By Stephanie Jacob
The local aviation industry is currently extremely competitive. While it is a boon for travellers, given the nature of the full year results posted by the MAS, AirAsia and AirAsia X – Tiger cannot help but wonder if the airline companies are employing the right strategy in their battle for market share.
Tiger occasionally is awakened from her slumber by the sound of large metal birds flying overhead, and is always somewhat impressed by the human invention.
Unfortunately a certain red airline’s promise that ‘now everybody can fly’ does not extend to include tigers, but then this cat imagines she can cut them some slack given she comes from a different species and all
Still Tiger thinks about all the people travelling on that plane heading to some other land for whatever reason and feels a tinge of envy – what a lucky bunch!
In fact come to think about it, passengers flying in, out and through Malaysia using one of its homegrown airlines have probably never had it better.
If Tiger were to just focus on the accessibility of air travel to Malaysian humans, then she would have to say this is a good time to be an air traveller. I mean how many countries have three cheap airline options to choose from (four if you add unlisted Malindo)?
No doubt this is good for the consumers. Fares are low, and people can travel – there is nothing that is wrong with that, in fact competition driving prices down is good.
What is more, Tiger believes that for the most part competition is good for the health of the companies involved. It makes them quicker in responding to the market, leaner and more productive.
After all, Tiger is never fitter than when there is another cat trying to make a move into its patch.
But is there such a thing as engaging in bad competition Tiger wonders, where having been approached using the wrong strategy causes more problems than its solves – and is that what its happening to our aviation industry?
Over the past two weeks, we have seen national carrier MAS, long haul budget carrier AirAsia X recording losses and low cost carrier AirAsia’s reporting flattish growth. Why?
Flipping through the papers it is not uncommon to find ads from any of the local airlines offering cheap fares, usually for the same routes – local destinations, the Australian routes and flights in Southeast Asia have all become battleground destinations with carriers dropping fares and increasing capacity and frequency.
Last week a fellow Kinibiz Tiger asked if MAS was dumping fares, and this week it was clear the impact that its the low fares to boost capacity strategy were having on its competitors. AAX saw losses and AirAsia remained flattish, both seemingly on the back of yield pressure on the back of increased competition from MAS.
Tiger suspects many already know the answer as to how MAS did – it made losses, RM1.2 billion net to be exact.
MAS’ turnaround plan seems to be premised on the idea that if it can increase its revenue, then it can capture more market share and eventually reverse its losses – the load active, yield passive idea.
Which in a nutshell is to increase capacity at lower prices and fill the planes. Or the idea that by increasing available seats per kilometre (ASK) you increase capacity, this in turn allows you to increase your revenue per ASK (RASK).
To be fair to MAS, that has for a long time been AirAsia’s game plan too. But does that mean it should be the national carrier’s?
The difference is the matter of cost per available seat kilometre or CASK – AirAsia’s is one of, if not the lowest in the world. On the other hand MAS’ CASK is currently not low enough for the quantum of its RASK to be sufficiently turn a profit.
MAS has taken the battle to AirAsia’s home turf and by all accounts is losing the war – simply because its CASK is not low enough.
That being said, MAS taking the battle to the red side has had a negative impact on both AirAsia and AAX and the latter will need to respond. So who appears in better shape?
To recap this is what analysts had to say about the three carriers when discussing their prospects going into 2014.
On AirAsia, Maybank IB Research analyst Mohshin Aziz said that he was maintaining his ‘buy’ call on the low cost carrier. Its management is actively managing the situation and will be reassesing and lowering the pace of its capacity growth. AirAsia also will rationalise some of its weak routes and redeploy capacity to more lucrative routes.
Noting that this was the lowest pace of growth forecast by management and that it was uncharacteristic for them to pull out capacity – it showed “AirAsia’s high level of maturity and deep understanding of the fundamental market demand”.
AAX is also maintained at a ‘buy’ with Mohshin saying that going into 2014, it is not expected to face serious competition from other airlines.
Furthermore with most routes not set for capacity addition and set to add frequency instead there is a “structured and safer avenue for growth…we expect AAX to achieve 4% yield growth in 2014.”
On MAS, Mohshin noted that management had guided that it was expecting an equally if not more challenging 2014 and that it planned to continue on its strategy of prioritising load over yield.
In outlining the research house’s position he said “we are uncomfortable with management’s approach to continue with a strategy that has not yielded positive results thus far,” and downgraded MAS from ‘hold’ to ‘sell’.
In the jungle, each animal has its own way of surviving and of thriving – some have speed, others strength or the ability to camouflage Each animal finds something to use to its advantage and then develops it and masters it – but even then when nature changes, so must each ones methods.
High numbers, low revenue works for AirAsia because it supports it with low cost – this is its game and one that it plays well. Yes, MAS has managed to load their planes, but that has not helped them turn their own fortunes around.
A key aspect of being competitive is that ability to adapt, to change strategy when necessary. MAS has to find its own strategy, one that is suitable to its strengths – because it is becoming increasingly clear that the current one is not working.
GRRRRR!
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