Malaysia Airlines (MAS) announced today that it will be withdrawing service entirely from North America effective April 30 once it pulls its 4-weekly flight to Los Angeles Int’l. LAX was its sole remaining US link after the carrier suspended operations to Newark Liberty Int’l in 2009, which it served via Stockholm Arlanda.
Currently, MAS flies a 777-200ER from its primary base at Kuala Lumpur International airport (KLIA) to LAX via Tokyo Narita in each direction. The carrier has been serving LA since July 1986, where it originally launched the route using a 747-COMBI aircraft on a twice-weekly basis, according to airlineroute.net. MAS has always operated its LAX station as a 5th-freedom service with a stopover at various points in North Asia, as it initially routed via Tokyo Narita, then through Taipei Taoyuan airport, then back through Tokyo, alternating between 3-4 weekly flights off-and-on.
Current schedule is as follows until route closure:
MH092 KUL1100 – 1910NRT2040 – 1510LAX 772 x246
MH093 LAX1715 – 2030+1NRT2205+1 – 0430+2KUL 772 x246
MAS is the latest Southeast Asian carrier to bite the dust in the United States
The carriers’ decision to ax service to LAX after nearly 30 years of serving the market further underscores the challenging nature for Southeast Asian carriers to sustain profits on routes to North America, either via ultra long-haul operations or, in the case of MAS, 1-stop 5th-freedom services. Malaysia’s retreat from LAX follows in the wake of fellow competitors Singapore Airlines and Thai Airways, who have similarly revamped their approach to maintaining presences in US markets in recent years. Thai ended its nonstop flight from Bangkok Subvarnabhumi airport to New York JFK in 2008 and later from BKK to LAX in 2012. While Thai shut down JFK services entirely, it has stayed committed to its LAX station, but whittled down services to a mere 4-weekly operation that makes a 1-stop connection in Seoul Incheon rather than offer a daily nonstop straight to Bangkok.
SIA recently ended its nonstop routes to Los Angeles and Newark from Singapore Changi airport in late 2013, as part of a deal with Airbus to return 5 A340-500 frames dedicated exclusively to operating these two long-haul routes, which were unprofitable. SIA still operates a daily nonstop flight to both Los Angeles and New York, but each via Tokyo and Frankfurt, respectively, operated on 409-seat Airbus A380s.
SE Asian Carrier to US
LAX, EWR (nonstop) from 2004 to 2013
LAX (via NRT), JFK (via FRA)
Thai Airways Int’l
LAX, JFK (nonstop) from 2005 to 2012/2008
LAX (via ICN)
LAX (via NRT/TPE), EWR (via ARN) from 1986 to 2014/2009
Once MAS exits LAX, only three Southeast Asian carriers will remain in the continental US: SIA, Thai and Philippine Airlines (PAL). Of these, PAL is the only carrier that serves LAX nonstop from its main base at Manila Ninoy Aquino International airport using a mix of Boeing 747-400s and Airbus A340-300s on the route.
Restructuring efforts at MAS were not sufficient to save LAX
Since early 2012, MAS has cut over a dozen international medium and long-haul routes from its primary hub at Kuala Lumpur International airport and secondary base at Kota Kinabalu airport (located on the Borneo side of East Malaysia). Included among the cuts were Kuala Lumpur to Johannesburg, Cape Town, Rome, Dubai and Buenos Aires (via Johannesburg), and from Kota Kinabalu to Osaka, Seoul, Tokyo Haneda and Perth.
Throughout 2013, MAS focused on increasing short and long-haul capacity growth primarily within the Asia-Pacific region, but experienced inconsistent quarterly earnings results varying between profits and losses, leading to a mixed long-term view with regards to the efficacy of its new business plan.
The tough reality is, while Malaysia and the overall Southeast Asian market is a high-growth travel region, the level of competition, particularly among low-cost carriers, is excruciatingly cut-throat. Within the region itself, low-cost carriers such as Lion Air, Malindo, AirAsia and Tiger Airways are taking new aircraft deliveries in droves and capitalizing on the spike in demand for affordable budget travel.
