SIA to make flight network changes next year

[jani 0]

Lower costs to operate to/from KUL.

 

Say, if last time, catering/pax cost RM35 = USD10. Now the same RM35 is only ~USD7.80.

 

Also, technically, should also mean lower costs for travelers to come to Malaysia.

[flee 5]

Would it have been better if AF used their B789 and LH used their A350 to KUL instead?

Some time ago, it was mentioned that LH will deploy the A359 on the FRA-KUL route - that was before it announced the discontinuation of the route. So we will only know if they return to KUL. LH has taken delivery of its first A350 recently and they will need a few more to be delivered before they can even think of sending it to KUL!

[JuliusWong 0]

Some time ago, it was mentioned that LH will deploy the A359 on the FRA-KUL route - that was before it announced the discontinuation of the route. So we will only know if they return to KUL. LH has taken delivery of its first A350 recently and they will need a few more to be delivered before they can even think of sending it to KUL!

LH was thinking of using EW for KUL since EW cost is much lower than mainline LH. Not sure of the plan come through......

[flee 5]

LH was thinking of using EW for KUL since EW cost is much lower than mainline LH. Not sure of the plan come through......

But FRA-KUL is not a leisure route....

[JuliusWong 0]

But FRA-KUL is not a leisure route....

Well, it couldn't sustain long enough to be business driven route (twice), hence EW is/was in the play.

[flee 5]

Well, it couldn't sustain long enough to be business driven route (twice), hence EW is/was in the play.

It will be surprising if EW can make it work. But kudos to them if they want to try!

That (aircraft reason) and also KL has SPA and codeshare agreement with MH for beyond KUL traffic.

Which makes it even more mysterious as to why MH has a "partnership" with EK....

[Mohd Azizul Ramli 2]

LH can't even make FRA-NRT works. Go figure.

[Izanee 0]

I'm surprised KUL-FRA which is usually 9 flights a week (then went to 12 flights a week between MH and LH) can't sustain any traffic. Doesn't make any sense. MAybe MH should have worked in conjunction with other airlines to get more feeder traffic but they loved undercutting everyone... didn't make many friends

[flee 5]

LH can't even make FRA-NRT works. Go figure.

The writing was on the wall when the began operating into HND. NRT became redundant.

[Craig 0]

Lower costs to operate to/from KUL.

 

Say, if last time, catering/pax cost RM35 = USD10. Now the same RM35 is only ~USD7.80.

 

Also, technically, should also mean lower costs for travelers to come to Malaysia.

Fair enough, but what if a pax bought a J class ticket ex-MY for MYR 20,000 a few years back and let's assume the J ticket costs the same today - LH can only repatriate back 3/4 of it in EUR today.

 

Some time ago, it was mentioned that LH will deploy the A359 on the FRA-KUL route - that was before it announced the discontinuation of the route. So we will only know if they return to KUL. LH has taken delivery of its first A350 recently and they will need a few more to be delivered before they can even think of sending it to KUL!

Probably not going to happen anytime soon. The first few 350s are MUC based and MUC-KUL won't work for sure. Until the Malaysian economy and MYR recovers to a healthy level, it'll be hard for EU carriers to return to KUL. And let's just say ME3 is making quite a dent on them too (not just limited to KUL/MH).

Edited January 10, 2017 by Craig

[Najib Ramli 0]

Fair enough, but what if a pax bought a J class ticket ex-MY for MYR 20,000 a few years back and let's assume the J ticket costs the same today - LH can only repatriate back 3/4 of it in EUR today.

 

 

A few years back MYR to EUR conversion rates is exactly where it is right now (4.5-4.6 level) so I don't actually see how you come to the 3/4 conclusion.

 

It was only briefly during Greek crisis in 2015 and a few years during USD 100 oil price that MYR traded at below 4.00 for EUR (unless you go wayyyyy back of course)

 

But then again I don't think inter company repatriation of money works by simple exchange rates calculation

 

Also I agree with Jani that supposedly weak ringgit should be boon for Europeans since things should be cheaper..

