This article first appeared in The Edge Malaysia Weekly, on December 14 - 20, 2015.

THERE was a time when the national carrier flew to all inhabited continents. Besides major European cities, equestrians could fly with Malaysia Airlines to Buenos Aires in South America, and holiday makers to Johannesburg or Cape Town in South Africa.

However, all that is now a distant memory. The extensive network resulted in unprofitable routes, which was among the many factors that dragged the airline deep into losses.

Network rationalisation was an obvious strategy to stop the bleeding, and the airline started cutting unprofitable routes in 2009.

Now, Malaysia Airlines Bhd (MAB), the new entity which has taken over airline operations, has decided to stop flying to all European cities except for London (its  predecessor had already cut its routes to North and South America, as well as Africa). MAB has entered into a code-sharing agreement with Emirates, relying on the Dubai-owned airline to carry passengers to long haul destinations which it is not servicing now.

Besides retrenching 6,000 workers and renegotiating suppliers’ contracts, the code-sharing agreement is seen as another bold step taken by MAB CEO Christoph Mueller as part of Khazanah Nasional Bhd’s RM6 billion restructuring exercise to revive the ailing national carrier.

“Emirates and Malaysia Airlines have complementary networks. The frequency, number of destinations and product quality of Emirates were an excellent fit with Malaysia Airlines. The partnership doubles our destinations,” MAB tells The Edge in a written reply.

“The Malaysia Airlines-Emirates alliance is to give customers a seamless international network connecting Malaysia to the Emirates network and 127 destinations, exclusive frequent flyer benefits and world-class travel experiences.

“The improved connectivity will enable Malaysia Airlines customers to reach up to 38 destinations in Europe on a daily and even double daily basis for key European cities,” MAB explains.

It seems that the airline’s strategy is killing two birds with one stone — cutting down unprofitable routes, and widening its network by feeding its intercontinental passengers onto Emirates through Dubai. As a result, the national carrier gets to reduce operating costs, and still maintains the loyalty of its customers.

However, the strategy needs to be clarified. Some travel consultants see this as MAB becoming a general sale agent for Emirates.

The code-sharing agreement with Emirates does not include revenue sharing and is not the same as the arrangement entered into by Qantas with Emirates.

MAB is expected to terminate the code-sharing agreements with other airlines such as KLM, given the partnership with Emirates. However, it did not comment on the matter in its reply. Besides cost savings, how else would the Emirates partnership benefit Malaysia Airlines?

Aviation analyst and Endau Analytics founder Shukor Yusof opines that there is little commercial benefit MAB could reap from the code-sharing agreement.

“Malaysia Airlines’ revenue-to-cost ratio will decline. This is good for the airline as it will stem the losses, but not by much, in my view. That seems to be the priority — to cut losses,” he tells The Edge.

It is worth noting that besides Kuala Lumpur, Emirates flies to Singapore, Bangkok, Jakarta, Ho Chi Minh City, Manila, Bali and Phuket. As the Middle Eastern carrier already flies to most cities in Asean from Dubai, is there any reason for Emirates’ passengers to transit in Kuala Lumpur?

“It is not a marriage of equals. From a commercial perspective, it makes good commercial sense. But from a branding perspective, it does not fit MAB’s national airline proposition,” says an aviation branding executive.

He argues that as a national carrier, MAB has to consider other factors besides financial objectives. Branding an airline is more important “from the inside” — offering a top-notch in-flight experience to retain loyal customers and attract new ones.

With Malaysia Airlines no longer operating direct flights to long-haul international cities, some have asked if that is equivalent to giving up its home market to other airlines.

“The question is, will this partnership generate enough interest in potential travellers to fly Malaysia Airlines to Dubai, before they switch over to an Emirates flight? My guess is that is unlikely as there are other better options,” says Shukor.

Currently, MAB’s advantage as the national airline is offering Malaysians direct flights abroad. By cutting its long-haul routes, is MAB saying that the majority of its passengers are those travelling within a radius of less than six hours, a market that AirAsia is serving?

It is good that the restructuring of MAB under Mueller’s stewardship is looking at the commercial aspects.

In a Dec 3 statement, MAB says the airline has seen improved on-time performance (OTP) since the transition, with 89.8% OTP despite major disruptions due to the severe haze that hit Southeast Asia recently.

Route optimisation has already started to show the anticipated effect, it adds, with revenue per available seat kilometre for the quarter ended Nov 30, 2015, showing an improvement year on year, while seat load factor has also improved.

Demand out of China and North Asia is showing a positive trajectory, boosted by increased inbound tourism demand,” says MAB. However, no numbers were provided.

Tourist arrivals from China dropped 11.7% in the first six months to 751,383, from 850,877 in the same period last year, Tourism Malaysia data shows. The drop was probably due to the disappearance of MH370 in March 2014, as well as the slowing Chinese economy.

In his first press briefing as MAB CEO, Mueller says that the Malaysia Airlines brand was “beyond repair” in China. However, MAB has entered into an agreement to operate an additional 180 chartered flights from China to Sabah. Moving forward, it will introduce more charter flights from key cities in China beyond the airline’s network. Currently, Malaysia Airlines flies to Beijing, Shanghai, Guangzhou and Xiamen.

The national carrier has been on a restructuring route with a number of captains at the helm since 1998. It has not been a smooth journey so far.

Japan Airlines cut one-eighth of its international routes and one quarter of its local routes, and laid off one-third of its workforce under its restructuring scheme to pull itself out of bankruptcy. Beleaguered Garuda Airlines also retrenched staff to cut costs, but gave a big pay jump to the employees it retained.

The public would want to know what else Muller is going to spend Khazanah’s RM6 billion on to revive the national carrier. Will he be able to pull a rabbit out of the hat?

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