Stiffer competition expected for MAS, AirAsia and Firefly with Malindo flying in.

Date: 7 January 2013

Stiffer competition expected for MAS, AirAsia and Firefly with Malindo flying in.

PETALING JAYA: The local aviation industry is set for more interesting times when Indonesian low-cost carrier Malindo Airways takes flight in May. Although established players Malaysia Airlines (MAS), Firefly and AirAsia remain optimistic on the outlook for the year, the entry of Malindo 51%-owned by Malaysia's National Aerospace and Defence Industries and 49% by Indonesia's largest low-cost carrier Lion Air - will definitely grab the attention of both industry observers and travellers alike.

Affin Investment Bank Bhd analyst Sharifah Farah said in a recent report that Malindo's commencement of operations here would also coincide with the scheduled completion of the low-cost carrier hub KLIA2. “Upon the commencement of the new airline, we expect airlines to offer cheaper fares and various promotions to garner market share and/or retain market share,” she said, adding that the main concern would be AirAsia's ability to maintain its load factor without significantly compromising its yield in the face of new competition.

Sharifah noted that against the backdrop of a fragile economic outlook, which had already negatively impacted air travel, historical trends showed that low-cost carriers would likely fare better than full-fledged carriers due to their lean cost structure, competitive pricing and the switch by business travellers to cheaper fares.

She said this was evident in the number of passengers carried by AirAsia Malaysia, which grew 10.2% year-on-year to 14.5 million for the nine months to Sept 30 last year. Similarly, AirAsia's Thai and Indonesian arms saw passenger numbers grow by 19.6% and 12.8%, respectively. In contrast, for the same period, MAS experienced a 3.7% drop to 9.7 million passengers due to weak international travel.

MAS' regional senior vice president for Malaysia/Asean Muzammil Mohamad recently said the airline was forecasting between 10% and 15% growth with a few more destinations and more frequencies, which would go hand-in-hand with ticket sales revenue growth for the year. He said although the industry outlook for the year would be challenging, the airline was optimistic about its prospects.

Sharifah said the direction of the jet fuel price would continue to be the biggest challenge for the aviation industry. Over the past one year, the crude oil price has remained elevated, ranging between US$85 (RM259.25) and US$115 (RM350.75) per barrel, while the price of jet fuel also remained high within the range of US$120 (RM366) to US$137 (RM417.85) per barrel. Sharifah has an assumption of US$120 (RM366) to US$125 (RM381.25) per barrel for the house's earnings model for the industry in 2013.

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