This article first appeared in The Edge Financial Daily on May 22, 2017
KUALA LUMPUR: The battle among airlines to win over travellers has extended to the turboprop arena at the Sultan Abdul Aziz Shah Airport in Subang, Selangor. FlyFirefly Sdn Bhd, the turboprop arm of Malaysia Aviation Group Bhd, which also includes Malaysia Airlines Bhd as its wholly-owned subsidiary, has found it difficult to turn a profit since the entry of Malindo Airways Sdn Bhd in 2013.
The Malaysian affiliate of Indonesia’s Lion Group has been aggressively expanding its fleet, from two ATR 72-600s to 16 as at May 15, 2017.
Firefly chief executive officer Ignatius Ong Ming Choy believes the local turboprop market is now facing “overcapacity” concerns.
Instead of putting more aircraft on its routes to compete with Malindo Air, Ong said Firefly has been doing the reverse, reducing its fleet to 12 ATR 72s as at December last year, from 18 previously in response to the capacity glut.
“The turboprop market is saturated, with too much capacity. The question now is whether these additional aircraft are being filled,” he said in an interview with The Edge Financial Daily.
Ong doesn’t see the situation going away anytime soon. “We are still in a stage of infancy when it comes to competition laws. If this situation occurred overseas, extreme low pricing will be investigated as the airline is seen as engaging in predatory pricing.”
A Malaysian Aviation Commission (Mavcom) spokesman said competition matters in the industry and it is part of the commission’s scope of oversight.
“Should Mavcom receive a complaint, we will evaluate accordingly. The Malaysian Aviation Commission Act (Act 771) allows Mavcom to have access to any information necessary for the conduct of its evaluation or investigations,” the spokesman said when asked whether the commission would have access to an airline’s cost structure.
While the current operating environment does not seem favourable to Firefly, Ong said his team is unfazed by the challenges ahead, stating the airline is here to stay.
“We are prepared, we will face it. Our advantage is, we have a very strong brand. People love us, we have a very strong loyal customer base. However, the most important thing is we want to work with the media and the regulatory body to educate customers that going with the ‘cheap guy’ all the time may not be the right thing to do.”
Meanwhile, Firefly will hold off any plans to increase its fleet.
“The general Malaysian didn’t have that much money to spend in the last two years. So, until the market picks up, we will not grow our fleet size. The business is not stagnant, but we have to look into the market’s viability and [the] economy before we make a decision,” he said.
The problem is compounded by a weaker ringgit, making expenses for aircraft lease, maintenance, spare parts and passenger reservations system repair more costly as these will be billed in US dollars.
“However, the revenue that we collect are in ringgit. This means we have to generate more sales today to settle our expenses than what was required last year.”
Ong added that foreign currency revenue forms only a fraction of the airline’s total revenue as 85% of its routes are domestic, with only three international destinations — Singapore, Banda Aceh and Phuket.
Nevertheless, Firefly has one thing going for it. Due to a restriction at Singapore Changi Airport prohibiting any new turboprop flights, Firefly is currently the only commercial carrier with access to the high-frequency Subang-Singapore route.
Based on the financial performance filed to the Companies Commission of Malaysia (SSM), Firefly saw its net loss widen to RM249.56 million for the financial year ended Dec 31, 2015 (FY15) from RM83.13 million in FY14, due to a 4.1% drop in revenue to RM332.16 million from RM346.43 million.
Malindo Air has yet to file its financial accounts with SSM for FY15, but the full service carrier saw its net loss ballooned to RM89.33 million in FY14 compared with RM67,917 in FY13. Revenue grew to RM570.47 million from RM167,126 in FY13.
Ong said its passenger numbers have begun to pick up towards the end of the first quarter ended March 31, 2017 (1QFY17), which is reflected in its load factor of 65% during the period. It achieved a load factor of 70% in 1QFY16.
“Business for this year has started to pick up following a huge dip in January by around 15%. However, we saw sales and demand recovering after the Chinese New Year holiday in February. We have been seeing an increase by around 25% to 30% month-on-month in passenger and revenue numbers.”