The air freight unit of Malaysia Airlines – Malaysia Airlines Cargo (MASkargo) – will take a conservative growth strategy over the next two to three years as it recovers from the group’s recent route rationalisation and growing industry fleet capacity, according to its recently appointed managing director, Shahari Sulaiman.
Speaking to reporters at Air Freight Asia event in Hong Kong, he acknowledged the Malaysian cargo carrier faced a challenging environment, both internally and externally.
From within the MAS group the cargo division was impacted by the far-reaching route rationalisation programme on the passenger side that began in mid-2006 and saw the national carrier withdrawing or cutting back frequencies on its international routes as part of the airline’s turnaround plan. This included a scaling back to cities such as Manchester, Fukuoka and Vienna, all important cargo centres for MASkargo.
With 60 per cent of MASkargo’s freight carried in the passenger belly holds, the scaling back had a significant impact. Shahari said MASkargo’s main operations at KL International Airport (KLIA) had suffered a 4 per cent drop this year and a 10 per cent drop in its Penang operations due to the rationalisation. In the first phase cuts alone, this amounted to an estimated RM60 million (US$18 million) in lost business. Externally, MASkargo like most of its competitors, felt the pinch of lower than expected freight volume growth in the first half of the year along with growing fleet capacity.
“For the first six months, IATA (International Air Transport Association) had forecast a growth of 5 per cent worldwide but the market only grew 2.5 per cent, but we see the market picking up in the second half,” Shahari said.
He said another factor which had caused the poor performance of the air cargo industry was the perennial problem of cargo imbalances, meaning carriers had poor yields on return flights.
Nonetheless, Shahari expects MASkargo’s bottom line to recover from the 4 per cent drop in net profit for the first six months of 2007 to post an estimated full year pre-tax profit of RM 200 million for the financial year ending Dec 31, 2007, thanks to the traditional peak season leading up to Christmas in the west.
One of the factors that has helped, and undoubtedly necessitated by the passenger side rationalisation, is a change in ratio between belly and freighter cargo. “About 60 per cent of our business is through belly and the remaining 40 per cent in freighters last year. We see this ratio to be more even this year, about 50:50,” he said.
With its current fleet of six Boeing freighters, of which two 747-400s are on lease from MAS’ ultimate parent company, Penerbangan Malaysia Bhd, and the remaining four 747-200s on lease from Air Atlanta, any further aircraft acquisitions are unlikely said Shahari, adding that MASkargo will closely examine its cost structure before making any decision on buying or leasing any new planes.“As far as we are concerned, we have developed a number which works for us and we would look at how to get the capacity,” he said.
Although route expansion will not feature prominently in the carrier’s medium term strategy with Shahari saying the focus will remain on existing markets such as China, Europe and Australia, the carrier did recently announce it is in final talks to establish a freight hub in Tashkent, Uzbekistan to tap the growing airfreight market in the CIS.
MASkargo is also in talks with Air Uzbekistan for some form of strategic alliance in order to expand coverage into the CIS, he said. The carrier started twice-weekly freighter services to Tashkent in July and the establishment of a hub there will takeover from its existing Dubai hub, while hubs in Amsterdam, Frankfurt, Melbourne and Shanghai will remain.
The proposed tie-up would see MASkargo transporting Air Uzbekistan’s cargo to European and Asian countries, while Air Uzbekistan would transport MASkargo’s cargo to Commonwealth of Independent States (CIS) countries made up of eleven former Soviet Republics.
“The CIS has never been a market for us, but with this agreement we can transport the cargo to Tuscan and they will out load to destinations within the CIS. This will bring in incremental revenue for us,” Shahari added.
Shahari also said the carrier is currently studying how best to take advantage of the impending Asean air liberalisation.“We are taking time to do a study on what is the best way to provide capacity to these markets. So we are looking for narrow bodied freighters or mid-range freighters,” he said noting the study is stillat a preliminary stage.
Looking at the year ahead, Shahari is confident of achieving single-digit growth but acknowledges there will be serious challenges posed by an influx of capacity into the market over the next two to five years.