Kuala Lumpur (XFN-ASIA) - Malaysian Airline System Bhd (MAS) said it will increase its weighted average fare and fuel surcharge on domestic routes in August to help it cope with the rising cost of fuel and keep the routes profitable.
From tomorrow (August 1) onward, fuel surcharge from Peninsula Malaysia to East Malaysia will be raised to 51 rgt from 36 rgt, while within Malaysia and East Malaysia, the rates will be increased to 20 rgt from 15 rgt, it said.
At a MAS briefing regarding the airline's conclusion of its rationalization of domestic routes, managing director Idris Jala said the move will ensure that the airline does not lose money on these routes in the next five months.
Idris said the fuel surcharge increase will only cover half the fuel costs incurred in the airline's domestic operations.
On top of these increases, MAS will impose a 14 rgt administration fee on air fares. "We are imposing this fee as per AirAsia practice," he added.
He said that despite the increases, MAS' domestic air fares of 0.713 rgt per mile will remain as among the lowest, compared with those in other countries in the region. He noted that the domestic air fare cost in China is 0.80 rgt per mile.
He also said with the conclusion of the domestic routes restructuring, MAS will operate 1,200 flights per week, serving 22 trunk routes, which will also be equal to 55 flights per route per week.
Under the government's rationalization of domestic air services, MAS will operate the 22 trunk routes while budget airline AirAsia will serve 22 trunk and non-trunk routes.
Idris said despite the increase in air fares on a weighted average basis, fares on certain routes will be reduced and consumers may also enjoy lower fares through booking online.
"Starting August 15, you will find much cheaper fares via internet bookings; the new fare structure will look quite different from what we are currently doing," he said.
The executive said he expects the airline's domestic operations to achieve breakeven during the five months to December by introducing a higher average air fare structure and increased fuel surcharge.
"We have taken on board the profits and losses in domestic operations from our parent Penerbangan Malaysia, and we are now in a position to make sure not to lose any money on domestic routes for this year, and hopefully we will be able to make profits next year," he told reporters at a news conference.
The executive did not indicate the amount of losses made on domestic routes. However, MAS posted a loss of 1.26 bln rgt in 2005, and the company had been looking at a 620 mln rgt loss this year, according to company figures.
Idris had declined to give an indication on how much the increased fuel surcharge will contribute to its top line, except to say that it would will help "prevent" the airline from making losses.
Going forward, the airline will continue to pursue cost efficiency vigorously, Idris said, noting that about 2,000 of its staff are leaving the airline today following the implementation of its separation package.
"We have been doing everything we could to reduce cost -- this is only the beginning of how we intend to do to become more cost efficient," he said.
Earlier this year, MAS said it would cut over 6,000 employees over the next two years in its restructuring exercise to bring the carrier back to profitability.
It had said that it would shed 3,089 employees between July and December this year. It said of that figure, 2,622 will be accounted for by the company's mutual separation scheme (MSS), which closed on June 7.
Want more analysis like this? CAPA Membership gives you access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find out more and take a free trial.