Malaysia Airlines looks beyond financial rebound – part one: market outlook and fleet plans
Buoyed by its first annual profit in 14 years, Malaysia Airlines is now focused on proving that its financial turnaround is sustainable, and making important fleet refresh decisions to support its network strategy.
The airline is planning to place significant narrowbody and widebody orders around midyear, which could result in it adding at least another 45 aircraft to its firm order backlog.
Despite its newfound profitability, Malaysia Airlines is remaining cautious with its growth. Most of the orders - particularly in the near term - are aimed at fleet replacement. A second phase of deliveries will be targeted more at fleet growth.
The first part of this analysis looks at the airline's return to profitability, its financial and market outlook, and its aircraft ordering plans.
Part two will examine the airline's competitive position and network strategy.
Summary:
- Malaysia Aviation Group's RM766 million annual profit was the first since 2010, although it was the second consecutive operating profit.
- Passenger yields in 2024 will be lower than last year, but will still be up by 14%-18% versus 2019.
- Malaysia Airlines will run a narrowbody order campaign in 2Q2024, and could make a decision by 3Q2024.
- The airline's decision on exercising another 20 Airbus A330neo options will run in parallel to the narrowbody process.
- The Malaysia Airlines group's long term plan is to have 50 narrowbodies, 50 A330neos and 10 A350s.
While the return to profitability was a notable milestone, the next challenge is repeating it - despite headwinds
On 21-Mar-2024 the parent company Malaysia Aviation Group (MAG) reported a net profit of RM766 million (USD162 million) for 2023. Although many airlines did return to the black in 2023, it was a particularly momentous milestone for Malaysia Airlines.
This result represents the airline's first net profit since it was taken over and relaunched by the government in 2015. The last time the predecessor company was profitable was 2010. Last year was also MAG's second consecutive year of operating profit.
MAG's forecast, based on current trends, shows that it should achieve another annual net profit this year, the Group Managing Director and CEO Izham Ismail said during a media briefing. However, he cautioned that if serious new external challenges arise, this prediction could be under threat.
Capt Izham noted that although the 2023 result marked a financial turnaround, the airline's transformation process has not finished. He describes 2024 as "a year of [enhancing] credibility" for MAG as it looks to prove that the 2023 profit was not just a one-off.
This year the group will aim to "solidify all of the strategies we put in place" since its latest round of restructuring, Capt Izham said.
The airline will have to contend with lower yields, which will put some pressure on profitability. Passenger yields are moderating this year compared to 2023, but are still expected to be up by around 14%-18% versus 2019 levels.
Rising competition in local markets will be another challenge. Increasing the share of international revenue has been one of the group's strategies to offset the possibility of overcapacity in the domestic market.
International services now account for 85% of the group's top-line revenue - up from 55% in 2018.
With narrowbody order decision pending, Malaysia Airlines is keeping its options open
The airline's much-improved financial health is giving it more planning flexibility, particularly in terms of fleet investment.
MAG was nearly ready to issue a request for proposals for a narrowbody order, Capt Izham said during an interview with Aviation Week Network. It is also finishing work on a network plan that will help determine the number and types of aircraft it will require.
These steps would allow the airline to run its narrowbody order campaign during the second quarter, and depending how this proceeds it could be ready to sign a deal early in the third quarter. The order will be for at least 25 aircraft, joining the 25 Boeing 737 MAX orders that MAG placed previously.
The airline is "agnostic" about the manufacturer on this follow-up order - meaning that it would consider introducing Airbus A320neo-family aircraft and having a split narrowbody fleet, Capt Izham said. He noted that MAG's engineering division is certified for both Boeing and Airbus narrowbodies.
While adding to fleet complexity with two narrowbody families would not be ideal, those families would be numerous enough to achieve economies of scale. And there could also be significant size variations, depending on the exact models selected, giving the airline more alternatives to match capacity to its markets.
Boosting the A330neo order book and incorporating more A350s will enable growth
MAG also intends to make a decision on exercising its A330neo options by the third quarter, Capt Izham said. It has 20 A330neos already on order, and holds options for another 20.
If these are exercised this year, deliveries could potentially begin in 2027-2028. The initial 20 will be mainly for fleet replacement, and the follow-up order would be for growth.
Malaysia Airlines is acutely aware that it has to move quickly on its aircraft order decisions due to the intensifying competition for delivery slots. It is one of several airlines in the Asia-Pacific region looking to boost their order books, as airlines attempt to rebuild their fleets with newer aircraft following accelerated retirements and investment pauses during the COVID-19 pandemic years.
The airline is looking to add to its Airbus A350 fleet as well: it currently has seven of these and intends to obtain another three used A350s if the right aircraft become available.
The extra A350s would allow it to fulfil its goal of opening a second route to Europe, joining its Kuala Lumpur-London service.
MAG's long term plan is to have 50 narrowbodies, 50 mid-sized widebodies, and 10 Airbus A350s. This would be an expansion from its current passenger jet fleet of 50 narrowbodies and 28 widebodies, including its Firefly subsidiary.
Deliveries due in 2024 are generally for replacement: Malaysia Airlines is scheduled to receive 13 aircraft in 2024, including 10 Boeing 737-8s and three Airbus A330neos. The first of the A330neos is due in Sep-2024.
The chart below summarises the group's fleet and existing order composition. All of the turboprops and three of the 737-800s are operated by the subsidiaries MASwings and Firefly.
Malaysia Aviation Group: fleet, as of 01-Apr-2024