 

However the truth on the ground is that they're still reeling from the impact of the previous and recent economic crisis

[flee 5]

For those who want a bit more background on Europe, check out this piece:

 

European Airlines Face Formidable 2017

Terrorism, political instability and overcapacity to erode European airline profits

http://aviationweek.com/commercial-aviation/european-airlines-face-formidable-2017

[jani 0]

Fair enough, but what if a pax bought a J class ticket ex-MY for MYR 20,000 a few years back and let's assume the J ticket costs the same today - LH can only repatriate back 3/4 of it in EUR today.

 

Good point. But what could also happen is that they just turn that money around for KUL/Malaysia ops, without having to exchange it again.

 

Anyway, it is basic (although perhaps purely theoretical) economics that a cheaper exchange rate should drive more money to said country.

 

Same reason why now USD is so expensive, because everybody wants to put their money there due to the perceived pro-business stance of Trump.

 

Getting way off topic, sorry!

[Craig 0]

A few years back MYR to EUR conversion rates is exactly where it is right now (4.5-4.6 level) so I don't actually see how you come to the 3/4 conclusion.

 

It was only briefly during Greek crisis in 2015 and a few years during USD 100 oil price that MYR traded at below 4.00 for EUR (unless you go wayyyyy back of course)

 

But then again I don't think inter company repatriation of money works by simple exchange rates calculation

 

Also I agree with Jani that supposedly weak ringgit should be boon for Europeans since things should be cheaper..

 

However the truth on the ground is that they're still reeling from the impact of the previous and recent economic crisis

 

EUR:MYR has been around 4.00 since 2012 and for about 12-months between 2013 and 2014, it was 4.5-ish (5-year low was 3.807 and 5-year high was 5.019). Now it's 4.72.

 

LH introduced nonstop services to KUL March 2015 (along with AF, but maybe a year before LH). EUR:MYR then was 4.00-ish. LH pulled out of KUL March 2016, EUR:MYR was 4.50-ish. However, I don't believe the decision to pull out happened in March 2016, but maybe sometime late 2015 and EUR:MYR was around 5.00.

 

Let's assume they expect to generate $1 million MYR in revenue a month for ex-MY operations. In March 2015, they can repatriate back €250k. In Nov. 2015, the can only repatriate back €200k - that's a loss of €50k (or 20%)! My math was a little off earlier because I was using USD in reference to jani, but EUR depreciated (and is still depreciating) against USD as well.

 

True that company repatriation doesn't work by simple exchange rate calculation, but it's useful to see that they aren't getting that much revenue from MY operations with the falling MYR.

 

Good point. But what could also happen is that they just turn that money around for KUL/Malaysia ops, without having to exchange it again.

 

Anyway, it is basic (although perhaps purely theoretical) economics that a cheaper exchange rate should drive more money to said country.

 

Same reason why now USD is so expensive, because everybody wants to put their money there due to the perceived pro-business stance of Trump.

 

Getting way off topic, sorry!

 

I didn't realize LH/AF is setting up a base or another carrier in Malaysia. Why would they want to turn that money around for MY ops without repatriating it back to DE? They just keep all their in MYR hoping that one day it'll appreciate and then repatriate it back in EUR? How are they going to invest in anything (buy new planes, pay their staff in DE, secure new loans, marketing etc.)?

 

Basic economics that cheaper exchange rate should drive more money to that country? Let's all invest in Egypt now (OT: I think a few MW members are indeed investing in airline tickets from Egypt now)

 

And "USD is expensive because everybody wants to put money there now" -- your previous statement just contradicted this. Basic economics state that cheaper exchange rate should drive more money to that country but yet people are putting money in USD because they are so expensive?

Edited January 11, 2017 by Craig

[jani 0]

LH does have operations in Malaysia, no matter small it is. And therefore need to do business in ringgit. I would however imagine that the bulk of their sales relating to KUL originate from Germany/Europe. Anyway, I highly doubt their ticket price example you showed earlier would stay the same, without moving with the exchange rate.

