Malaysia Airlines (MAS) appears to have emerged as the biggest loser since Malindo Air's entry into the Malaysian market earlier this year, setting the stage for an ugly blood bath.
Flightglobal's Capstats database shows that capacity out of Malaysia, as measured in ASKs, has grown from 6.5 billion in February to 7.9 billion in November. Malindo, a joint venture between Malaysia's National Aerospace and Defence Industries and Indonesia's Lion Air, launched operations on 22 March.
MAS slumped to a net loss of ringgit (M$) 375 million ($116 million) for the quarter ended 30 September, a reversal from the M$37.1 million net profit it posted in the same period a year ago.
The flag carrier managed to increase operating revenue by 13% as it put in an additional 20% capacity and achieved a 37% increase in passenger traffic. The "intensifying competition" with new players putting additional capacity in the market, however, placed pressure on pricing and affected yields, says the airline.
AirAsia meanwhile said it saw "irrational competition" from its peers. Although its net profit for the quarter plunged, the carrier still managed to stay in the black with M$35.5 million, excelling at keeping costs low.
The group is clearly aware of the yield pressure in its home market, and has announced that its founders Tony Fernandes and Kamarudin Meranun will resume greater roles in the daily operations of the Malaysia unit. Kamarudin will also return to Malaysia to ensure that the airline is "a step ahead" in dealing with local stakeholders, government bodies and handling issues related to Kuala Lumpur's future low-cost terminal KLIA2.
Malindo route network, November 2013
"AirAsia has a 20% profitability and it maintained this year too. Yields decreased but their costs did too. All in, they are solid financially and market share wise," says Ravi Madavaram, an aerospace consultant at Frost & Sullivan.
"MAS however has been struggling for many years now. They are getting a younger fleet but their strategy, in my view, is flawed: decreasing prices to compete with low-cost carriers while their costs remain high. It will bleed to death."
In a recent interview with Flightglobal Pro, MAS group chief executive Ahmad Jauhari insists that there is no need for the carrier to establish a low-cost arm, saying it would instead work to lower its structural costs to stay ahead of the competition. He adds that MAS is also making sure that its fares are "competitive".
Analysts however believe MAS is likely to feel even more heat as Malindo plans for and launches more international services that could put it straight up against the flag carrier. Malindo's fares for services to cities such as New Delhi, Mumbai and Dhaka are also expected to be up to 40% lower than that of MAS, giving passengers a better value proposition, they add.
Malindo also has a turboprop operation that competes against MAS' Firefly and MASWings.
Flightmaps Analytics shows that Malindo's two biggest routes by seat capacity are Kuala Lumpur-Kota Kinabalu and Kuala Lumpur-Penang.
On the Kuala Lumpur-Kota Kinabalu route, it accounted for 18,000 seats, or 13% of total capacity in November. AirAsia meanwhile holds a 54% (76,000 seats) share, while MAS took 34% (48,000 seats) of the market.
On the Kuala Lumpur-Penang route, Malindo provided for 12% (16,000 seats) of total capacity, falling behind AirAsia's 36% share and MAS' 34%.
“MAS needs to improve its cost base. With its huge cost base now, it is sluggish in responding to world class competition. It needs to focus its energies on the long haul market while withdrawing routes which are unprofitable in the regional market because it won’t be able to compete with AirAsia or Malindo," says Madavaram.