Why Royal Brunei’s Route Cuts Make Sense

 Royal Brunei Airlines (IATA:BI) yesterday announced plans for drastic cuts in its route network. The airline will be cancelling services to a majority of its long haul destinations, of which most are from the Australasian region.



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 The destinations to be cut from the network include


  • Auckland, New Zealand, effective 30th October
  • Brisbane, Australia, effective 28th October
  • Ho Chi Minh City, Viet Nam, effective 30th October
  • Kuching, Malaysia, effective 1st August
  • Perth, effective 29th October


 The cuts surely are draconian. But they indeed make sense. Here’s why..


 Royal Brunei is the national airline of the Sultanate of Brunei. Which, despite being richer than some of the other Asian countries, has a very small population of about 350,000. This limits the potential O&D/VFR traffic that the airline can have and it traditionally forces an airline of this kind to rely on transit traffic if it is to expand significantly. And the situation that Royal Brunei now finds in, in fact seems to be a classic case of overly ambitious expansion fuelled by political goals.
 
 To achieve its connecting traffic targets, the airline tried to enter the Kangaroo route, connecting Australia with the UK. But it’s ambitions were not met with the expected returns because of a number of reasons. First, the airline did not have a product that was of high enough quality to compete with its more luxurious competitors on the route – Emirates, Qantas, Singapore Airlines and in the recent past, Etihad. To overcome this, the airline opted to lease six ex- Singapore Airlines Boeing 777-200ER aircraft under its recent CEO ex- SIA manager, Mr. Robert Yang. The aircraft remained in SIA’s competitive regional configuration of 30J/255Y. However this move too did not help BI in achieving what it expected.


 Then, the airline continued to operate its London flights with a stopover at Dubai even after adding the 777s. Whether the airline could never uprate the de-rated SIA 777-200ERs or whether it willingly operated with a Dubai stopover is not known. But this meant that the BI option rendered to be an unattractive option to the Kangaroo route travellers because of the longer flying time. And to compete with its more powerful competitors, the only option which the airline had, was to undercut. This drove the airline’s yields further down, and pushed the airline deeply into the red. The costs of keeping a high profile network without the appropriate demand for it, were enormous.


 Royal Brunei did many things right, for example flying to Kota Kinbalu so that it could have more demand for the Auckland route. But it was not even slightly successful in stimulating a high yield demand, and according to some sources to The Networker, most of the airline’s Australasian routes averaged a load factor of about 20%. In The Networker’s opinion, the decision to add the 777-200ERs was not wrong, but what was wrong was not having a proper strategy to stimulate the demand to match the increased capacity. Considering these facts, it certainly was a very sensible move by the present management, led by renowned ex Aer Lingus executive Dermot Mannion, to streamline the route network.


 The airline is yet to cancel the long haul routes to London and Melboune, and given the close ties, London will probably be the last long haul destination to go, if it ever will. Melbourne flights are expected to be cut in the phase two of the network restructuring.


 An ideal move for BI would be to give its brand a facelift to match the modern trends, and position itself as a high quality yet competitively priced short to medium range airline. The airline may need to return the 777s, and to build its fleet solely around the Airbus A320 family that it presently operates. But by following the business model previously stated, the airline will indeed be able to grow much significantly, have a larger fleet, to make Bandar Seri Begawan (the Brunei’s international airport) a premier regional Asian hub and most importantly, to become profitable while competing with the low cost carriers. Royal Brunei is going through its second restructuring within less than ten years, and The Networker wishes them all the best.

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