Just over five years since starting operations, Malindo Air is preparing a growth phase to better compete against its more established and larger competitors in Malaysia.
Speaking to FlightGlobal, chief executive Chandran Rama Muthy admits that in terms of scale, Malindo is still “small” compared with its rivals AirAsia and Malaysia Airlines, which have been operating for more than 18 years and 40 years, respectively.
Malindo launched operations in 2013 as a hybrid carrier, formed through a joint venture between Malaysia’s National Aerospace and Defence Industries (NADI) and Lion Group of Indonesia. However, after NADI’s exit in 2017, Chandran now holds a 51% stake in the carrier.
He has changed the company's business model over the years to become a full-service carrier – a move he says was done in order to avoid brand confusion.
“When we started with a hybrid model, it was hard to describe to customers what we were," he says. "You can’t say that you are both a man and a woman. So we decided to go with [being] full service, because we have a business class product. But we know we live in a cost-sensitive environment, where it’s about dollars and cents.”
Chandran believes there is space for two full-service carriers to thrive in the market, and that demand is sustainable over lean periods – despite having a low-cost giant (in the form of AirAsia Group) taking most of the market share.
Flight Fleets Analyzer shows that Malindo operates a fleet of 42 aircraft, comprising 30 Boeing 737 NGs and 12 ATR 72-600s. Its oldest aircraft is less than six years old. All of its 737s have in-flight entertainment systems – a feature not present on some of Malaysia Airlines’ 737s.
Chandran laments that not much has changed in recent years with regard to what he describes as “predatory pricing” by the other airlines. He questions the industry's sustainability should such practices continue.
“If mature players take to irrational pricing, for example on Kuala Lumpur-Penang at MYR30 ($7.33) – or even predatory pricing as the way to show market leadership – we are throwing good money down the drain, and definitely someone is bound to get hurt or even burn out.”
MANAGING THE BUSINESS
He says that managing an airline business “is easy”, but it is a greater challenge to manage people and relationships.
“It is not difficult to run an airline," he says. "You open a route, do proper marketing, have proper distribution, and make it easy and affordable for people to fly with you.”
However, Chandran admits that Malindo has not been able to produce a positive balance sheet – which he acribes to currency fluctuations and rising oil prices.
“We are still in the growing stage after five years," he says. "When you start routes, it is like a tree. It takes a while before you bear flowers or fruit. Around 50-60% of our routes are doing good. We expect to break even in one to two years.”
He says Malindo’s load factors stand at around 75%, with a goal of reaching 80% by year-end. That said, Chandran acknowledges that any full-service carrier would be hard pressed to “get maximum passengers” in a cost-sensitive market.
He declines to provide exact figures on the carrier’s CASK and RASK, but says they have been “on increasing trends”.
BOOSTING ANCILLARY REVENUE
To that end, Malindo is working to increase its ancillary revenue to cover increasing costs.
It has recently established a loyalty programme called “Malindo Miles”, which has around 500,000 members. By end-2019, it expects to increase membership to two million.
From next month, the carrier will also introduce a new, no-frills fare option. This allows 15kg of luggage instead of the standard 30kg when making a booking; travellers can pay for extra luggage if required.
“We want to cater for people who are cost-sensitive," Chandran says. "So we are going to charge them for things they want. This can be done because we already have the scale and volume of passengers. We are looking for each passenger to pay between MYR30 and MYR50 per flight. But that said, our ancillary revenue is still small compared with other airlines.”
SYNERGIZING WITH THE LION AIR GROUP
As part of Indonesia’s Lion Air Group, Chandran says that Malindo has benefitted from cheaper aircraft financing, leasing and maintenance, as well as savings on fuel and training. He says both parties are in talks to expand Malindo’s fleet via Lion’s Singapore-based leasing arm, Transportation Partners, but would provide no futher details.
Asked about its three previously-deployed 737 Max aircraft, Chandran says they have been returned to the group because their all-economy seating did not align with Malindo’s business model. He adds that the carrier will continue operating NGs at a utilisation rate of 13 hours a day.
Malindo was due to have completed its rebranding into “Batik Malaysia” as of last year. Calling this “a tedious process”, Chandran says that the carrier is still waiting for approvals from the Civil Aviation Authority of Malaysia. Following that, Malindo will inform the other regulators of the countries that it operates to.
“We are hoping for this [the rebranding] to be done in 2019. This will allow us to have better synergies [on the marketing and operations front] with our sister company, Batik Air Indonesia, as we both have the same business model.”
So far, 13 of its aircraft already have the Batik Malaysia livery, and more are expected to be repainted this year.
GROWING ITS NETWORK
Employing a multi-hub strategy at Kuala Lumpur International airport and Kota Kinabalu, Malindo operates to 54 destinations across 16 countries, but mainly focuses its network on two international markets: India (eight destinations) and China (12 destinations).
On India, Chandran says that Malindo has approached the Malaysian government and asked it expand the bilateral rights between to two countries to include more secondary cities where it forecasts travel demand. Such points include Chandigarh in the north, Coimbatore, Madurai and Kannur in the south and Pune in the west.
“Such airports are offering incentives for airlines to operate there," he says. "Unfortunately, Malaysia has not completed the bilateral agreements to approve those destinations for our airlines. Geographically, Malaysia is better placed than Singapore and Thailand to operate to India, in terms of shorter flying times with better connectivity. We should capitalise on this.”
Meanwhile, Chandran says Malindo “is very strong” in China, with most of its routes operated on a charter basis. The carrier plans to place 20% of its capacity in the year ahead on charters to China, “to take advantage of strong seasonal demand”. Nonetheless, Chandran adds that Malindo has been “less reliant” on charter flights than in previous years.
In addition, five traditional charter flights out of Kota Kinabalu have been converted into either full- or half-schedule operations. These comprise of flights to Wuhan, Tianjin, Chongqing, Guangzhou and Changsha.
“These two markets (of China and India) represent good demand in leisure, VFR (visiting friends and relatives), as well as business traffic domestically and regionally,” Chandran says.
He also reveals that Malindo will grow its network in the near future, adding five new routes by the third quarter, with final approvals underway.
The carrier will launch its first Japan service to Chitose, via a stop at Taipei, and will add two new destinations to Australia, Sydney and Adelaide, via a stop at Bali. Malindo will also lunch services to Danang in Vietnam and Varanasi and India.
On the codeshare and interline front, Chandran says Malindo is in talks with three other carriers to expand its stable of airline partners. They include Air Serbia and Lucky Air for interlines, as well as Emirates for a codeshare deal.
The carrier currently has codeshare agreements with Turkish Airlines and Batik Air, and has interline partnerships with All Nippon Airways, Etihad Airways, Oman Air, Qatar Airways, Turkish and Xiamen Air.
With a domestic market share of 50% out of Subang, Chandran admits that the more pressing task is to boost Malindo’s overall international market share, which currently stands at 8%.
“We have got to be realistic," he says. "With our fleet size, it is best not to dream too big. Profitability is more important than market share. And I’m sure we will get there.”
Source: Cirium Dashboard