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?
Who benefits more?
Without giving absolute numbers, Mueller says "the deal makes sense." It was by mutual agreement and both parties will enjoy significant benefits.''
MAS has suffered from a drop in ticket sales after the twin disasters of last year and Mueller did say that "loads were very low" while declining to provide numbers.
The new partnership allows MAS to ride on the Emirates brand and the fact that Emirates is willing to put its code on the MAS flight gives MAS an imprimatur, sort of a seal of approval, says Yap of CIMB.
Yap believes that this is one of the ways MAS can compensate for the brand damage caused by the twin accidents of MH370 and MH17 in 2014.
Also, Emirates will sell the MAS codeshare flights via its agent distribution as well as on its website. This will broaden the distribution channels through which MAS flights are sold. A good example of this is the Qantas flights on the London-Sydney routes, which are on the Emirates website. All things considered, the MAS-Emirates code-share partnership is far more important to MAS than it is to Emirates, as it is likely to produce only incremental benefits to Emirates, he adds.
MAS will also abandon Paris and Amsterdam but retain double daily flights to London with this new deal. MAS has even ditched its long-time flame AirFrance-KLM on the KL-Amsterdam-KL route for Emirates' connectivity.
This means that any traveller who wants to fly West can book via MAS' website but will fly on Emirates via Dubai. Similarly, Emirates will sell destinations like Langkawi, Kota Kinabalu, Kota Baru and even Bintulu on its global website. Both airlines will carry each other's passengers for a percentage of the ticket price.
However, it is more work for MAS, as it will have to change its network routing and scheduling, upgrade its product offering, reprice its product and make sure it has enough talent and fleet strength to carry the traffic it is expecting Emirates to offload to it for the domestic and regional connections. Ultimately, the travellers are the ones that will decide on the success of the deal by buying tickets to travel with MAS or Emirates and Mueller adds "that people buy MAS tickets to be flown on Emirates and vice versa".
Sobie adds that the challenge is to make the pricing and product offering interesting enough for travellers to want to ride the journey.
MAS and Emirates are not the only parties to win from this, as Yap says the MAS-Emirates code-share partnership will lead, hopefully, to more passengers passing through the KL International Airport (KLIA) and airport operator Malaysia Airports Holdings Bhd (MAHB) seeing higher traffic numbers.
He has raised his forecast for MAHB's passenger traffic growth in financial year 2016 (FY16) from 2.5 per cent back up to 4.4 per cent and 4.7 per cent in FY17.
AirAsia will have its own share, as its boss Tan Sri Tony Fernandes has said that Emirates passengers who are connecting do connect with AirAsia.
"On the whole, this deal is good for Malaysia and anything that helps the hub will be good for us," he said.
Malindo Air CEO Chandran Rama Muthy, meanwhile, also adds that the tie-up is good for the country.
"Take Singapore as an example, they have so many interline and code shares with many airlines, hence it makes them a leading transit hub. We should emulate that," he adds.
Sobie says the domestic connections are seen as an opportunity to boost tourism in Malaysia's regional states. The new MAS domestic schedule will be timed to connect with Emirates flights between Kuala Lumpur and Dubai, as well as MAS international flights.
Rising competition with the ASEAN Open Skies policy?
The deal with Emirates comes as ASEAN skies are set to open up beginning January next year. Experts are, however, not confident it will take off as projected, as several countries have not ratified their agreements.
Shukor of Endau Analytics says that it has been disappointing thus far to see the ASEAN Open Skies policy, which started in 2015, not growing in tandem with the rapid development of the industry in the region.
"I don't yet see the political will to take ASEAN into a single aviation market. Malaysia and Singapore remain the most active participants and proponents - both having allowed low-cost carriers (LCCs) to fly between both countries. Malaysia and Singapore have also done most to cope with the upcoming liberalisation by building new infrastructure such as KLIA2 and the LCC terminal at Changi. Indonesia, the biggest aviation market in ASEAN, remains a laggard. With demand expected to rise sharply in the next 10-20 years, there will be problems if airports and air traffic systems are not upgraded or modernised.
Competition will get keener with the Emirates-MAS deal, as players like AirAsia and Malindo Air will be sharpening their tools to ensure they get some of Emirates' traffic and ensure they do not lose market share to MAS, which has in the past lost share to these two carriers.
As MAS decreases its focus on long haul, the region will be its focus. The regional air space, however is crowded with full service and low-cost carriers fighting for market share and there is still overcapacity in the market. The LCCs control about 60 per cent of the market share and despite the partnership, some felt that fight will remain tough for MAS and other players.