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Is Malaysia Airlines dumping fares?

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‘Now everyone can fly’ used by AirAsia applies to Malaysia Airlines as well these days. Paradoxically the premium national carrier now comes with budget pricing. Don’t get Tiger wrong; the ongoing airline price war between AirAsia and Malaysia Airlines has done a world of good for consumers. What is worrying though, is that Malaysia Airlines is pricing itself out of profitability for the sake of keeping up with the competition.


Of the few things Tiger – even as apex predator of the jungle – is not able to do, one of them is take to the skies and fly. For that Tiger has to rely on one of two options; national carrier Malaysia Airlines or budget airline dressed in red AirAsia.


Some have said to Tiger: “You should try out Malindo Airways, they have a TV screen at every seat and you can really stretch out on the seats.” But unfortunately Tiger hasn’t found a good excuse for a ‘lawatan sambil belajar’ this past year, unlike this goodfella.


So, what’s ‘news’ this week you may ask? Well, the top most popular stories on KiniBiz this week have got to do with either one of three things; Daim Zainuddin, Syed Mokhtar or Malaysia Airlines.


No surprise, the first two are corporate movers and shakers – past and present – and as for Malaysia Airlines, let’s just say the national carrier is more famous for being unprofitable than moving and shaking up the corporate world.


How can things get any worse for Malaysia Airlines than posting a net loss of RM1.2 billion for the 2013 financial year, more than double the previous year’s losses?


Tiger found a retort to Malaysia Airlines’ heavy losses on his Facebook feed that went something like this: 27% higher passenger traffic and still more losses?


Malaysia-Airlines-group-CEO-Ahmad-Jauhar

Ahmad Jauhari Yahya



The answer is pretty simple. Malaysia Airlines has been selling below cost. And how may Tiger know this? Malaysia Airlines CEO Ahmad Jauhari Yahya practically admitted it when he reported the national airline’s 2013 unit revenue and cost numbers during an editor’s briefing Wednesday.


For the whole of 2013, Jauhari said, Malaysia Airlines revenue per available seat kilometre (RASK) was 23.5 sen. Meanwhile, cost per available seat kilometre (CASK) was higher at 24.7 sen. Malaysia Airlines’ unit cost exceeding that of its unit revenue is proof enough the airline was operationally unprofitable in 2013.


RASK and CASK figures are more suited for comparison because they are adjusted by dividing revenue and cost respectively by available seat kilometres, which is an industry specific measure that refers to one aircraft seat flown a distance of one kilometre.


So while Jauhari has been driving “revenue, revenue, revenue” and revenue has indeed risen – by 11% in 2013 – that extra revenue hardly kept up with the 27% increase in passenger traffic.


If you’re a frequent flyer, you would have noticed MAS ticket prices have been significantly lower in the recent year. Malaysia Airlines flights – especially domestic ones – continue to be cheap, the result of a price war that has stretched on for over a year.


Tiger had the privilege of time last night to make a few dummy same-day return bookings to compare AirAsia and Malaysia Airlines ticket prices. As a control measure, the departing flights are restricted to the cheapest flight between 8:30am to 10am while for return flights Tiger picked the cheapest early evening flight on the same day.


Airfare-comparison-200214-edited-520x360To Kota Kinabalu from Kuala Lumpur, the nation’s busiest domestic air route, Malaysia Airlines flights were slightly more expensive than AirAsia’s after baggage allowance of 20kg, an inflight meal and counter check-in charges were factored into the AirAsia ticket price.


Don’t blame Tiger, when Tiger flies, Tiger wants his creature comforts. Not only that, adding in the ‘frills’ would make for a fairer comparison exercise.


Let’s move on to the second busiest domestic route. Flights between the capital and Kuching are a little of a mixed bag. Malaysia Airlines was the cheaper option by far for a booking made a month ahead, actually a huge RM140 cheaper than AirAsia’s RM465. But for a booking made three months ahead AirAsia stood out as the cheaper option on account of promotional fares for flights during that time.


For a view on international flight prices Tiger looked at flights to Jakarta from Kuala Lumpur and found Malaysia Airlines consistently cheaper than AirAsia. Return fights for a month from today and three months from now both cost RM469 with MAS but equivalent itineraries at AirAsia cost RM532 and RM492 respectively. For Jakarta flights, Malaysia Airlines flights are cheaper even without factoring in baggage and an inflight meal to AirAsia’s ticket prices.


