Analysis: Can Firefly take off as Malaysia's next national carrier?

Malaysia Aviation Group (MAG), the parent company of Malaysia Airlines (MAB), is still in talks with lessors and creditors regarding its restructuring plan to stay afloat. The talks, according to Reuters citing a staff memo, are however taking longer than expected. Izham Ismail, MAB's chief executive and group CEO of MAG, said the negotiations are "still ongoing and taking longer than the planned timeline". That said, the company is "gaining encouraging traction from the lessors and creditors" so far.

This comes more than two weeks after the airline first announced that it is undergoing an "urgent restructuring exercise" over the next few months. Meanwhile earlier last week, Malaysia's sovereign wealth fund Khazanah Nasional said it has the choice of funding low-cost carrier Firefly, which could become Malaysia's national airline if MAB were to cease operations, Reuters reported. It added that Firefly would acquire narrow-body planes and later on, wide-body aircraft from the market in a "Plan B" situation. 

A fully-owned subsidiary of MAG, Firefly plans to commence jet operations during the first quarter of 2021, adding up to 10 narrow body jets to its fleet in phases. The airline announced last week that it will serve the domestic, ASEAN and Asia Pacific markets out of Penang International Airport. With this plan, Firefly will be complementing its sister company MAB, in serving the leisure market while diversifying its base connecting secondary cities in Malaysia to East Malaysia, Singapore, Thailand and Indonesia. It will also leverage on available resources said talents from within MAG, the airline said.

Meanwhile, Berita Harian quoted Khazanah Nasional's MD Shahril Ridza Ridzuan as saying that the sovereign wealth fund will have to "dispose of its holdings in other strategic assets or increase debt" should it continues to fund MAB. Shahril added that MAB "does not have a strong financial position and often suffers losses". Separately, Malaysia's finance minister Tengku Zafrul Abdul Aziz said in a recent radio interview that the government would not offer financial aid or debt guarantees to the airline. On whether the government would shut MAB, Reuters quoted him saying "that is up to Khazanah as the shareholder of MAB", adding that he has never said to shut it down.

(Read also: Sale of Malaysia Airlines: What a national carrier means to a country’s brand building)

What is needed for an airline to become a national carrier?

News of Firefly potentially becoming the national carrier might surprise many given Malaysia Airlines has been long-synonymous with the country - as with any national career. Malaysia Airlines Berhad commenced operations as the national carrier on 1 September 2015 when Malaysian Airline System was dissolved from Bursa Malaysia in 2014 and subsequently ceased operations on 31 August 2015. The airline first began as Malayan Airways Limited, and flew its first commercial flight in 1947. It was then renamed as Malaysian Airways after the formation of the Federation of Malaysia in 1963. In 1966, the airline was renamed Malaysia Singapore Airlines and in 1972 Malaysian Airline System.

According to Dominic Mason, Southeast Asia managing director of Sedgwick Richardson, achieving national carrier or flag-flyer status requires far more than potentially a new name and an aircraft livery paint job with a national icon on the tail fin. "A nation's pride in its airline comes from a full service experience delivered consistently across different cabin classes (although some low cost carriers do operate premium cabins) and lounges, passenger compensation schemes, frequent flyer programmes and comprehensive aircraft fleets departing on time and with connections from primary airports. An edible national dish in flight also goes a long way," he explained.

When talks of MAB being sold off surfaced last March, Mason also told A+M then that a national airline is "inextricably linked" to a country’s destination brand as well as its inbound tourism product, and not having one might nudge the nation off the radar of global consciousness. "A national airline brand epitomises what a nation stands for. It projects the host destination to the world, it symbolises its culture," he said.

Mason added that the importance of a national airline is often seen in joint marketing campaigns, partnerships, promotions and content. Without it, it becomes slightly harder to recall what the nation stands for and less easy for consumers to travel to and around the country's destinations. 

That said, low-cost carriers might stand a chance of becoming a national carrier if they are able to handle the "reputational baggage of a budget brand", shift their business models and elevate their customer service. This, of course, comes with some challenges on the way. 