As a full-service carrier, MAS faces a higher cost structure than many of these nimbler players and must compete with them at a pricing level that is not viable to sustain consistent profits. Noticeably, MAS is one of the few remaining network carriers in Asia that has not invested in creating a low-cost “child” subsidiary carrier to capture the lower-end of the budget market, a trend which has gained serious traction among MAS’ biggest full-service competitors. SIA, Thai, Garuda Indonesia, Qantas, PAL and Cathay have all made a commitment to this strategy, and it is questionable whether MAS’ choice to neglect the budget travel market is a wise one.
Nevertheless, MAS has been bullish about investing in its product and brand to attract more higher-yielding travelers and is certainly committed to boost OneWorld visibility in Southeast Asia. The carrier has deployed its Airbus A380s on large volume, high-profile routes to London and Paris, seeking to capture a greater share of the Europe – Southeast Asia/Oceania market.
MAS and OneWorld neglected to take advantage of codeshare opportunities at LAX
The carrier completed its integration process into the OneWorld global alliance in early February 2013, which represented a huge pillar of its Business Turnaround Strategy after remaining largely in the red over the past few years. On paper, its conceivable to think that joining OneWorld would largely benefit its operations at LAX given the fact that Los Angeles is a “cornerstone” hub for founding OneWorld member carrier American Airlines. Moreover, LAX is served by a handful of OneWorld carriers with connections between Asia, Europe and Latin America.
However, strangely, neither MAS, American, nor any other OneWorld carrier serving LAX chose to take advantage of codeshare opportunities afforded by the airport. MAS has codeshare agreements in place with OneWorld carriers American, Cathay Pacific and JAL, yet none of these were extended to include services to LAX. American never placed its code on MAS’ 4-weekly flights operating into LAX, and MAS did not place its code on any American flights operating domestically within the continental US from LAX.
Even more bizarre, MAS placed its code on every American Airlines transatlantic route from London Heathrow to the US (Chicago O’Hare, Dallas/Ft. Worth, Miami, New York JFK and Raleigh Durham) yet did not do so on AA’s daily Los Angeles – Heathrow flight. The same story occured on the transpacific side as well, with MAS placing its code on American’s flights from Tokyo Narita to Chicago O’Hare and Dallas/Ft. Worth, yet not on AA’s daily Los Angeles – Narita flight. JAL even carries MAS’ code on its US routes from Narita to Boston, Chicago, Guam, Honolulu and New York JFK, but not from Narita to LAX.
Meanwhile, American places its code on MAS’ services from KL to Europe (London, Frankfurt and Paris) as well as a few short-haul markets from KL in Southeast Asia. It is quite possible that LAX was purposefully excluded from the code-sharing actitivies based on prior awareness that Malaysia’s days of serving the airport were numbered.
MAS likely could not compete in saturated LAX-NRT market
The demise of ultra long-haul services to countries such as Thailand and Singapore from LA also contains another hidden casualty for all carriers competing in fifth-freedom services between the US and North Asia: as the carrier exits the nonstop market, it retrenches in an already saturated 1-stop corridor, with the most common cases being Tokyo Narita and Seoul Incheon airport in South Korea.
As such, that creates pricing and yield pressure as the competition intensifies in an already crowded arena. For a carrier such as MAS, one who has always operated a 5th-freedom connecting service in this fashion and is small potatoes as-is, it’s pretty much a death sentence when another premium airline such as Singapore Airline has to route its LAX-bound traffic entirely via NRT and vie for market share.
For the week of January 27, a total of 7 carriers fly nonstop between LAX and Tokyo (including both Narita and Haneda airports): American, Delta, United, Japan Airlines, All Nippon Airways Singapore Airlines and Malaysia. Korean Air also used to compete on the same route, but pulled the plug on its LAX-NRT flight in Spring 2013 after citing lack of profitability.
However, between LAX and North Asia as a whole, which includes all markets in Japan, South Korea, mainland China, Hong Kong and Taiwan, competition more than doubles with sixteen total carriers operating flights, in some cases offering multiple-daily round trip flights, between the two regions. Of these carriers, MAS has the smallest capacity share at less than 1.9% of the overall total, according to CAPA Route Development.
