World Routes Interview: Malaysia Airlines plans possible A380 wet-lease operation

As market conditions continue to make it difficult to offload its redundant Airbus A380 fleet, Malaysia Airlines is developing an innovative project to keep its six aircraft flying through the formation of an exclusive Super Jumbo wet-lease business. Although it remains the airlines goal to try and sell the aircraft when it replaces them with new A350 equipment in 2018 and 2019, it believes an alternate option may be required.

Speaking during a fireside interview at the World Routes Strategy Summit in Chengdu, China, Peter Bellew, chief executive officer, Malaysia Airlines said: “I don’t want to see them depart to the desert or remain parked in Kuala Lumpur. We are working on a project to keep them flying.”

Under questioning from Flightglobal’s vice president, markets, Mark Pilling, Bellew joked: “We are the proud owner of a spaceship”. However, he noted that although airlines may be reluctant to sign-up long-term to the aircraft, many operators have expressed an interest in using them in a niche capacity.

“What we will have to do is be imaginative,” he said. “There is a clear opportunity for the aircraft from markets such as China, but airlines don’t want to buy the aircraft and are nervous of such an investment, yet they have routes that can clearly support the operation of the type on a wet-lease basis.”

The tentative plan will see the formation of such a wet-lease operator that will be a sister business to Malaysia Airlines that could see the aircraft remain flying for charter work and third party contracts.

“We have all the infrastructure for the aircraft from training through operations to maintenance so can provide a one stop shop to any operator,” explained Bellew. “I really do think there is a business out there for such an offer.”

The Super Jumbos are earmarked for scheduled retirement from 2018, when all six of the carrier’s new A350-900s are due to be delivered on leases from Air Lease Corporation. The A350s will directly replace the A380 on its only remaining scheduled route – Kuala Lumpur-London Heathrow– as well as to serve some stronger medium-haul markets in Asia and into Australasia.

Bellew acknowledged that the aircraft will likely remain in Malaysia Airlines operation through to late 2018 to support Hajj and Umrah flying and could continue to play a role in this market. “The Hajj and Umrah is now a 9-10 month business and the Boeing 747-400s are getting towards end of cycle. The A380, perhaps in a higher density arrangement to how we fly it, will be an ideal aircraft to support this market. I see a future for the aircraft doing this. I think it could ultimately absorb 6 to 12 aircraft,” he said.

The proposed project shows the modern business attitude at the Asian flag carrier. While it might seem from the outside that nothing has changed, Malaysia Airlines has been completely reborn as a business over the last 18 months. Now, the carrier is planning a growth trajectory across south-east Asia under the stewardship of former Ryanair executive, Bellew.

“To be honest there was a lot to do around our network. We had been flying routes that didn’t make sense, flying the wrong aircraft on services and at the wrong times. We have worked to fix this now,” said Bellew. The realignment of its network and growth to an average aircraft utilisation of 12 hours per day is delivering 100 extra hours of capacity a day, the equivalent of six extra narrowbodies joining the fleet in 2017.

“This can certainly be deemed ambitious growth for an airline of our scale,” he said. “We will redeploy capacity principally into China, Japan and South Korea. Our business to china is fantastic. When you consider that only 4% of the population has a passport and that is predicted to grow to 12% in ten years it creates a market for another 150 million international travellers. If I owned the airline myself I'd take the metal and point it all north.”

Seasonality schedule changes should also free up capacity for the airline to add up to six or seven brand new routes. “We have some interesting plans,” he said.

A recent commitment for up to 50 Boeing 737MAX airliners, arriving from 2019, will also enable the carrier to operate more competitively against its rivals. The deal comprises a firm C order for 25 MAX-8s and options for up to 25 MAX-8s or MAX-9s, which will be used not only to replace older equipment on short-haul routes but also to grow the airline’s network.

Recently-appointed CEO, Bellew, describes the Boeing deal as “a gamechanger” for the airline, in terms of costs and efficiency, while it will also be able to fly the craft on longer routes of six to seven hours. This will open up new city-pair options out of Kuala Lumpur and other parts of Malaysia that are not commercially sustainable for widebodied equipment.

It will also provide flexibility for network growth with potential to retire or extend leases on its existing 737 Next-Generation fleet and although it better compete alongside low-cost carrier AirAsia in the local market. "If you want to fight a war, you need an enemy to fight," he said.

In the short-term the airline is seeking to add three or four additional A330-300s to its fleet to meet the immediate need for additional capacity in some existing markets and to expand in China, Japan and South Korea. “I could deploy them overnight and be profitable immediately on routes to China, Japan and South Korea,” said Bellew.

The airline recently retired the Boeing 777 from its fleet in its attempt to become a leader across its home region and capture the air traffic boom across Asia but now acknowledges that it has left the carrier a little short on capacity into markets such as Hong Kong, Delhi and others.

While its transition continues, Bellew insisted the turnaround of the airline remains on track, with costs “under control” and the focus now being to “boost revenues”. The airline had a marginally profitable first quarter at operating level, driven by favourable fuel prices, operational improvements, and a strong February, and Bellew is confident the airline will breakeven from the fourth quarter 2017, be fully profitable by 2018, and could be listed on Bursa Malaysia as early as spring 2019.

“Together with our shareholder we have set a goal of March 2019 to be listed on Bursa Malaysia. It is an ambitious timescale and a real stretch, but is certainly an achievable goal,” concluded Bellew.