From that short analysis, Tiger is more than a little convinced Malaysia Airlines is dumping fares. But whatever for? Malaysia Airlines’ premium status should allow the airline to charge more and get away with it. After all MAS is one of a few 5-Star airlines, as rated by Skytrax, even holding on to that rating for the past seven out of eight years.


Jauhari – got to like him for his bite – wants to hold on to Malaysia Airlines’ market share and “remain relevant as a key player.” To do this, Jauhari claimed, Malaysia Airlines has to increase its seat capacity. In 2013, capacity went up 17%. Estimates point to a slightly lower capacity increase of 12% this year.


We now come full circle. In order to fill those 17% extra seats in 2013, Malaysia Airlines has had to offer steep discounts to entice passengers to fly with them. Hence, the cheap flights to Kota Kinabalu, Kuching and most definitely Jakarta.


tony-fernandes-4.0.jpg

Tony Fernandes



The national carrier’s competitors are visibly upset. From the long chain of tweets AirAsia boss Tony Fernandes churns out each day, Tiger found this rare nugget of wisdom: “I wonder if it’s fair that Malaysia Airlines can lose so much money and protect its market share. Can only do that with taxpayers money.”


Tiger feels Fernandes’ pain. Malaysia Airline’s aggressive expansion has spoilt the aviation market for AirAsia. Passenger yield, a measure of average ticket prices, declined by approximately 7% in 2013 at the budget carrier. This is no doubt a symptom of the ongoing price war.


The price war has caused enough heartache for the airlines, so much so that even acting Transport Minister Hishammuddin Hussein is considering intervention. “There is a limit for (airlines) to be competing with each other at the expense of national interest and the national agenda,” Hishammuddin said in January.


Ultimately, consumers are the clear winners from the price war. Competition is healthy, no doubt about it, but can be tricky given the sustainability of the Malaysian aviation industry is at stake.


yield-comparison-regional-airlines-2004-What needs to be done, and Tiger has said this time and again, is for Jauhari to take a long hard look at his turnaround plan. It’s obvious aggressive expansion and cost-cutting running concurrently has not resulted in a turnaround of fortunes for the national carrier in the two years of the plan.


Jauhari promises a prospect of breaking even by the end of the year, a deadline that still affords him several months to take things in a different direction.


The situation is extremely dire if Tiger were to look at it this way: Malaysia Airlines has not recovered from the blow to its yields and profitability it took during the 2008/9 Global Financial Crisis. Almost all other airlines have, but curiously not MAS.


GRRRRR!



http://www.kinibiz.com/story/tigertalk/73038/is-malaysia-airlines-dumping-fares.html


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It is obvious AJ n Co are clueless in managing the airline.

There are 4 leakages in yield or inventory management from my point of view:

 

1. Redemption of miles - when flights are running full, above 85%, Enrich members ares still allowed to redeem their miles. In most airlines this will not be permitted.

2. In most airlines, only immediate family members are entitled to staff discounts, but with MH, even extended family members can fly unlimited flights at huge discounts.

3. With OneWorld, their discounts are further extended to other partner airlines and even in business class! In most airlines, the front cabin yields make the difference between profits and loss.

4. New routes does not require fare dumping, but MH does that all the time! The Dubai route is an example. MH priced their introductory fares at 35% below EK. Why not just 10% below EK? A source mentioned that in the first 4 months on the Dubai route, MH lost some MYR4 million !

 

Any other leakages?

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It is obvious AJ n Co are clueless in managing the airline.

There are 4 leakages in yield or inventory management from my point of view:

 

1. Redemption of miles - when flights are running full, above 85%, Enrich members ares still allowed to redeem their miles. In most airlines this will not be permitted.

2. In most airlines, only immediate family members are entitled to staff discounts, but with MH, even extended family members can fly unlimited flights at huge discounts.

3. With OneWorld, their discounts are further extended to other partner airlines and even in business class! In most airlines, the front cabin yields make the difference between profits and loss.

4. New routes does not require fare dumping, but MH does that all the time! The Dubai route is an example. MH priced their introductory fares at 35% below EK. Why not just 10% below EK? A source mentioned that in the first 4 months on the Dubai route, MH lost some MYR4 million !

 

Any other leakages?

RM6.25 billion contract with in-flight caterer Brahim's Holdings Bhd

 

"There is no airline in the world which has entered into a contract as long as 25 years and non-negotiable.

