SilkAir Orders 23 737-800s + 31 737 MAX 8s

[SilkAir Orders 23 737-800s + 31 737 MAX 8s]

 

SilkAir fleet expansion may hurt MAS

 

By Isabelle Francis | The Edge Malaysia – 12 hours ago

 

 

PETALING JAYA: The aggressive expansion of Singapore Airlines Ltd’s (SIA) short-haul premium unit SilkAir is expected to heighten competition for Malaysian Airline System Bhd (MAS).

SilkAir’s recent orders for 68 new aircraft, to be delivered between 2014 and 2021, will eventually boost its current fleet of 21 planes to 89 which is close to MAS’ fleet size of less than 100. MAS is undergoing a fleet renewal programme which will result in a smaller but younger fleet.

With the orders for more planes, aviation analysts said there is a possibility of SilkAir dominating SIA’s route network of less than four hours flight radius in Asia. This could increase rivalry with MAS which is already betting hard on the region to boost revenue amid the slow collaboration progress with AirAsia Bhd.

Nevertheless, industry experts believe that MAS’ priority now is to solve its internal issues and strengthen its balance sheet instead of reacting immediately to competitive pressures from SilkAir.

“MAS must focus on its own internal problems first. That [has] precedence [over] competing with SilkAir or its other peers,” said a Maybank analyst.

SilkAir has agreed to buy up to 68 new aircraft worth some US$4.9 billion (RM15.2 billion) from Boeing, making it the largest purchase in the airline’s history. The purchase comprises a firm order for 54 aircraft and an option for another 14. The firm order is for 23 Boeing 737-800s and 31 Boeing 737 MAX 8s, with the flexibility to switch to other variants within the B737 range.

SilkAir’s sizeable order reflects a change in the playing field for premium players in response to increasing competition from low-cost carriers. However, such a shift in SIA’s group strategy to focus more on load factor is expected to further erode SilkAir’s passenger yields, which are already under immense pressure.

“[sIA] had in the past stated that once an airline starts to offer discounts on air fares, it would be hard to re-adjust yields to their previous levels. That said, we may see this becoming the case for SIA in the longer term,” said OSK Research.

OSK aviation analyst Ahmad Maghfur Usman said MAS, on the other hand, cannot afford to adopt SIA’s strategy as it does not have the luxury to lower its yields in order to fill more seats.

“MAS already has problems. Its yields are already so low. To lower it further means to make a loss,” he said. MAS’ low passenger yields have always been the culprit for its lack of profitability, although recently, it saw an improvement of 12% to 25.5 sen per RPK (revenue passenger km) in the first quarter ended March 31, 2012 following a reduction in capacity. MAS was still in the red with a net loss of RM172 million on the back of RM3.1 billion revenue during the quarter under review.

In recent months, SIA had adopted a load active strategy through more promotions, which analysts had expected to add pressure on overall yields in the near term. Its latest strategy is contrary to what premium carriers normally do --- raise yields to maximise profit.

Going back to Silk Air’s expansion, its current 21-strong fleet comprises A319s and A320s, with three new A320s due to be delivered in 2013. The average age of SilkAir’s fleet is six years and three months, while SIA operates 100 aircraft averaging six years and two months.

The new 737-800 and the 737 Max 8s ordered by SilkAir is expected to be more fuel efficient with between 3% and 4% lesser burn rate against their respective Airbus peers. This would be positive in terms of managing SIA’s fuel costs more efficiently over the longer term.

Meanwhile, OSK’s Ahmad said although SilkAir and budget carrier AirAsia serve overlapping routes, it is unlikely the former’s fleet expansion will give the latter stiffer competition.

“SilkAir is not a low-cost carrier as it targets more of the mid-segment market,” he said.

 

This article appeared in The Edge Financial Daily, August 7, 2012.

 

Source: http://my.news.yahoo...32--sector.html

[MAS Joins oneworld!]

http://www.ausbt.com.au/mas-to-join-oneworld-in-early-2013

 

Looks like higher chance it's gonna be Q1 2013 now.