New jet fleet makes this possible
PETALING JAYA: Firefly’s plan to have the lowest unit cost in the country with its new jet aircraft is possible given Firefly’s existing infrastructure and the higher number of seats in the new aircraft, according to analysts.
The wholly-owned airline by Malaysia Airlines (MAS) said on Monday that it was taking delivery of 30 B737-800 aircraft over the next five years to expand further domestically and upon receiving the relevant approvals, into more Asean markets.
The B737-800 aircraft would have 189 seats per aircraft, which is 9 more seats than a typical Airbus 320 aircraft used by low-cost carrier (LCC) AirAsia. AirAsia reported a unit cost (cost per available seat kilometre) of 11.74sen for its second quarter ended June 30.
“Our back of the envelope calculation suggests that Firefly’s unit cost will likely be 5% lower than that of AirAsia’s at 11.2 sen, This is purely coming from a higher seat count per aircraft, all else being equal,” AmResearch Sdn Bhd said in a report yesterday.
It added that the lower than peer unit cost should allow Firefly flexibility in managing pricing. Aside from this, Firefly could ride on MAS’ existing infrastructure and resources such as ground handling, aircraft maintenance and existing staff, said HwangDBS Vickers Research and ECM Libra Investment Research in separate reports.
“It is important for Firefly to push its costs down in order to compete with other LCCs, especially AirAsia,” ECM Libra said. HwangDBS added that the B737s are said to be more fuel efficient compared to A320s due to its blended winglets, which help reduce fuel burn.
“Firefly could also determine its own fuel hedging policy which may be different from MAS’. This could be positive for Firefly as MAS had locked in at higher than spot prices, which is one of the main drags to its bottom line,” it said.
HwangDBS said that Firefly’s fare structure, which includes a base fare with a separate fare for bundled services, was similar to AirAsia’s.
“Hence, the airline could potentially garner ancillary income, apart from the normal fares,” it said.
It added that Firefly was expected to venture into the low-cost segment in a big way. It would focus on domestic trunk routes where Firefly had the luxury to choose profitable, high load potential routes to operate.
AmResearch anticipated more higher yielding routes involving East Malaysia from Kuala Lumpur and potentially from Singapore to other parts in Malaysia, given strong traffic flows on these routes. It added that Firefly’s route network, as an independent LCC, will be far smaller than AirAsia but could tap on MAS’ existing robust international traffic.
“MAS’ feeder traffic that flows to Firefly is relatively small but as an indication, 20% of AirAsia X’s traffic feed into AirAsia’s regional flights. MAS’ international traffic is six times the size of AirAsia X’s and MAS entails much better long-haul connectivity than AirAsia X,” it added.
While positive on Firefly’s expansion, OSK Research Sdn Bhd said a concern was the potential cannibalisation of MAS’ domestic routes and progressive encroachment into MAS’ international routes as Firefly grows.
“This is in view of Firefly’s cheaper air fare and newer fleet. With MAS not cutting capacity on the same routes served by Firefly and the fierce competition with other LCCs, we see a cap on yield upside,” it said in a report.
AmResearch said that Firefly’s new jet aircraft routes would take 1-2 years to break even but its foray into the LCC market would help plug existing revenue leakage for MAS to competitors such as AirAsia.
“Investors are better off with AirAsia for exposure to LCC play given its far superior route network and fleet size, which enables it to better tap the growing regional demand and provides it the critical mass to enable it to capitalise on ancillary initiatives,” it added.
Meanwhile, AirAsia Bhd’s share price was down yesterday after RHB Research Institute downgraded its financial year 2010-2012 net profit forecasts to reflect lower yields on a full- |
