Malaysian Air to Add A380 Jets to Aid Turnaround: Southeast Asia

Malaysian Airline System Bhd. plans to add more Airbus SAS superjumbos to its fleet as modern, fuel-efficient aircraft will assist a turnaround from two consecutive years of losses.

The flag carrier, which has six A380s, may order “a few more” double-decker planes, Group Chief Executive Officer Ahmad Jauhari Yahya said in an interview in Kuala Lumpur yesterday. Malaysian Air will arrive at a decision by the year-end, he said.

Ahmad Jauhari needs new aircraft to cut fuel expenses, the airline’s biggest cost at 37 percent, end losses and take on competition from Singapore Airlines Ltd., which also boosted its A380 orders last year. Asian carriers may help spur demand for Airbus’s superjumbo, whose sales have suffered in recent years as a weak global economy and a flaw with a wing component damped orders, leading to some unsold production slots.

“It’s better late than never,” said Mohshin Aziz, an analyst at Kuala Lumpur-based Maybank Investment Bank Bhd. “I believe the company will be profitable by the end of this year because by then it would have substantially refitted its fleet with brand new aircraft.”

Malaysian Air will take delivery of 24 new aircraft this year and another 25 over the next two years, said Ahmad Jauhari, who became the CEO in September 2011. The carrier ordered 15 Airbus and 35 Boeing Co. planes in 2011.

Malaysian Air currently flies its A380s to London, Hong Kong and Paris. The carrier has fitted the superjumbos with first-class seats bigger than single-bed mattresses as part of efforts to win more premium traffic. Flights with the 494-seat plane began in July last year with a service to London.

‘Flying Aggressively’

Airbus got nine orders for the superjumbo last year against a target of 30. In January, the planemaker said it aims to win 25 A380 sales this year.

“The A380s have been successful with passenger load factor of above 80 percent, sometimes even full load,” Ahmad Jauhari said. “We have been flying the A380s aggressively, 17 hours a day.”

Malaysian Air is also retiring 30 aircraft from its fleet this year to cut costs. New planes typically consume less fuel than older aircraft. With the retirement of old planes and new aircraft coming, the average age of Malaysian Air’s fleet of 110 planes will be 5.4 years by end of 2013, Ahmad Jauhari said.

The airline is targeting to achieve a passenger load factor of more than 80 percent for the rest of the year from the current 78 percent, he said. The company’s focus will be on Asian capitals and major tourist destinations in the region.

Wider Loss

Competition is increasing for Malaysian Air, part of the Oneworld Alliance, as budget airlines expand in Southeast Asia and Singapore Air boosts plane orders. Singapore Air last month ordered 60 planes worth $17 billion from Boeing and Airbus.

Discount carriers in Southeast Asia ordered at least 1,000 new aircraft in the past five years as economic expansion across the region enables more people to start flying in countries such as Indonesia, Thailand and Vietnam. Some 15 low-fare carriers started flying in the past decade across Asia.

Increased competition and rising costs pushed Malaysian Air into two straight years of losses. The carrier’s loss in the first quarter of this year widened to 278.8 million ringgit ($89 million) as fares declined, eroding gains from carrying more passengers.

Shares of Malaysian Air were unchanged at 31 sen at close of Kuala Lumpur trading today. The stock has declined 7.2 percent this year, underperforming a 5.1 percent advance in the benchmark FTSE Bursa Malaysia KLCI Index. AirAsia Bhd., the region’s biggest discount carrier, has gained 27 percent this year, while Singapore Air dropped 5.1 percent.

Airbus parent European Aeronautic Defence and Space Co. rose 2.1 percent to 43.23 euros at 11:26 a.m. in Paris. The stock has gained 47 percent this year.

Capital Spending

Malaysian Air may post a loss of 187.6 million ringgit this year and report a profit of 191 million ringgit in 2014, according to the average of 12 analyst estimates compiled by Bloomberg. Ten of the 13 analysts tracked by Bloomberg recommend selling the stock.

The company has over 4 billion ringgit of cash, sufficient to fund its working capital requirements for the next two to three years, Ahmad Jauhari said. The airline plans to have a capital spending of 10 billion ringgit this year and six billion ringgit next year, he said.

Carriers in the region are planning capacity expansion because traffic is growing, Ahmad Jauhari said. For Malaysian Air to emerge a key player, the company must expand, he said.

Asia-Pacific’s total traffic will grow 6.4 percent a year during the next 20 years, according to Boeing. In that period, almost half of the world’s air traffic growth will be driven by travel to, from or within the region, it said.

“Remaining static means you will be shrinking when the market grows,” he said. “We have to grow at least in step with the market. We are very positive, moving forward.”

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