 

Read more: Catering deal eating into MAS profit http://www.btimes.com.my/Current_News/BTIMES/articles/MASS20/Article/index_html#ixzz2txuHF5Nr

 

Read more: Catering deal eating into MAS profit http://www.btimes.com.my/Current_News/BTIMES/articles/MASS20/Article/index_html#ixzz2txu6BB5f

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yield-comparison-regional-airlines-2004-

 

There was a time in 2008 where MH's yield is higher than SQ and in fact higher than any other airlines featured.

 

The graph also does showed which one of the 3 CEOs who did well. Can't decide on who's the worse between Tengku Azmil or Ahmad Jauhari.

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An acquaintance of mine, an MH staff, brought four of his siblings, so altogether five of them, to CDG. Each of them paid only RM500++ return. There should be a limit to these things, especially with a RM1.2bil loss!

Edited by Mulyadir Fitri

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yield-comparison-regional-airlines-2004-

 

There was a time in 2008 where MH's yield is higher than SQ and in fact higher than any other airlines featured.

 

The graph also does showed which one of the 3 CEOs who did well. Can't decide on who's the worse between Tengku Azmil or Ahmad Jauhari.

 

Believe MH brand value was destroyed by IJ's FSVC and high yield strategy, TA and AJ were unlucky people to inherent a LCC trying to become a legacy carrier.

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I agree with KK, that was the beginning of MH's brand dilution and deterioration into a hybrid LCC. Even the business class offering nowadays pales in comparison to other airlines. First the yields go, then service is down the drain, then kacang and timun disappear from the Nasi lemak, then customers buy tickets on other carriers.

I'm sure oneworld is now much more excited about QR joining...

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An acquaintance of mine, an MH staff, brought four of his siblings, so altogether five of them, to CDG. Each of them paid only RM500++ return. There should be a limit to these things, especially with a RM1.2bil loss!

 

Remember when I raised the matter about the LIFETIME staff travel benefits even for resigned/retired staff and their family members at the other thread?

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RM190 all-in, for KUL-BKI-KUL, travel during the chinese new year period just past

Admittedly that was booked and paid for back in October, but if there was any decent yield management system in place, would those sort of fares have been made available during known busy travel periods to start with ?

Btw, AK was apparently twice or more of that :)

I'm guessing RM190 doesn't even go near making up cost of fuel burn necessary to get pax to/fro

Now, if that isn't fare dumping raised to an art form ....... :)

Edited by BC Tam

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I read about EK and LAX. When they were operating 777, the fares were lower. But once they put A380 on this route, the fares were increased accordingly since A380 has more bells and whistles. MH seems to dump fares, just to improve the load. They should use this opportunity to showcase their products, but MH products leave a lot to be desired.

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My opinion is the fact that AK has successfully tie themselves to low cost makes them the first choice for almost all "balik kampung" season like the Chinese New Year. This makes MH's "promo" price harder and takes longer to sell. This might explain the availability of such "limited" fare closer to the travelling period.

 

On the other hand I was just checking some fares and noticed that around Chap Goh Mei (15th day of CNY) can still get RM99 one way BKI - KUL. That's about 2 weeks before flying off and I was wondering could it be that both AK and MH had over anticipated the demand during this festive season? A case of over-capacity at this time perhaps?

 

Ironically the last time I heard about airlines combining 2 flights into 1 was from OD, although I am not sure if the news was true. Perhaps they could start doing that again?

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Consolidation is usually a last resort - when even promo fares can't sell. So if AK or MH has to resort to consolidation, it means that there is not enough business for them, at whatever low fare they are offering. So I think there is still demand - that is why they are not consolidating the flights.

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Went to Penang (from KK) last year, as usual made comparison between AK and MH (didn't really bother about Malindo) around two months before actual flight. MH return fare was only few RM cheaper than AK.

Did a trip to Kuching (also from KK), also last year, but I found AK to be significantly cheaper than MH in this regard.

 

I think MH should just really spend the money and invest in improving inflight products (esp. meals and entertainment) and focus on attracting international passengers. Let the airfare be expensive, because MAS are meant to be a premium airline. I'd rather see MAS shrink and start small again.

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I think MH should just really spend the money and invest in improving inflight products (esp. meals and entertainment) and focus on attracting international passengers. Let the airfare be expensive, because MAS are meant to be a premium airline. I'd rather see MAS shrink and start small again.