 

On my second statement, I perhaps didn't explain it properly but it does not contradict.

 

Actually yes, now is a fantastic time to invest in Egypt. Ask China. But of course investment decisions aren't made purely on forex movements

 

On the flipside, investors perceive Trump to be good for the American Economy, hence demand for the dollar increases as investors want to put their money there. The money has to come from somewhere? So it comes from emerging markets like Malaysia, and investors sell off the ringgit, causing it to fall.

 

But will it "free-fall"? Definitely not. At some point there will be an equilibrium when investors find that it might be a bit too cheap to invest in Malaysia, hence money will return and causing the ringgit to stabilize.

 

Anyway, just my two cents. Am certainly not an expert. Just gathered from my brief readings here and there.

[KK Lee 5]

Most if not all MNC have treasury department to manage their cash and most repatriate foreign income back to home country daily. Treasury usually hedge revenue (e.g. EUR) against expenditure (e.g fuel in USD).

 

MYR/USD has been on downtrend and likely to be continue. It make sense to repatriate MYR income back to EUR/USD as soon as possible. Ticket issued in MYS is in MYR but normally converted from airline benchmark currency (e.g. USD/EUR). How often this conversion rate change is depending on each airline.

 

On a side note, US economy is performing better than most realized.

[Najib Ramli 0]

 

EUR:MYR has been around 4.00 since 2012 and for about 12-months between 2013 and 2014, it was 4.5-ish (5-year low was 3.807 and 5-year high was 5.019). Now it's 4.72.

 

LH introduced nonstop services to KUL March 2015 (along with AF, but maybe a year before LH). EUR:MYR then was 4.00-ish. LH pulled out of KUL March 2016, EUR:MYR was 4.50-ish. However, I don't believe the decision to pull out happened in March 2016, but maybe sometime late 2015 and EUR:MYR was around 5.00.

 

 

And "USD is expensive because everybody wants to put money there now" -- your previous statement just contradicted this. Basic economics state that cheaper exchange rate should drive more money to that country but yet people are putting money in USD because they are so expensive?

 

getting a bit out of topic here,

 

what i understand is that you're saying that MYR was falling in value vs EUR after LH introduced their direct services here thus it's possibly one of the factor for their pull out..

 

the fact is the reverse however...it was EUR that was falling in value vs MYR in 2015 (due to the Greek crisis) and in 2010 to 2014 (post sub prime crisis where European banks had to be bailed out and era of USD 100 oil price)...prior to those years MYR has always been above 4.5 to the EUR unless you go wayyyy back

 

so i really doubt that LH actually decided to cancel the direct service due to currency exchange rates...

 

if you look at AF, it's no surprise that they cancel the direct service. as a group AirFrance-KLM passenger numbers increased as per latest report but broken down by airline, AF is bleeding customers while KLM is adding customers. that's quite telling about AF performance in general.

 

as being told in this thread, the oil and gas traffic was decimated by the oil price crash, contributing to significant drop in premium traffic for these careers. i mean LH and AirFrance-KLM even have a special FF membership for those working in Oil and Gas. you're entitled to premium membership services right form the start even when you have 0 miles (though as per recent changes lounge access are only for transfer passengers for FlyingBlue Petroleum). i would assume that the industry (though now decimated) contribute significant traffic, else they would not have bothered to introduce such services

 

regarding why people is investing in the US. people park their money in Malaysia (and developing countries) because of the higher returns (high interest rates), the US has had extremely low rates (near 0%, imagine buying a house for 1% interest rate, good for consumer, not so good for lenders) for many years now. the recent hike however makes it more attractive to park money in the US itself.

 

anyway back to the topic of SIA, network changes are quite inevitable i would say. even the all mighty Emirates is struggling in the current environment. you would have though cheaper oil price would mean cheaper operating costs for the airlines and thus more profits, but it turned out the cheaper oil price also suck money out of many people's pockets as well...