MAS confident of continuing to rise despite escalating fuel price

  • Business
  • Monday, 06 Jun 2011

PETALING JAYA: Malaysia Airlines (MAS) recorded an 18% higher international pre-loads this year compared with 2010.

Overall, when combined with the domestic sector, its pre-load factor was up by 10% compared with last year, said senior general manager (sales and marketing) Datuk Bernard Francis.

He was confident the pre-load factor would continue to rise despite escalating fuel prices which are affecting travellers in terms of the fuel surcharges.

“We have to induce air travel. Our shift in strategy to focus on the front end has also helped push up the load figures. We began marketing for our forward loads since the second half of last year and our recently launched campaign Global Deals Dream Getaways' is showing encouraging results,'' Francis said in an interview.

This is the second campaign the airline has launched this year after the Malaysia Airlines Travel Fair in February.

Load factor for the third quarter (July to September 2010) was 79% - its highest seat factor in 15 years, and for the last quarter of 2010 it was 77.4%.

For 2010 it was 76.2% and the airline added 4% new capacity. For the first quarter of 2011, load factor was at 76% and new capacity added during the period was 11% from a year ago.

“We will be carrying an additional 500,000 passengers by the middle of this year compared with the same period last year and by year-end, it will reach an additional passenger traffic of one million with the new capacity added by the airline,'' Francis said.

In view of the better showing, International Air Transport Association (IATA) is expected to cut its previous industry-wide forecast of US$8.6bil in airline profits at its AGM today as fears grow of a relapse in the world economy and that would have an impact on air travel.

The previous forecast was made in March when IATA expected oil prices to be around US$96 per barrel, but oil prices have now reached US$110 per barrel.

IATA expects global airlines to spend a record of nearly US$170bil in fuel cost this year, up US$30bil from last year.

On MAS' front end strategy, Francis said there was a need to move away from overdependence on corporate travel and expand the portfolio to include vacationers (senior citizens and leisure travellers) and high flyers. The front end comprises of the first and business classes.

“The front end contribution to revenue is also beginning to look better. If we do not do anything, probably our revenue for the front end of the cabin will come to nothing. It had been on a decline from 24% achieved in 2008, down to 20% last year.

“The original target for the year is 18% but now we are looking at a 25% revenue contribution. So far, we have hit 23% and 25% is achievable and that would translate to a RM650mil contribution towards our earnings,'' Francis said.

To bump up the front end, the airline had to drop fares of up to 50% to lure passengers to get used to flying the front end.

And while the pre-load numbers may be locked in, the airline for the first quarter ended March 31, 2011, suffered an operating loss of RM267mil.

Its growth in passenger revenues in the quarter was outstripped by the steep rise in fuel prices and the strengthening of the ringgit and this had an impact on the airline's performance.

Francis said when the airline made its profit forecast for the first quarter it had assumed an average oil price of US$95 per barrel of Brent crude but oil price has reached US$110 per barrel.

“We even sold the additional capacity we had put in during the quarter but did not anticipate jet fuel prices to go up so much. If fuel had remained the same we would have been profitable. A lot of our planning for the first and second quarters of this year was anchored on jet fuel being priced at US$95 per barrel. The 42% increase in fuel was shocking and that is why we could not do much with the increase,'' he added. Crude oil prices were up 42% from a year ago and jet fuel raced to average the US$130 to US$140 range.

The challenge ahead is to keep loads and yields up and Bernard said the focus of the company in the first half was to fill seats and in the second half it would be to improve yields.

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