This article first appeared in The Edge Malaysia Weekly on May 10, 2021 - May 16, 2021
ONE of the five strategic pillars in Malaysia Aviation Group Bhd’s (MAG) new Long Term Business Plan 2021-2025 (LTBP 2.0) is to recapture market share in its home turf — the domestic and Asean markets — that were lost to low-cost carriers (LCCs) over the last several years.
Leading the way is its wholly-owned turboprop operator FlyFirefly Sdn Bhd, which is re-entering the short- to medium-haul jet operations after a decade of absence.
The December 2020 edition of Malaysian Aviation Commission’s Waypoint industry report shows that in the third quarter of 2020, AirAsia Group Bhd held the biggest market share of the total passenger traffic for flights in Malaysia at 63.5%, while MAG’s wholly-owned subsidiary Malaysia Airlines Bhd (MAB) accounted for only 12.5%. Malindo Airways Sdn Bhd’s and Firefly’s market shares were 7.7% and 5.2% respectively.
Firefly is set to commence its jet operations this month from its Penang International Airport hub, as part of MAG’s overall focus to strengthen the revenue streams of each subsidiary. The carrier will commence twice-daily flights to Kota Kinabalu and Kuching and thrice-daily flights to Johor Baru, using Boeing 737-800s.
Starting with three 737-800s, Firefly plans to eventually operate up to 10 narrow-body jets, connecting seven countries by 2025, including Japan, China and South Korea. It currently connects secondary cities in Malaysia, Thailand, Singapore and Indonesia.
MAG group CEO Captain Izham Ismail reveals that Firefly has been preparing to resume its jet operations since two years ago.
“The aspiration for Firefly to operate jets was made in 2019. We wanted to launch that. We believe that Penang is a strong market to help us recapture the domestic and Asean market, but we had to put the plan on hold because in 2019, we were busy [seeking] strategic investors [for MAB] and in 2020, Covid-19 happened. So now that we rebased everything (under LTBP 2.0), we ran the numbers again and it (Firefly’s new jet operations) is really credible,” he tells The Edge.
The expansion may see Firefly competing on the same routes currently being served by its sister company MAB, AirAsia and Malindo Air, but Izham plays down the impact, saying Firefly will not be competing in the same market currently served by the full-service carriers and LCCs.
“Whether we like it or not, there are three types of airlines in Malaysia: premium, low-cost and those in between. This (venture) provides a flexible value product to customers, filling the gap left by full-service carriers and low-cost carriers,” he says.
The hybrid model operates a low-cost business model, but with variations including additional amenities and tiered ticketing. Malindo Air, for one, entered the industry in 2013 with a hybrid model, but eventually leaned towards full service in terms of services and pricing.
A check on Penang International Airport’s website shows that carriers currently operating out of the airport include AirAsia, Firefly, MAB, Cathay Pacific, China Southern Airlines, Alitalia, Wings Air, and Thai Airways, offering flights to destinations across Southeast Asia, China and even up to London.
It is worth noting that in the 2010s, Firefly had briefly operated jets deployed from MAB, then known as Malaysian Airline System Bhd (MAS), as the group attempted to address competition from low-cost rivals at the time. However, those routes were cancelled and the jets returned to MAS in 2011, with Firefly operating only ATR 72-500 turboprops from Subang and Penang. This was while MAS and AirAsia mulled a merger, which was eventually called off in 2012.
“With a lower cost base (after completing a restructuring deal that sees MAB emerging with a stronger balance sheet), we are confident that this (Firefly’s jet operations) will work and be achievable. Cost optimisation will come from areas such as fuel, aircraft handling and other variable costs,” says Izham.
“Lessons have also been learnt from past attempts such as cannibalisation within the group. As such, we are moving forward with a centralised inventory control, centralised network and scheduling, [and] price control, among others,” he says, adding that Firefly will focus on point-to-point flights between secondary cities.
If Firefly’s attempt at this segment works — and lasts — it could help manage excess resources at parent MAG, as the domestic market is expected to recover sooner than the international market. It will also complement MAG’s attempt at rebuilding its presence in the region’s short-haul market.
Companies Commission of Malaysia (SSM) filings show that Firefly has been loss-making since the financial year ended Dec 31, 2013 (FY2013). In FY2018, it recorded a net loss of RM49.41 million on revenue of RM336.64 million. Firefly accounted for a mere 3.35% of MAG’s total revenue of RM10.04 billion that same year.
Izham says for now, Firefly will continue to maintain its 12 ATR 72-500 aircraft. “We are continuously exploring its (turboprop operations) viability as the jets are based in Kuala Lumpur International Airport. Currently, we are subleasing the turboprops to Firefly under a damp lease (without the cabin crew).”
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