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Monday, January 28, 2013

Malaysia Airlines recognizes oneworld membership as one of key steps in its turnaround

Effective 1 February, state owned Malaysia Airlines (MH) will become the 12th member of oneworld airline alliance. It is an important event for both entities, particularly for MH which sees alliance membership as the final and one of key stages of its restructuring plan. oneworld, on the other hand, will become by far the largest alliance in Malaysia (and this position is not likely to change any time soon as long as MH does not leave), while its market share in burgeoning Southeast Asia market will also grow.

Malaysia is now served by oneworld's Cathay Pacific (along with Dragonair), Japan Airlines and Royal Jordanian. Since invitation to oneworld, MH expanded its relationships with Cathay Pacific, Finnair, Japan Airlines and Royal Jordanian through codeshare agreements. The invitation was announced on 11 June, and Australian Qantas served as a mentor airline.

Although Qantas has only the best to say about MH joining the same alliance as itself, the two carriers appear to no longer be as close as when MH was invited by the Australian airline. At the time, Qantas was seriously considering establishing an operation in Kuala Lumpur which was supposed to get Qantas' financially troublesome international routes in order. Details regarding this envisioned joint venture were never quite clear due to conflicting reports. Nevertheless, the deal never materialized as the two carriers could not agree over the terms of the deal, with MH insisting that Qantas was asking for too much. Some observers believe that Qantas' 2012 deal with Emirates means that it will not try something similar with MH any time soon. However, it should be recognized that Emirates is far from being effective for Australia - Southeast Asia market, meaning that the Dubai-based carrier is probably not the one that spells the end to MH - Qantas deal, as long as the deal does not involve long-hauls.

MH will add 16 new destinations to oneworld network including a country - Brunei. MH's well-developed regional network is of particular interest to oneworld, which is not specially dedicated to gaining another member from the region. The alliance now has two carriers in the process of joining - SriLankan Airlines, a small but expanding flagcarrier, and Qatar Airways, whose decision to join an alliance carries significant implications for airline industry on a global level.

Malaysia Airlines' Airbus A380
The Malaysian flagcarrier operates a diverse fleet of more than 110 aircraft. This includes around 20 Airbus A330-200s and -300s, several A380s, close to 60 Boeing 737-400s and -800s, close to 10 747-400s and less than 20 777-200s. The airline is refleeting, which should eventually reduce the number of types in fleet. From Kuala Lumpur hub, it serves a well-developed regional network, as well as recently downsized long-haul network that now includes a handful of destinations in Australia and Europe, with a very small presence in the Middle East and North America.

MH seems to have no doubts about the importance of oneworld membership, claiming it will seriously boost the carrier's competitiveness and bring direct financial benefits. Indeed, the airline goes a step further and points out that oneworld was the best fit which, if MH's strategy and relationships are taken into account, is not far from truth. The airline expects to see an increase in the number of business travelers, which was decreasing due to harsh competition.

MH remains quiet about the course of its restructuring, but it is clear that it will not meet the set targets. The airline has changed some of its plans a few times, signaling that it might have problems figuring out the best moves. Unfortunately, MH has yet to announce layoffs of incompetent employees with government connection. It seems that the carrier's management is aware of the issues it is facing, but avoids making drastic changes.