to Hong Kong but it will be struggling beyond 3.5 hours. With the aircraft replacement, we can fly on a longer range as well as increased frequency. The new A330-300 can service Asia and Australia,” he says.

Although MAS has plans to return the aircraft to PMB when the lease expires, Amin says, MAS plans to retain some of its B777. “We’re keeping some of the B777 as we move forward. What will happen is that we aim to own a third of the aircraft. Therefore we will have high assets in our balance sheet,” he adds.

The national carrier will be utilising the B737-800 to strengthen its domestic and regional routes; the A330-300 will serve Australia, south China, China, north Asia and Middle East while the A380 will be used to ply high density routes such as London and Sydney.

MAS will receive three of its B737-800 this year and the next. It will also receive five A330-300 and another five A380 in 2011.

“The B747 is a big aircraft but we’re increasing it to an even bigger aircraft, A380 which will come in the second half of next year. We’ve bought six of them (A380) and our strategy is to fly direct from point to point and work with our partners for the hub and spoke,” says Amin.

Last year, the airline entered into a memorandum of understanding with Airbus for the purchase of 15 Airbus A330-300 wide-body aircraft with an option for 10 more. The 25 aircraft will cost a total of US$5bil at list prices.

By 2015, MAS fleet will grow to a total of 108 including 20 options for the B737-800 and 10 options for A330-300, representing more than 30% growth from the current 81.

The national carrier will have the youngest fleet amongst its competitors in the region five years from now.

“The average age of the aircraft will be about five years and it will improve our product offering and competitive position in the industry,” Amin says.

MAS’ fleet was about 11.6 years in FY08 and is expected to increase to 11.7 years in FY11. With the delivery of new aircraft, the average age will be lower to 5.2 years in FY15.

“We’re literally reducing our fleet age by 50%,” Amin says.

Setting new routes

MALAYSIA Airlines’ major fleet modernisation plan will enable the airline to grow its network significantly. On the back of this, the airline expects to strengthen and grow its Asean network, south and north Asia, Middle East and China.

In addition, MAS senior general manager (network and revenue management) Dr Amin Khan said the airline “will restructure flights to the US while holding on to what we have in Europe and fix it.”

Locally, the airline is looking at increasing its weekly capacity into Kota Kinabalu, Kuching and Penang. It will also improve services via east Malaysia to regional destinations.

On its Asean routes, Amin says MAS will announce new destinations probably by end of first quarter. He says it will increase frequency to Indonesia, Vietnam, Myanmar, Thailand and the Philippines.

MAS will also announce three new destinations to Middle East and new destinations to South Asia while increasing its frequency to Southern China.

Amin says the carrier is currently exploring new destinations in Japan. “We will introduce new direct service to Brisbane and announce a new destination to New Zealand soon,” he adds.

“As for London, we’re unlikely to increase frequency to London due to the difficulty to get a slot, but we will increase capacity by using a bigger aircraft, the A380,” he says when asked on its plan in Europe.

“The way we can grow this route is to get a bigger aircraft and that’s why we’re getting the A380. The cost per seat is much cheaper as well,”.

MAS currently flies twice a day to London with about 80% load factor. With the delivery of A380 next year, it is expected to utilise four A380 for KL-London route while the remaining A380s is likely to fly KL-Sydney route.

Commenting on the configuration of its A380s, Amin says, MAS will introduce a “super-economy” class on top of its current, first, business and economy. He says the new class will have more leg room amongst others.

Amin says the A380s, which is still being configured, is expected to fly 510 passengers while its current B747 carries 359 passengers.

“In short, we will get more coverage with better operating cost advantage with the new fleet. We modernised our fleet for simple reason of growth,” he continues.

MAS : [Stock Watch] [News]

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