29 July 2016
Are the Irish better at running airlines than other nationalities? It would appear so given the proliferation of airline honchos that come from the Emerald Isle.
There’s the popular but abrasive Michael O’Leary at one of the world’s most profitable carriers, Ryanair. And there are others – Willie Walsh (British Airways, International Airlines Group), Alan Joyce (Qantas), Dermot Mannion (ex-deputy chairman of Royal Brunei Airways), Conor McCarthy (co-founder of AirAsia) and Tony Ryan (founder of Ryanair and Peat Aviation).
Now add Peter Bellew into the pot. The 51-year-old recently became boss of Malaysia Airlines Berhad (MAB), formerly known as MAS. He is well regarded – personally and professionally. Read here.
During the IATA annual general meeting in Dublin early June we came across several people who knew Bellew from his previous life at Ryanair, working alongside the blunt and brusque O’Leary. Bellew was described as the opposite of his then boss – courteous and convivial.
He showed some of those characteristics on 27 July at Putrajaya when MAB (also known as MH) inked a deal with Boeing for up to 50 B737 MAX aircraft. The deal, thought to have been agreed during the Farnborough Airshow, is for 25 firm 737 MAX-8s and 25 options, and valued at USD5.5 billion although it’s quite possible the final amount is a lot less than that as airlines typically get at least 30% discounts (if not more) if they buy in bulk.
MH has a long, happy history of working with the B737s, which have been its workhorse domestically and regionally. It currently runs a fleet of 56 B737-800s, which are owned and leased. Some years ago MH took delivery of its 75th B737, an event celebrated rather modestly given the financial health of the company although some lucky observers received a pleasant souvenir marking that occasion.
Bellew reportedly said during the media session that he was confident the planes would be funded fairly easily, given its sound economics and secondary market value. He ought to know as his past experience at Ryanair – which operates only B737 aircraft – would attest to the plane’s touted reliability.
The acquisition of the MAX, dubbed “Mad Max” by Airbus chief salesman John Leahy (ironically an American with Irish ancestry) is interesting, as it will be pitted against AirAsia’s upcoming 100 A321neos a few years down the road.
SQ’s first quarter earnings
Across the border south of Malaysia, Singapore Airlines announced its 1Q results that would make Bellew green with envy.
While no longer regarded as “A Great Way to Fly”, SIA remains very much solvent, as it has been for decades. Its profits in recent years have been relatively modest, compared to its heyday 10-plus years ago.
For 1Q ending 30 June, SIA registered a net profit of SGD257 million year-on-year. Much of the gains came from divestment, lower jet fuel prices and an increase in passenger numbers. As in the previous quarter, Scoot and Tigerair – its two subsidiaries – performed better.
However, yields continue to weaken, 10.3 SG cents compared to 10.7 SG cents in the January-March period. We remain pessimistic on the prospects of yields improving anytime soon although yields from the airline’s newly-introduced Premium Economy product could be the new growth area for SIA.
Competition from LCCs and the ME3 carriers will likely ensure SIA’s yields and profit in coming quarters will stay subdued. Nevertheless the carrier is making efforts to realign its growth strategy, for example introducing direct flights to Manchester (previously via Munich) and opening up a new destination in Germany (Dusseldorf).
SIA’s dependence on European markets will be severely tested in the coming quarters from persistent terrorist threats in many major cities as well as from the forex perspective, with both sterling and the euro weakening.
Indeed, as it always has when it announces earnings, SIA warned of potentially tougher times ahead as: “Competition remains intense with aggressive capacity injection, and yields will continue to remain under pressure”.