I have been covering Malaysia Airlines (MAS) for a long time and twe questions I often asked its management over the years were: “Is MAS joining any airline alliance?”, “If so which one”.
The answer inevitably was, "No we’re are still evaluating."
Well, the evaluation has come to an end on June 6 in Singapore. At a meeting on the sidelines of the International Air Transport Association’s (IATA) 2011 World Air Transport Summit MAS was unanimously elected a member designate of oneworld by the chief executives of the alliance’s member airlines.
The formal alliance membership agreement will be completed soon with Australia's Qantas to serve as sponsor for MAS' entry. The Malaysian national carrier is expected to start flying as part of oneworld by late 2012.
Tengku Dato’ Sri Azmil Zahruddin, MAS managing director and chief executive officer, said the decision to join the alliance was made after carefully considering the options available.
"The time is clearly right for our company to join one of the global airline groups, and oneworld is clearly the best option for us," he added.
In terms of statistics the advantages of being a member of oneworld, the world’s third largest airline alliance after the Star Alliance and Skyteam, is quite staggering. Membership will give MAS’ customers access to the alliance's global network, which spans 950 destinations in 150 countries, served by a combined fleet of more than 2,600 aircraft operating some 10,000 flights a day and carrying 358 million passengers a year.
At a time when MAS’ fortune is flagging the tie-up with oneworld could not be more opportune as it may just help boost its revenue.
Stock broking firm, Nomura Securities Malaysia, put it succinctly when it said in a note that “MAS would see gains to its top line, including a potential revenue bump from extra passenger feeds, once the national carrier joins the 12-member alliance in 18 months’ time.”
And a "revenue bump" would be welcomed by MAS, which reported an operating loss of RM267 million (USD$89mil) in its Q1 financial results ending March 2011. Tengku Azmil attributed the loss to passenger revenue growth being outstripped by the steep increase in fuel prices and strengthening of the Ringgit, adding “many airlines are already experiencing this impact."
The future also does not look too rosy for airlines as IATA has slashed airlines’ profit forecasts by more than half to US$4bil for this year, compared with its earlier March projections of US$8.6bil, as revealed by IATA director general and CEO Giovanni Bisignani at the association’s 67th IATA AGM in Singapore.
Tengku Azmil acknowledged that MAS’ entry into oneworld would give the airline the opportunity to improve its passenger load and support growth plans. MAS could grow through a hub and spoke network, letting it concentrate on a few trunk routes, while depending on the alliance to carry its passengers to the spokes in its network, especially to Europe and US.
With MAS’ current focus on the ASEAN region its entry into oneworld could open the doors to the alliance’s member airlines into the region, while strengthening its network in Europe and US.
"It does not mean we will fly everywhere, it certainly means we want to offer the product. We may fly some routes and leverage on our oneworld partners for others," explained Tengku Azmil.
This arrangement makes a lot of sense especially at a time when global carriers are hoping to extend their reach into Asia Pacific.
Another plus is MAS' frequent flyer programme Enrich customers can earn and redeem rewards on any of oneworld's 14 carriers, and vice versa.
Coming close on the heels of MAS entry into oneworld speculation is rife, again, that the airline may tie-up with Qantas ala the partnership that Singapore Airlines sealed with Virgin Australia on the sidelines of the IATA AGM.
Perhaps the speculation was sparked by Alan Joyce, Qantas chief executive officer and managing director, who said MAS’ entry into oneworld offered Qantas opportunities to expand its presence to the Malaysian market and other parts of South-East Asia.
"Singapore is an important hub for us but it does not preclude us from doing something in Kuala Lumpur. We will be looking at some options with MAS, but we are not moving any of our operations out of Singapore," Joyce was quoted as saying.
He, however, reiterated that Qantas would remain committed to growing its base in Singapore via Jetstar, saying that "we still will have a big operation in Singapore."
Qantas stopped flying to Malaysia a decade ago, citing low passenger load factor then. A MAS-Qantas partnership would be welcomed by both the airlines, as well as their customers.
According to a report in Malaysian national daily, The Star, analysts believe that in response to the SIA-Virgin Australia deal, MAS will have to quickly go beyond its latest move to join the oneworld airline alliance. One possibility is a direct tie-up with Qantas, which will sponsor MAS' entry into oneworld.
The Centre of Asia Pacific Aviation (CAPA) said the SIA-Virgin Australia deal "had the potential to transform competition in the Australia-Asia markets and increase competition for Qantas in its core domestic and premium international markets." It might even compel Qantas to consider "developing a full-blown partnership with MAS".
Both Qantas and MAS are facing strong competition - Qantas on the home market and its international routes, and MAS fending off competition from AirAsia X on the Australian routes. These could be strong forces that might bring MAS and Qantas closer, added CAPA in the news report.
Interesting days are indeed ahead.
Group photo: (L-R) MAS chairman Tan Sri Dr Mohd Munir Abdul Majid, Qantas CEO Alan Joyce, MAS managing director and CEO Tengku Dato’ Sri Azmil Zahruddin, oneworld CEO Bruce Ashbying