6/5/08 from StarMalaysia Airlines (MAS) has taken an unprecedented move with its “Everyday Low Fares” (ELF) programme.
Beginning yesterday, the national carrier is offering 1.3 million zero or low-fare seats for all its domestic destinations. The media's immediate reaction was: “Is MAS going heads on with AirAsia?”
MAS stewardess showing off the promotional placards after the launch of the programme.
Managing director Datuk Seri Idris Jala was quick to defend the airline's strategy, saying: “This programme will create new demand for people who do not fly via us. The seats are going to be empty anyway.”
MAS' domestic flights load factor is about 70% while the remaining are unsold seats.
The ELF strategy is similar to the manufacturing sector's practice of marginal costing structure. Seats that normally go unsold are now given away for free or at a very cheap price so that they can generate additional cash flow.
For free tickets, consumers only have to pay for fuel surcharge, administrative fee and airport tax.
The cost for travel within the peninsula states only amounts to RM76 one way while it is RM120 between west and east Malaysia.
American airlines have long ago implemented a similar strategy by offering last-minute airfare deals to customers, especially for flights that are sparsely occupied.
If the plane is going to fly anyway, the airline may as well make the most money out of it, even if that means selling tickets cheaply. After all, the cost of getting that plane off the ground is already spent.
Like Jala said, “the ELF programme provides us with the ability to recover some of the fuel costs which would otherwise be lost.”
In times when crude oil prices are still hovering above US$100 a barrel, any method to recover some of the cost is most welcome.
MAS is confident that it can pull the strategy off without having too much impact on its full-fare seats. Jala said the carrier's competent team would be monitoring the seat inventory closely.
Moreover, the airline had taken significant cost-cutting measures that saved some RM1bil, and had hedged competitively about 43% of its fuel requirements this year, he said.
“We're just passing on the cost-savings benefits to our customers,” Jala added.
Meanwhile, OSK Investment Bank in a report yesterday, said: “We see a positive impact from this, which will lift core net profit by 3% to 4%.”
While competitors would not take this lightly and a short-term price war could emerge, MAS' greater flexibility in raising fuel surcharges should see it emerge relatively unscathed, it added
Beginning yesterday, the national carrier is offering 1.3 million zero or low-fare seats for all its domestic destinations. The media's immediate reaction was: “Is MAS going heads on with AirAsia?”
MAS stewardess showing off the promotional placards after the launch of the programme.
Managing director Datuk Seri Idris Jala was quick to defend the airline's strategy, saying: “This programme will create new demand for people who do not fly via us. The seats are going to be empty anyway.”
MAS' domestic flights load factor is about 70% while the remaining are unsold seats.
The ELF strategy is similar to the manufacturing sector's practice of marginal costing structure. Seats that normally go unsold are now given away for free or at a very cheap price so that they can generate additional cash flow.
For free tickets, consumers only have to pay for fuel surcharge, administrative fee and airport tax.
The cost for travel within the peninsula states only amounts to RM76 one way while it is RM120 between west and east Malaysia.
American airlines have long ago implemented a similar strategy by offering last-minute airfare deals to customers, especially for flights that are sparsely occupied.
If the plane is going to fly anyway, the airline may as well make the most money out of it, even if that means selling tickets cheaply. After all, the cost of getting that plane off the ground is already spent.
Like Jala said, “the ELF programme provides us with the ability to recover some of the fuel costs which would otherwise be lost.”
In times when crude oil prices are still hovering above US$100 a barrel, any method to recover some of the cost is most welcome.
MAS is confident that it can pull the strategy off without having too much impact on its full-fare seats. Jala said the carrier's competent team would be monitoring the seat inventory closely.
Moreover, the airline had taken significant cost-cutting measures that saved some RM1bil, and had hedged competitively about 43% of its fuel requirements this year, he said.
“We're just passing on the cost-savings benefits to our customers,” Jala added.
Meanwhile, OSK Investment Bank in a report yesterday, said: “We see a positive impact from this, which will lift core net profit by 3% to 4%.”
While competitors would not take this lightly and a short-term price war could emerge, MAS' greater flexibility in raising fuel surcharges should see it emerge relatively unscathed, it added