 

That's pretty much the consensus in this forum. I don't see MH can improve its yield until they try hard to impress customers. Currently, people chose MH because of lower fares, hence high load, low yield.

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That's pretty much the consensus in this forum. I don't see MH can improve its yield until they try hard to impress customers. Currently, people chose MH because of lower fares, hence high load, low yield.

Therein lies MH's problem - it has lost so much brand equity that people find it hard to justify paying a premium for their products.

 

With the premium customer base shrinking (companies are cutting business travel and downgrading too), only the best airlines can survive charging premium fares. Even SQ is having problems with yields.

 

MH must surely try to look for more "premium economy" customers. However, they do not have a hard product for this category. So, they have to charge LCC fares and hope that travellers bite and fill up their planes. But they need to get the CASK numbers down....

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So I think there is still demand - that is why they are not consolidating the flights.

Could also be AK and MH not wanting to be the one to blink first :D

(the newcomer OD already wisely chickened out)

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An acquaintance of mine, an MH staff, brought four of his siblings, so altogether five of them, to CDG. Each of them paid only RM500++ return. There should be a limit to these things, especially with a RM1.2bil loss!

Bro, have you heard something called SUBLO ticket? It is a standard industry-wide practice with any airlines around the globe for the staff and family.

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It is obvious AJ n Co are clueless in managing the airline.

There are 4 leakages in yield or inventory management from my point of view:

1. Redemption of miles - when flights are running full, above 85%, Enrich members ares still allowed to redeem their miles. In most airlines this will not be permitted.

2. In most airlines, only immediate family members are entitled to staff discounts, but with MH, even extended family members can fly unlimited flights at huge discounts.

3. With OneWorld, their discounts are further extended to other partner airlines and even in business class! In most airlines, the front cabin yields make the difference between profits and loss.

4. New routes does not require fare dumping, but MH does that all the time! The Dubai route is an example. MH priced their introductory fares at 35% below EK. Why not just 10% below EK? A source mentioned that in the first 4 months on the Dubai route, MH lost some MYR4 million !

Any other leakages?

Point # 2 - again have you heard something called SUBLO ticket?

 

Point # 3 - even before joining OneWorld, MAS had signed agreement with a few other airlines under ZED fares for the benefits of the staff and family, again under SUBLO ticket. Premium class staff travel only avail to other airlines for official duty and it is a two-way agreement and most of the times under ID50.

 

If AJ and co are clueless, who is the best candidate?

 

MAS is a govt entity and Putrajaya has the final say in any BOD meeting. MD/CEO is just a person who will do the job as mandated but not to meddle with policy and directive given by super god in Putrajaya.

 

Even Superman could not save MAS as long as super god is still running the airline remotely.

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Bro, have you heard something called SUBLO ticket? It is a standard industry-wide practice with any airlines around the globe for the staff and family.

Yes

Every airlines give this privilage to thier employee

And did you know that airasia staff can put their friend name to enjoy this benefit?

lastly almost 50% of MH staff didnt utilize ANNUAL FREE TICKET (FOC)? And cannot sell it or give it to other people

Edited by acap

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Bro, have you heard something called SUBLO ticket? It is a standard industry-wide practice with any airlines around the globe for the staff and family.

Yes, I am aware of that. The difference is other airlines do not incur losses after losses every year. JAL trimmed its employees benefits during the restructuring after filing for bankcruptcy with $26B loss. Do we need MH to file for chapter 11 before they finally take such steps? Do we need more taxpayers money going in just so that the benefits are maintained despite the losses?

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Do we need MH to file for chapter 11 before they finally take such steps?

We don't have chapter 11 in Malaysia. It'll be straight to chapter 7... but, not that will happen anyway.

 

 

4. New routes does not require fare dumping, but MH does that all the time! The Dubai route is an example. MH priced their introductory fares at 35% below EK. Why not just 10% below EK? A source mentioned that in the first 4 months on the Dubai route, MH lost some MYR4 million !

Actually many airlines do have this deeply discounted introductory fare which is probably only enough to cover certain bills for new flight/route. QR, KA/CX, AF, LX all have done this and are still doing this once in a while.

 

 

RM190 all-in, for KUL-BKI-KUL, travel during the chinese new year period just past

Admittedly that was booked and paid for back in October, but if there was any decent yield management system in place, would those sort of fares have been made available during known busy travel periods to start with ?

