ANALYSIS: MAS restructuring could reduce long-haul routes

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Malaysia Airlines has substantial scope to pare back its international operations, especially on routes down under.

Malaysian sovereign wealth fund Khazanah Nasional’s 29 August announcement about the restructuring of MAS is notable for as much as what it does mention as what it does not. While the 6,000 job cuts (30% of the carrier’s total work force) were widely expected, Khazanah’s initial statement makes no mention of the carrier’s fleet, and failed to mention specific routes.

That said, point number three in the carrier’s restructuring plan offers a tantalising hint as to where the troubled carrier may be going. This point says that the future MAS will be “a more regionally-focused network” with a lower cost structure and “a renewed focus on revenue yield management.”

The reference to yield management suggests that the days of unbridled capacity growth will end. Indeed, AirAsia complained of “irrational competition” in its second quarter results, a none-to-subtle reference to MAS.

One obvious area for cuts is the carrier's Australian network. Flightglobal’s Capstats database shows that MAS operated 90,000 seats on routes down under in July 2014, a staggering 36% increase over the same month in 2013.

Despite the addition of all this capacity, however, the market is equally divided between MAS and AirAsia X, a carrier with a considerably lower cost base.

Malaysia Airlines international route network, July 2014

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FlightMaps Analytics

MAS’s aircraft of choice on these routes is the Airbus A330-300, the smallest widebody in its fleet. If MAS decides to pare back its Australian routes, it will need to do so through the reduction of frequencies or the elimination of unprofitable routes, as opposed to down-gauging to a smaller type.

MAS’s European network is the other obvious candidate. In July 2014 MAS operated 65,000 seats on European routes, exactly the same as in July 2013. Nonetheless, 2013 saw a 20% jump in the carrier’s European capacity, mainly due to the replacement of 747-400s with A380s, which joined the carrier’s fleet in 2012.

The competitive threat from AirAsia X does not exist on European routes - at least for the time being. On most of its direct routes it either has a monopoly (as on the London route) or shares the route comfortably with another flag carrier (such as Lufthansa on the Frankfurt route).

That said, these services face intense competition from the “super connector” carriers in the Middle East. FlightMaps Analytics shows that Emirates, Etihad, and Qatar Airways operated 78,000 seats on routes from Kuala Lumpur to the Persian Gulf in July, a good portion of which likely headed onwards to Europe.

If MAS decides to pare back European capacity, it could well do so through by down-gauging some services to 777-200ERs, and possibly redeploy its six A380s on more regional routes, as some other carriers do. Singapore Airlines, for example, has deployed the type on regional routes to Japan, India, and Hong Kong and MAS could do the same. Nevertheless, the small size of the fleet and specialised nature will make it vulnerable if the airline decides to shrink its long-haul network.

The story of MAS’s restructuring has yet to be written, but the data indicates that there is substantial scope for redeploying the carrier’s fleet and cutting routes. MAS’s twin nemeses, AirAsia and the Middle Eastern carriers, mean profitability will never be easy, but Khazanah’s changes are a step in the right direction.