OBG talks to Ritzerwan Rashid, CEO, MAS wings

Interview: Ritzerwan Rashid

To what extent does the concept of a regional airline remain feasible, and what are the challenges preventing increased connectivity?

RITZERWAN RASHID: The major challenge in tackling the aviation market within the Brunei Darussalam, Indonesia, Malaysia, Philippines-East ASEAN Growth Area (BIMP-EAGA) is that the area has a relatively low GDP, and while it contains a large population, consumers have low purchasing power. In order to tackle this market, one must have an aircraft that operates at an extremely low cost and can fly long distances, as BIMPEAGA is spread over a very wide swath of land.

The aircraft used by MAS wings is the ATR 72, which has an economic range of just under 75 minutes a flight. In the past, several international routes within the narrower region had to be shut down for this reason. For example, in our previous route to Balikpapan, which was roughly a two-hour flight, this range was stretched so that the payload in terms of passengers had to be reduced to add the necessary fuel, making the route economically unfeasible. To offset the costs, prices can be raised, but with the region’s current GDP, one cannot command the market at such a rate.

Secondly, there is a question of demand in terms of the number of passengers who choose to fly these regional routes. Even with a route such as Kuching to Brunei Darussalam, which is a route without competition, we could not make a direct profit. Furthermore, despite being willing to settle for just variable profit, we were unable to make that either because demand was simply too low. In short, a full market study needs to be undertaken for a dedicated BIMP-EAGA airline. Although there was and still is strong interest from the Malaysian government to promote BIMP-EAGA growth, the economic reality must be carefully considered.

How are regional carriers responding to and competing with the low-cost carrier model?

RITZERWAN: The main difference between a low-cost carrier such as AirAsia and a regional carrier such as MAS wings is the aircraft fleet. There is a very real cost difference in running a traditional jet aircraft versus running a turboprop aircraft, and the cost advantage of running a turboprop aircraft over a short route such as Kota Kinabalu to Labuan is quite high. Using an apple-to-apple comparison, flying a 70-seater ATR 72 turboprop aircraft versus a jet would yield a 40% cost benefit, which is a substantial figure.

Low-cost carriers such as AirAsia have many different business focuses that do not overlap with that of a regional carrier operating solely within Borneo. A small regional market such as the intra-Sabah and Sarawak market is not necessarily their primary target and they instead compete directly with full-service carriers on longer and international flights. Their product line makes it inherently difficult to justify 30-minute hop flights, and this is where regional carriers can thrive.

What opportunities and challenges will the ASEAN open skies policy bring to regional carriers operating in South-east Asia?

RITZERWAN: It is important to first put the open skies policy into context. I do not expect it to truly open up air travel within ASEAN; it will instead help to liberalise the system that is already in place. I see the open skies policy as a positive opportunity for regional carriers. Every ASEAN nation has territories and domestic interests to protect, with the larger countries having more ports of entry to protect. Under the policy’s bilateral agreement, carriers from other countries will now be allowed to operate in certain main ports.

The opportunity for regional carriers such as ours lies in the fact that international carriers will be using larger aircraft to fly into one of the region’s major ports. They will likely have no interest in then using these aircraft, such as an Airbus A320 or a Boeing 737, to fly domestically within East Malaysia – and this is where a regional carrier stands to benefit. In this way, while international linkages will open up, the regional carriers will face little direct competition for their routes.