Their lean business models and often ‘cheap frills’ cultures make it tougher to execute a soft landing on seamless, full-service brand experiences.

Mason explained that most consumers will still expect to travel comfortably, if not joyfully post pandemic. And with many countries yearning to open their doors to international travel once again, national carriers should offer a warm and welcoming start to every passenger's journey and their national brand experience, he added.

However, all is not lost for low-cost carriers. On the other hand, without having had the luxury of cruising on autopilot fuelled by state ownership and subsidies, low-cost carriers have the big advantage of being (sometimes ruthlessly) commercially competitive. According to Mason, this is the only viable route for the airline industry to survive in the current environment.

Meanwhile, the rules of aviation branding have been rewritten since the onset of COVID pandemic earlier this year. Nick Foley, president, Southeast Asia Pacific and Japan, Landor and FITCH said stable brands such as Singapore Airlines, Cathay Pacific and Qantas have had their world’s turned upside down due to national borders being closed and airline routes being majorly disrupted.

"What this means for full service airline brands is yet to be seen. But one thing’s for sure. The rules of being a full service, national carrier have changed markedly. Whilst many business travellers will long for the day that they can return to the sky, ensconced by all the little luxuries that go with being up the front of the plane, it is not clear whether company travel budgets will return to what they were before the virus hit," he added.

Furthermore, many in business have now realised that considerable time and money can be saved by making better use of technology.  As for the leisure market, Foley explained that it was a long way down the path of budget airlines before COVID emerged.

What exactly is the role of a national carrier today?

Meanwhile, as MAB's fate hangs in the balance, it will be appropriate to revisit the role of a national carrier in today's world. The chance of a low cost carrier becoming a national carrier still feels a way off. For Foley, it is a major step to walk away from a national carrier and place all faith in that of an LCC – or a regional carrier for that matter.

National carriers are typically heavily tied to a country’s tourism platform and much of this has an emotional thread running through it. By way of their very being, LCC’s are about one thing - low fares.

According to Foley, this is inherently "functional" and does not allow any real layering of messaging. "Whilst Malaysia’s sovereign wealth fund may be considering a possible play with Firefly, they should be mindful that subbing a regional carrier for a national carrier may make sense from a financial perspective, but it will be a very different challenge when it comes to repositioning the Firefly brand," he added.

Meanwhile, Lim Sue-Anne, MD of Clear KL, explained that national carriers began as a 20th century invention, when flights were costly and it was pride and premium to fly.

Airlines were the flag bearer of nations delivering the first experience on behalf of a nation as a country ambassador. 

"I think it still works in some cases where there are citizen segments still willing to pay premium and fly luxury as in the case of Singapore Airlines and Emirates. But I really don’t think that is the case in Malaysia. So, we want to take a very pragmatic view of the current airline market," she said.

Despite a tepid economy and a weak ringgit pre-COVID-19, Lim said outbound travel was still climbing. "Data showed us that an annual holiday, whether personal or with the family, was a national pastime, thanks to AirAsia’s low fare," she said.

The expectations of the market today are completely different and if we get too hung up on a nostalgic idea of national pride, we may never have a business model that works for MAB or Firefly.

She cited the example of Malév Hungarian Airlines, the country's flag carrier established at the end of World War II, which ceased operations in 2012 due to financial instability to make way for Hungarian low-cost carrier Wizz Air. According to Lim, this is "an opportune time" for MAB or Firefly to have its brand rebirth with an experience-first business and operating model that is untainted by legacy and constant state intervention. 

"For the success of this entity, we need to absolutely centre what we offer and how we offer it based on what the current market wants. An end-to-end top-notch experience from discovery to fulfilment at a reasonable price. Some segments are willing to pay higher which translates to less seats, more comfort while some are willing to sacrifice the latter," she said. Instead of just focusing on the standard low-cost maximum earning per passenger, Lim added that smarter analytics is required to figure out better pricing strategies to maximise overall earnings.

That said, Lim believes that there is no need for a national carrier in today's climate. "The answer is no. We would love to have national carrier but if you ask me, that’s just self-indulgence in today’s business climate," she said.

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