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Much to fight for

Troubled Malaysia Airlines is struggling to define its role, despite a booming economy which is attracting inevitable attention from overseas carriers. Martin Roebuck reports from Kuala Lumpur

The 10 countries of ASEAN – the Association of Southeast Asian Nations – predict 5% growth in their combined GDPs this year. The association is committed to deeper economic integration and will formally establish the ASEAN Economic Community by the end of 2015. But, perhaps mindful of the fault lines developing across the Eurozone, it is stopping short of becoming a single economic entity. Instead, member countries are working to further facilitate trade, simplify customs procedures, harmonise standards and liberalise services.


Keeping up with the regional average, Malaysia’s economy in 2014 grew at its fastest rate in four years; it has subsequently risen by another 4.6% in the first quarter of 2015. Closer integration between the ASEAN nations is seen as potentially opening up a role for Malaysia as a distribution centre for the region, despite the competition it faces from well-connected Singapore.

The Malaysian flag carrier has not shared in the country’s recent success. Malaysia Airlines (MAS) was effectively re-nationalised last August when sovereign wealth fund Khazanah Nasional, which already owned almost 70% of the airline, acquired the rest from minority shareholders.


The announcement by the Malaysian government came in response to the unexplained disappearance of a flight en route from Kuala Lumpur (KL) to Beijing in March 2014, followed just four months later by the shooting down of a second aircraft over Ukraine.


However, MAS’s problems date back much further than these tragedies; the airline has made heavy losses since 2011 due to poor management and a failure to deal with the threat from low-cost carriers. 


Restructuring began in 2013, when MAS terminated services to unprofitable longhaul destinations including Cape Town, Johannesburg, Los Angeles and Buenos Aires. Khazanah is cutting much deeper, and has pledged to restore profitability in two years. Some 6,000 of the 20,000 workforce have gone, while the network has been further culled, though some flagship longhaul services are likely to survive.


MAS has dismissed a report that it wants to sell its six-strong freighter fleet – consisting of four Airbus A330Fs and two Boeing 747-400Fs – as well as its six passenger A380s and four of its 13 Boeing 777-200ERs.


New chief executive officer Christoph Mueller has not commented on freighter strategy, except to say that the company is “exploring fleet options”, but he seems set on retaining MASkargo as a separate operating entity.


Strategic location

Air France is reportedly planning to terminate a number of loss-making services, including that to Kuala Lumpur, from the winter season 2015. In contrast, its main European rivals, Lufthansa and British Airways, have taken the opportunity to increase their presence in the Malaysian market, though they prefer to focus on the country’s flourishing economy rather than discuss the woes of their competitors.


MAS raised eyebrows in May by terminating both its passenger services to Frankfurt, as well as its three weekly freighter flights there. It has, however, reinforced its maindeck schedule to Amsterdam Schiphol, increasing from three to five flights per week.


Lufthansa Cargo (LC) had already increased its five-weekly Frankfurt-Kuala Lumpur flights to a daily service at the end of March. Frank Beilner, regional director Southeast Asia & Australia for Lufthansa Cargo, says “it remains to be seen” whether this seasonal adjustment will become permanent, but observes that Malaysia is strategically located within ASEAN from a business point-of-view, as well as being an interesting market in its own right.


The Lufthansa A340 offers 100 tonnes of weekly bellyhold capacity to and from KL. Eastbound services are flying close to full, Beilner says, allowing LC to focus on cargo with special handling needs, such as pharmaceuticals, valuables and live animals. Outbound, he reports that the carrier’s express service has been in high demand from electronics exporters.


Penang, in northern Malaysia, is a major electronics manufacturing hub which is looking to expand into aerospace production. “Export cargo from the Penang area can either be trucked to KL or it can go via our own RFS (road feeder service) connection to Singapore, where it connects with our freighter or passenger services to Germany,” Beilner says.


He adds that Malaysia has graduated from manufacturing basic commodities to value-added products, which now make up a sizable chunk of its exports to Europe and North America.


Beilner is open-minded as to whether KL could come back on the map as a maindeck destination. “Lufthansa Cargo regularly reviews all markets for their freighter potential. If the Malaysian market develops the necessary cargo volumes within the frame of a commercially viable business case, we would certainly think of re-establishing our freighter service,” he says.


In 2014 Malaysian exports were worth $234 billion, with imports equalling $209 billion. With a 33% share, the biggest single export segment was electronic products. Beyond this well-established activity, Muhammad Silmi Abdul Rahman, director of the Malaysia External Trade Development Corporation (MATRADE) – which has responsibility for transport and logistics – backs up Beilner’s comment that Malaysian exports are heading higher up the value chain.


“We have a lot of natural resources we can capitalise on, including chemicals from mineral oil or palm oil,” Rahman says. “We are the world’s biggest exporter of palm oil, but we’re now collaborating with German investors to convert this into downstream products.


“In the same way, because our land is so developed, we need the hinterland of Cambodia or Vietnam for supplies of rubber. We even import it from Sri Lanka and turn it into surgical gloves and medical devices such as catheters.” >>

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