Put simply, there is no possible way that a carrier can compete viably with such an under-represented level of service on a less-than-daily basis. Moreover, with both AA and JAL enjoying anti-trust immunity with their transpacific joint-venture agreement, OneWorld has the market covered fairly well. The removal of MAS as a player on the route will only lead to a 6.3% reduction in weekly available seats.
Additionally, Cathay Pacific is ramping up service to LAX by adding a 4th daily flight, which will lead to nearly 2,000 additional weekly seats, more than enough to offset the loss of MAS’ approximately 1,110 weekly seats.
PAL remains lone star serving US – Southeast Asia, but not necessarily a winner
Philippine Airlines will still hold the designation of being the only Southeast Asian carrier serving the US nonstop from Manila, a distinction it has held since Singapore Airlines withdrew its LAX nonstop flight in October 2013. PAL has long been restricted from growth in the US and the EU after the International Civil Aviation Organization (ICAO), a UN Specialized Agency, determined that the carrier was out of compliance with its safety standards. However, since March 2013, the ban has been lifted in Europe and the carrier has been removed from the EU blacklist, but in the United States, it is still awaiting an upgrade to Category 1 status by the FAA, which will permit the carrrier greater liberties for expansion.
Even without the headache of Category 2 restrictions, PAL is not a powerful player in the US – Asia market. It lacks the brand strength and financial prowess that that its legacy peers exude – such as Cathay Pacific, Singapore Airlines and Korean Air. The Philippines is also a high volume – but not high-yielding – market, so PAL’s ability to attract and draw from a large premium traffic base is rare, leading to the explanation of why the carrier has failed to invest in improving its in-flight product over the past few years. Taking new 777-300ER aircraft deliveries to replace gas-guzzling A340s and 747s is a step in the right direction, but PAL has obviously chosen to be a late-adopter with this practice when its rivals have been replacing outdated fleet types for years.
Moreover, PAL likely prefers to concentrate on inbound and outbound O&D traffic to the Philippines from regions with large Filipino expat and migrant worker communities, hence, its recent expansion into Toronto, London and Dubai. The plausibility of transforming Manila into a major transpacific connecting point between the US/Canada and the Asia-Pacific basin is far from likely, especially given the fact that routing is less-circuitous over Japan and South Korea due to geography.
Subsequently, the carriers that will gain from Malaysia’s exit from LAX will be the North Asian airlines and their respective JV partners.
MAS is making the smart move, but needs to forge ahead with sustainable strategy
The LAX route suspension was likely highly politicized and controversial, but nevertheless a necessary move for MAS to curb losses on this segment and focus instead on growth in markets where it can compete more successfully. Maintaining a pan-Asia focus from Kuala Lumpur that remains between Europe and Australia at the outermost edges is perfectly fine for MAS to support the local long-haul, premium market. There’s little to no business case for retaining a loss-making 5th freedom route for glamor purposes.
Still, rather than focus on purely routes and network, MAS really needs to hit its yield and profitability targets and perhaps set realistic goals that the carrier can achieve. Being located smack dab in one of the world’s most populous regions, MAS has scene the commercial aviation landscape change dramatically over the past decade, but sadly has done little to adapt to it in response.
Right now, MAS is definitely still caught between a rock and a hard place given the infiltration of low-cost carriers in the short-haul sector and the strength of the network carriers in the long-haul space. Even with its OneWorld affiliations, MAS is still having to contend with the fact that legacy carriers are forging deeper relationships on a one-off basis, such as Qantas – Emirates and Air New Zealand – SIA, further intensifying the competition in the premium space.
It’s crucial for MAS to maintain good relationships with fellow OneWorld carriers and be open to opportunities within the alliance, or among fellow members, to add incremental value to the business operation. Having withdrawn from Buenos Aires and now Los Angeles, MAS should seek to leverage ties with LAN Airlines via Sydney to seek access into Latin America, namely Brazil, Peru, Argentina and Chile.
Fortunately, MAS has some major milestones that it has been able to cross off its bucket list, and hopefully will only go up here. Cutting LAX is a painful decision in the short-term, but hopefully is a sign that MAS knows what has to be done for the betterment of the carrier in the long-run.