Competition for MAS to get keener

Competition for MAS to get keener
PHOTO: Reuters

FRESH hope. That seems to be the best way to describe the direction Malaysia Airlines (MAS) has taken this week after teaming up with the world's largest international airline, Emirates.

Many wonder what made Emirates want to partner MAS, as it could have chosen any other airline as the local airline has suffered from big setbacks in recent times.

MAS group chief executive officer (CEO) Christoph Mueller tells StarBizWeek it was a mutually agreed and win-win deal for both parties.

The new code-sharing deal with Emirates only comes into effect in February next year, but it is a huge shot in the arm for an airline that is reinventing itself into a regional carrier by abandoning most of its long-haul routes which have been loss-making. Emirates will now give it the global reach beyond Asia Pacific.

"It is an agreement which mainly benefits our customers because now with a MAS ticket, they can reach the entire globe," Mueller told StarBizWeek in an interview yesterday.

If nurtured well, this new beginning can help wipe off any traces of MAS' past and set the national carrier on a different path.

"Clearly, Emirates is the partner to die for in the service of European routes, a choice which fellow oneworld alliance member Qantas also made in April 2013 when it abandoned Singapore in favour of Dubai as a connection point into Europe," says CIMB Research analyst Raymond Yap.

Maybank Invesment Bank senior analyst Mohshin Aziz adds that "teaming up with Emirates is akin to being in the same team with the world champion, and MAS has done just that".

But Shukor Yusof, the founder of Endau Analytics consultancy, says that while it makes sense for MAS to code share, given that it will stop flying to Amsterdam and Paris, he is not sure why it chose Emirates over Qatar Airways, which is part of oneworld alliance. MAS is also a member of the alliance.

Emirates may be the biggest Middle-Eastern carrier whose network spans over 140 destinations, but it also needs a gateway into the Asia-Pacific region, especially secondary airports, other than Australia where it has a joint venture with Qantas.

Air travel in Asia is booming and most global carriers want a slice of that travel market, as Europe continues to remain soft.

Increasingly, global carriers have increased their presence here.

The Middle-Eastern carriers - Emirates, Etihad and Qatar Airways - have made headway in many markets and continue to expand. They are feared by many carriers as they have deep pockets and can undercut and drop prices to win market share because they have a lower cost and newer fleets.

CAPA Centre of Aviation analyst Brendan Sobie writes that Gulf carriers now operate almost 60 daily flights to South-East Asia, along with almost 20 to Australia.

He adds that MAS is right to recognise that it is unable to compete effectively against Gulf carriers on long-haul routes to Europe, leaving a partnership with a former rival the only sensible option.

The International Air Transport Association recently said that air passenger numbers worldwide are likely to reach seven billion per year within the next two decades. Its October figures indicate that Asia-Pacific airlines' October traffic increased 8.6 per cent compared to the year-ago period.

Since MAS' full-service model remains intact, it needs to provide the link to the rest of the world to remain relevant. Through Emirates, it gets access to 90 destinations outside of Asia Pacific.

Emirates gets to sell Malaysian destinations and regional routes, including secondary points in Asia to its travellers from February.

There could be more on the plate if this deal is successful in the coming years, although Mueller declines comment. But analysts are speculating that Emirates may even consider becoming a strategic investor in MAS.

Thus far, out of the three big Middle-Eastern carriers, Etihad has been most aggressive in buying up stakes in airlines globally. Analysts feel the others may want to follow suit at some point, although Emirates has some ventures including that with Qantas.

Qantas was also MAS' sponsor to the oneworld alliance and Mueller does not deny that it may pursue talks with its oneworld partners, including that with Qantas. Qantas was being talked about as a strategic partner for MAS a few years ago.

The deal with Emirates is the beginning of more deals to come as MAS relooks at its entire code-share arrangements.

The deal comes at a time when the ASEAN Open Skies policy is about to take off on Jan 1, although some member countries have yet to ratify their open access agreements.

Although MAS is still on restructuring mode and this deal changes its course, will it derive benefits that will help it turn the corner?

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