Btw, AK was apparently twice or more of that :)

I'm guessing RM190 doesn't even go near making up cost of fuel burn necessary to get pax to/fro

Now, if that isn't fare dumping raised to an art form ....... :)

If you buy from some travel agencies, it'll be just RM180 all-in, and they take credit card too at no extra charge :D

 

Anyway, anyone still remembers MAS actually had RM0 fare sale during Idris Jala time ? It was real RM0 fare and a return ticket between BKI-KUL cost just RM64 all-in! No joke!

 

 

My opinion is the fact that AK has successfully tie themselves to low cost makes them the first choice for almost all "balik kampung" season like the Chinese New Year. This makes MH's "promo" price harder and takes longer to sell. This might explain the availability of such "limited" fare closer to the travelling period.

 

On the other hand I was just checking some fares and noticed that around Chap Goh Mei (15th day of CNY) can still get RM99 one way BKI - KUL. That's about 2 weeks before flying off and I was wondering could it be that both AK and MH had over anticipated the demand during this festive season? A case of over-capacity at this time perhaps?

Air Asia should be worried as more and more people are becoming smarter these days. Majority of my friends now always check all three airlines serving BKI - KUL before booking their flights. Some do not mind to pay RM100-RM150 to fly extra MAS. The stingy ones of course will still end up booking Air Asia.

Edited by Isaac

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Yes, I am aware of that. The difference is other airlines do not incur losses after losses every year. JAL trimmed its employees benefits during the restructuring after filing for bankcruptcy with $26B loss. Do we need MH to file for chapter 11 before they finally take such steps? Do we need more taxpayers money going in just so that the benefits are maintained despite the losses?

If you are aware of that, SUBLO tickets ain't got nothing to do with the losses. It is a standby basis and and the airplane still flies with a few empty seats anyway. So how could it incurs losses?

 

Please let me explain what is SUBLO. It is a short form of 'Subject to Load', it means commercial pax has higher priority than staff to be accepted for the flight. If the flight is SOLD OUT, it means there is no chance for SUBLO ticket holder to be accepted. However, average industry standard annually worldwide is between 75-85% load factor. Therefore, the chances are, there would be spaces (seats) available for the staff to travel, albeit on standby basis.

 

So, rather than keep the empty seats empty, why not fill them up with staff and family at discounted fares? Employees would be happy and the company does not lose anything.

 

Therefore, I could not understand your argument.

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If you are aware of that, SUBLO tickets ain't got nothing to do with the losses. It is a standby basis and and the airplane still flies with a few empty seats anyway. So how could it incurs losses?

Please let me explain what is SUBLO. It is a short form of 'Subject to Load', it means commercial pax has higher priority than staff to be accepted for the flight. If the flight is SOLD OUT, it means there is no chance for SUBLO ticket holder to be accepted. However, average industry standard annually worldwide is between 75-85% load factor. Therefore, the chances are, there would be spaces (seats) available for the staff to travel, albeit on standby basis.

So, rather than keep the empty seats empty, why not fill them up with staff and family at discounted fares? Employees would be happy and the company does not lose anything.

Therefore, I could not understand your argument.

Ah.. Excellent explanation. I stand corrected then. :good:

Edited by Mulyadir Fitri

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If you are aware of that, SUBLO tickets ain't got nothing to do with the losses. It is a standby basis and and the airplane still flies with a few empty seats anyway. So how could it incurs losses?

Please let me explain what is SUBLO. It is a short form of 'Subject to Load', it means commercial pax has higher priority than staff to be accepted for the flight. If the flight is SOLD OUT, it means there is no chance for SUBLO ticket holder to be accepted. However, average industry standard annually worldwide is between 75-85% load factor. Therefore, the chances are, there would be spaces (seats) available for the staff to travel, albeit on standby basis.

So, rather than keep the empty seats empty, why not fill them up with staff and family at discounted fares? Employees would be happy and the company does not lose anything.

Therefore, I could not understand your argument.

It is actually called 'Subload'and not 'sublo' !

The argument is not about 'company does not lose anything'. When it is extended to extended family members regardless of age, the airline actually stand to lose money as these 'eligible relatives' do not pay the market fares.

Some airlines for example, curtail staff from purchasing more than 10 staff price tickets a year...which I doubt MH does.

 

I have a friend who flies weekly to KBR on his business trip on this special staff tickets as his niece is an employee of MH because previous experience tells him which flights to take.

 

Hope this explains my statement.

Edited by Ashraf

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