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Decision by year-end on Firefly jet services

Thursday October 7, 2010

Firefly, the alternative low-cost carrier for selected routes, will know by the year-end if it will commence jet services out of KL International Airport (KLIA), in addition to its turboprop flights from Subang airport.

Sources indicate the outcome from Firefly wanting to utilise parent company Malaysia Airlines’ (MAS) B737-400 planes for Firefly’s expansion plans, which may include Asean routes, should be known soon.

While FlyFirefly Sdn Bhd managing director Datuk Eddy Leong decline to comment on this matter, he did say that the carrier had submitted an application to the relevant authorities for expansion of its operations.

“We will furnish more information once the approvals are obtained,” he said in an e-mail response to StarBiz yesterday.

With MAS identifying Asean as the group’s main growth region under its business transformation plan, Leong said Firefly was evaluating various options to match its product with the differing market segments.

MAS, which now leases 37 units of B737-400 aircraft, is set to decommission and replace these planes with new B737-800s as part of its fleet renewal strategy that runs into 2015. MAS will be taking delivery of its first B737-800 aircraft next week from Seattle, the United States.

To facilitate the expansion plans of its wholly-owned unit Firefly, MAS may continue to lease the B737-400s and charge Firefly a fee for the utilisation of these planes as opposed to buying new aircraft for Firefly.

This is due to MAS’ own cashflow and balance sheet needs considering that it is taking on new aircraft over the next few years: 35 B737-800s (with option for another 20) and 15 A330-300s (option for another 10).

MAS managing director and chief executive officer Tengku Datuk Azmil Zahruddin has previously said that the airline did not rule out the possibility of passing the B737-400 aircraft to Firefly for the latter’s future expansion needs.

Firefly, which currently operates seven ATR 75-200s for domestic routes, Singapore, Thailand and Indonesia, will take delivery of another two ATRs by the year-end and another by January next year.

It has also recently announced plans to buy another four ATRs and aims to increase its frequencies of existing routes with the ATR planes.

A recent daily report suggested that Firefly may look to expand to Asean markets in future, based on an anonymous advertisement carried in a daily seeking positions for pilots with ATR and Boeing 737 experience to be based at Subang Airport and KLIA.

The advertiser described itself as a leading regional airlines owned by a public-listed company with the government holding a majority stake.

“For Malaysia Airlines, the B737-400 planes are no longer viewed as a quality product and competitive if you were to compare with airlines such as AirAsia and Singapore Airlines,” observed an aviation analyst, who declined to be named.

The analyst, who is attached to a local research house, said the fuel consumption of these older Boeing aircraft was higher, at an average of 10% to 15% more per seat basis than the newer models.

He also added that the market valuation for the B737-400 planes were much lower than new aircraft, such as the A320.

“If you look at market valuation for an A320 now, it is about US$42mil compared with a B737-400, which is roughly between US$3mil and US$4mil,” he said.

A consideration for MAS in passing over its older Boeing aircraft to Firefly would be the potential routes that the latter will ply, to avoid direct competition between both airlines.

Analysts said Firefly would probably fly secondary routes, therefore competing directly with budget carrier AirAsia.

“With the airline industry being a commodity now, pricing point will be the biggest decision maker for customers in choosing the airline,” said the local research house analyst.

This article is a verbatim copy of the original article from The Star.

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