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Boasting one of the finest transportation networks in Asia, Malaysia has five world-class international airports. The Malaysian government is heavily involved in the domestic aviation sector and is the owner-operator of the nation’s flagship carrier, Malaysia Airlines (IATA: MH), which operates domestic and international services. Two subsidiaries of MH, Firefly and MASwings, operate domestic and regional flights. The Department of Civil Aviation Malaysia is the government agency responsible for providing Air Traffic Services, enforcing airport standards, planning and supervising the development of Air Traffic Control Systems and airport facilities. Malaysia Airports Holdings is the publicly listed company responsible for the development, management, operation and maintenance of most of Malaysia’s airports, including all international gateways.
In an effort to diversify the economy and make Malaysia’s economy less dependent on exports the government has pushed to increase tourism in Malaysia with the aim of making the tourism industry a prime contributor to the socio-economic development of the nation.
Airports in Malaysia
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AirAsia is resuming domestic expansion in the Malaysian market with a focus on connecting more dots within its network of 15 domestic destinations. The LCC is launching or resuming three domestic routes from Johor Bahru in late Apr-2017 and has lodged applications for four more new domestic point-to-point routes.
By the end of 2017 AirAsia is also aiming to take over a few domestic routes within east Malaysia that are now exclusively operated by the Malaysia Airlines Group turboprop subsidiary MASwings. The routes are part of the Malaysian government’s subsidised rural air services (RAS) programme, but are potentially big enough to support larger aircraft on a commercial basis. The Malaysia Airlines Group is preparing to reduce its ATR 72 turboprop fleet further following anticipated changes to the RAS programme, which is coming up for renewal this year.
AirAsia is the leading domestic airline in Malaysia and has 50% of its total seat capacity allocated to the domestic market. However, AirAsia’s domestic capacity has been flat the last three years as it has focused entirely on international expansion.
Southeast Asia’s aviation market recorded healthy growth in 2016, with passenger traffic expanding faster than the global average across nearly every country in the region. Six of Southeast Asia’s 10 countries had growth in or near the double digits, led by Vietnam and Myanmar. Seven countries had growth equal to, or higher than, in 2015.
Southeast Asia should continue to experience rapid growth in 2017 and beyond. Vietnam and Myanmar will likely again lead the pack in 2017, joined by Malaysia. The Philippines should experience growth of approximately 10% for the third consecutive year, also putting it towards the top of the pack.
However, overcapacity remains a long term concern, pressuring yields and profitability. The average profit margin of the Southeast Asian airline sector significantly lagged the global average in 2016, and this trend will likely continue in 2017.
Malaysia Airlines: traffic growth resumes as loads improve; outlook brightens, but still challenging
Malaysia Airlines is again growing. Passenger numbers were up 8% in 2H2016, marking the first year-over-year gains since 1Q2014. Passenger numbers are expected to increase by another 10% in 2017, driven by load factor improvements and a resumption of capacity expansion.
The government owned airline, which completed a drastic network restructuring in early 2016, is still unprofitable. However, Malaysia Airlines was profitable in Dec-2016 and expects to be consistently profitable from 4Q2017, despite rising oil prices and intensifying competition.
The outlook is significantly brighter than a year ago, but is still relatively cloudy given the highly competitive landscape in Malaysia. Malaysia Airlines continues to work on cutting costs – a prudent move given the depreciation of the Malaysian Ringgit – and to pursue a relatively conservative growth plan. It expects to maintain its fleet at the current level of 75 passenger aircraft over the next two years, but adjust the mix to include a larger widebody component.
Northeast Asia dominated the developments of East Asian airport growth in 2016. Beijing Capital, Asia's largest and the world's second biggest, further narrowed the gap with first place Atlanta. Yet with some Beijing Capital traffic due to start moving to the second airport Beijing Daxing in mid 2019, Beijing Capital may not overtake Atlanta in the near future.
Asia's second largest airport, Tokyo Haneda, is undergoing steady growth ahead of a slot increase to support more international visitors for the 2020 Olympic Games in Tokyo. Asia's third largest airport, Hong Kong, could soon be overtaken by Shanghai Pudong, which has had a dramatic growth story, especially in the last two years. Seoul Incheon has also grown rapidly and benefits from infrastructure developments.
Bangkok Suvarnabhumi posted record traffic, despite some traffic having moved to Don Mueang a few years ago. That initiative to make room for more growth gave only a few years of breathing room.
Asia's largest airports continue to be defined by pent up demand waiting for a combination of more runways, slots, terminals and air space.
Lion Air Group's Malaysia based Malindo is planning further rapid expansion of its international network over the next month, with four new destinations. The upcoming launch of Brisbane, Chittagong, Guangzhou and Yangon will give Malindo 33 international destinations in Apr-2017, compared to 29 currently and only 21 in Apr-2016.
Malindo Air has also added a remarkable 18 aircraft over the past year, growing its fleet from 27 aircraft in Apr-2016 to 45 aircraft currently. Malindo is planning to expand its fleet by at least 10 aircraft in 2017, including its first widebodies. Three A330-300s will enable Malindo to launch Melbourne or Sydney in 4Q2017, along with other potential medium haul routes such as Kuala Lumpur-Tokyo that cannot be operated with its current 737 fleet.
Malindo plans to add at least another five international destinations over the last eight months of 2017. The Lion Group affiliate should surpass 40 international destinations in late 2017 or early 2018, giving it as many international destinations as Malaysia Airlines.
Peter Bellew spent a decade at Ryanair before joining Malaysia Airlines in late 2015, initially as COO before being promoted to CEO in mid 2016. Mr Bellew held a wide range of positions during his tenure at Ryanair – including in operations, training, sales and marketing – providing ample exposure to Michael O’Leary’s unique approach to running an airline.
The new Malaysia Airlines strategy being implemented by Mr Bellew is decidedly non LCC. In recent months the government owned airline has reinforced its premium position, invested in its full service product, resisted unbundling, and pursued closer relationships with travel agents. However, Mr Bellew’s approach with supplier negotiations and media seems at times Ryanair-esque.
Mr Bellew has been extremely blunt in media interviews, public speeches and private meetings. He is not shy to talk about industry weaknesses and challenges – as well as opportunities to secure additional aircraft at bargain basement prices.