MAS tie-up with Emirates a masterstroke, says Maybank IB

PETALING JAYA: Maybank IB Research (Maybank IB) is optimistic on Malaysia Airlines Bhd’s (MAS) tie-up with Emirates, calling it a “tactical masterstroke” and “the best thing” to happen for a long time.

Last Wednesday, MAS announced that it had sealed an agreement with Emirates to code share on 90 destinations across the Americas, Europe, Middle East and Africa via Emirates’ Dubai hub.

In a report last Friday, Maybank IB said there is no better airline to team with than Emirates, given its scale, growth ambitions and the fact that it already has four daily services from Kuala Lumpur to Dubai, which provide the best flight permutations and journey time for passengers intending to head westwards.

While MAS has to terminate 10 existing code-share agreements with other airlines due to this exclusive deal, Maybank IB does not foresee this as negative as Emirates’ route network and traffic scale are far superior than that of any other airline.

Emirates is by far the world’s biggest international airline and has the second highest number of international links, second only to Turkish Air.

The research house said the key benefit of this agreement is that MAS can tap into Emirates’ network and vice-versa, effectively bridging many opportunities as there is minimal overlap.

“Both airlines will effectively market each others’ routes and cross sell tickets to each other. This should help to draw in more traffic and boost load factors,” it said, adding that the collaboration may provide passenger throughput from Emirates as MAS has many points currently not served by the United Arab Emirates’ national carrier.

Maybank IB said it is obvious that MAS has more to gain, as it now has comprehensive exposure to the Middle East, Europe, Africa and North America. “For Emirates, it will extend its exposure to Southeast Asia and enhance its exposure to Australasia,” it added.

Furthermore, it allows MAS to be a pure full-service carrier and less reliant to discount fares in order to boost load factors.

Maybank IB believes the aviation industry will continue to see high load factors and yields in 2016 and 2017 after a 30% capacity cut by MAS since September.

The research house also said the tie-up will enable MAS to focus on its domestic and regional routes as well as removing excess aircraft from its fleet. “It is by far the most in-depth restructuring it has gone through in its history and will transform the Malaysian aviation landscape,” it added.

Meanwhile, Maybank IB said the cessation of the Kuala Lumpur to Paris and Amsterdam routes by MAS will sap roughly 400,000 seats annually, resulting in a revenue loss of RM30 million to RM40 million for Malaysia Airports Holdings Bhd, which represents less than 1% of its total revenue.

However, there is a more pronounced impact on its bottom line since most of this revenue passes directly through. “There is a possibility that some of this traffic will migrate to the Emirates flights and lessen the impact,” the research house added.