OBG talks to Dermot Mannion, Deputy Chairman, Royal Brunei Airlines (RB)

Interview: Dermot Mannion

How has the global economic crisis affected the aviation industry in ASEAN countries?

DERMOT MANNION: To some extent the economic situation in Europe is beginning to be felt in the ASEAN region. A number of local airlines are going through a period of considerable financial difficulty. One reason has been what is happening in Europe, another is high gas prices. The economic climate for aviation is difficult around the world as it is a global industry where anything that happens anywhere else in the world has an immediate impact. We are starting to see this across the ASEAN region, and while economic growth is high, the aviation sector is still being affected.

What impact has the company’s new strategy of focusing on regional travel had?

MANNION: To a certain degree, we anticipated the way things were heading, and we downsized our long-haul operations. We have taken about 40% of our seat capacity out of the long-haul segment in the last 12 months because we predicted that long haul was going to be a very challenging market. It was a difficult decision, but it was the right thing to do and the right time to do it. Our focus has become more regionally based with a small number of strategically important longhaul routes. This is working very well for us and will be reflected in our financial results for 2012.

With low-cost airlines challenging traditional carriers in the ASEAN region, what is the appropriate business model for the Sultanate’s national airline?

MANNION: We have never been afraid of competition with low-cost carriers, and we try to reach middle ground between premium carriers such as Emirates and Qatar Airways and the best of the rest, including low-cost carriers and some regional operators. We feel that type of mid-point product offering is going to be very attractive in our regional markets. The ASEAN region is a different market from Europe, where, for example, many airlines don’t offer business class on short-haul flights. In ASEAN the market demands business class and we can offer it. We think our midpoint offering, which is halfway between low-cost and premium carriers, positions us exactly in the right place so we can compete with both. It’s a balancing act, but it’s working quite well.

In what way will an open-skies agreement affect Bruneian air transportation?

MANNION: We would welcome open skies because it creates opportunities for RB in other ASEAN countries. In our view, RB’s long-term, regional presence could make it very attractive to other ASEAN markets in the context of open skies. However, judging from the length of implementation for similar processes in Europe, it is uncertain when this agreement will come into effect. One of the things we would like to see is for Brunei Darussalam to become a true gateway to Borneo, and it would be very helpful if restrictions on movement within Borneo could be eased. The ideal situation would be a single visa that would allow multiple access and entry to any of the territories on Borneo, such as the Malaysian provinces of Sabah and Sarawak.

How effective is it to use charges and fee levies as a corrective measure during economic downturns and gas price volatility?

MANNION: Fuel surcharges, for example, are a very limited tool. You can only recover a small portion in the increase in gas prices. Typically, the airline industry absorbs about three-quarters of the rise because the market simply will not bear that cost. About 25% of the increase is recovered in fuel surcharges, but if this is pushed too far, demand will falter. This is especially true if you are competing with low-cost airlines that don’t apply surcharges, which will limit your ability to recover costs. We need to stay competitive, so when gas prices go up airlines like us need to find ways of boosting productivity and improving efficiency.