Myanmar’s airlines face pressure at home and abroad

Underfinanced and often unprofitable, Myanmar’s airlines are in a fight for survival as competition heats up from rivals inside and outside the country.

The sector has several factors in its favour – Myanmar is enjoying strong economic growth, fuel prices are low and the number of foreign tourists is rising.

But by and large the “airlines are not profitable”, said U Sai Kham Park Hpa, who until last year was the CEO of Air Mandalay.

One issue is competition. Myanmar has 11 carriers, that fly to the same handful of destinations – the trio of large cities, Yangon, Mandalay and Nay Pyi Taw, and a few other tourist locations like Bagan and Heho.

There is not much variation in how they operate those routes.

“Commercially it seems that all airlines are following the same blueprint in terms of scheduling, fares and fare conditions,” said Chris Mosebach, director at Myanmar Aviation Centre.

Airlines also follow the same approach of flying from one place to another via several stops, rather than point-to-point, which lowers revenue per seat, he adds.

“I think there’s room for innovation,” Mr Mosebach said.

Selva Kumar, the CEO of Air Mandalay, who returned to the firm last year after three years at newcomer Apex Airlines, agrees competition is a problem.

Mr Kumar is hoping Air Mandalay can eke out a slightly different market by concentrating on longer-haul point-to-point flights on select destinations using its two Embraer 145 jets. Air Mandalay will need five jets for its operations to become profitable, he added. Most of Myanmar’s domestic airlines use turboprops, which are slower and more fuel-efficient on shorter flights.

“One of the problems most airlines face is that they have three, two or even one aircraft and they want to fly to 10 destinations – it doesn’t work,” he said. “Many are operating turboprops, but if you want to break away from the herd you need something different.”

Mr Kumar thinks passengers will pay a premium for the faster, more comfortable jets.

“They [airlines] all have to find their little niche,” he said. “If they can’t, then they will have problems.”

But even with a niche, airlines face funding issues. Most are set up by one of two individual owners, and without a developed banking system or capital market Myanmar’s carriers are almost entirely reliant on their owners for further funding.

“This is a very capital-intensive industry,” U Sai Kham Park Hpa said. “Every investor has to have their own source of funding, and when that funding comes in late or not at all that’s a major problem.”

This was the main issue that hampered Air Mandalay’s operations during his tenure, he said. Air Mandalay stopped flying in December 2014 after difficulties finding replacement aircraft for planes too old to fly.

Several airline industry sources noted that investors often set up airlines for prestige rather than passion, with little thought to profitability of strategy.

One airline that has less issue with funding is state-owned Myanmar National Airlines, which embarked on a corporatisation process in 2014.

In two or three years’ time that carrier hopes to be a public company, but at present it receives a loan from the government, and is in a grace period before it starts paying back interest, its CEO Captain Than Tun told The Myanmar Times.

With government funding, MNA is leasing 10 Boeing 737-800 planes – so far three have been delivered – and has ordered six ATR72-600s. It has received two and a third will arrive in April or May, Capt Than Tun said.

MNA flies to Singapore, Hong Kong and Bangkok and will use its new aircraft for routes to China. The carrier already has slots booked for direct flights to Shanghai and Chengdu. Capt Than Tun expects these to start later this year.

For Myanmar’s only other international airline – Myanmar Airways International – MNA’s resurgence adds to the competition from foreign carriers, said Daw Aye Mra Tha, the airline’s head of marketing and public relations.

Last year Thailand’s Nok Air joined the ranks of regional low-cost carriers that fly to Myanmar, she added.

Thai Smile and Air Asia already offer a Bangkok-Yangon route, and Air Asia also operates a Kuala Lumpur-Yangon route, as does budget carrier JetStar.

MAI is not a budget carrier, offering services like 20kg baggage allowance and an in-flight meal. But the airline is unable to cut back on its services, which other Myanmar airlines also offer, while still having to compete with regional carriers.

“We have to fight to survive,” said Daw Aye Mra Tha, pointing to a US$99 promotional flight to Bangkok. “But at those fares how can we make a profit?”

MAI uses Airbus A320 aircraft and is likely to add new planes to its fleet of seven later this year, she added. The carrier is also considering adding new routes from Mandalay to Bangkok and Yangon to Penang.

Domestic airlines also face competition from MNA. Although the carrier started flying internationally again in 2015, the vast majority of its flights are domestic.

Its most frequent international route is a daily flight from Yangon to Bangkok. MNA will offer 38 flights to Bangkok this month, but 1471 flights within Myanmar during the same month, according to air industry data provide Innovata.

“MNA should be the national flag carrier – it’s a given and we have to accept it,” said a senior executive of a domestic Myanmar airline who asked to remain anonymous.

“But they should focus on being the flag carrier and winning market share internationally. They should dominate traffic coming in and out of Myanmar, and [not] fly domestically.”

More airlines, foreign or domestic, providing international routes to Myanmar should be beneficial for Myanmar’s local carriers.

Gulf firm Emirates recently announced it would offer flights from Dubai to Yangon and onward to Hanoi. Emirates can pick up passengers in Yangon and fly them to Hanoi, as part of the airlines’ fifth freedom rights, which allow an airline to fly between two foreign countries as long as the flight originates or ends in its home country.

When large carriers like Emirates take advantage of fifth freedom rights, it means more competition for international routes. But by bringing in more tourists to Myanmar through Yangon it also helps bring local airlines more business, Mr Kumar said.

The threat to local carriers is the ASEAN Open Skies Policy, to which Myanmar is a signatory. This provides the same fifth freedom rights, which regional airlines like Bangkok Airways and Air Asia have used to offer flights from their home countries to Nay Pyi Taw and Mandalay.

There are only three Myanmar airports – Yangon, Mandalay and Nay Pi Taw – at which the larger jets used by foreign airlines can land, Mr Mosebach said. But if other airports are upgraded then regional low-cost carriers will be able to target those too.

“Myanmar’s airline industry is fledgling and it needs time to grow and stabilise,” Mr Kumar said. “The relevant authorities must support the domestic airlines so they are in a position to compete.”

This is a part of a larger issue, said airline industry sources. The government should also adjust taxes on spare parts, whole aircraft and commercial taxes on ticket sales, which either do not apply in neighbouring countries or are considerably lower, they said.

Sources across the airline industry bemoaned that fact that the tax burden on Myanmar’s airlines is heavier than in other countries, even as they are increasingly being asked to compete on a level playing field with better established peers in those same countries.


Source: Myanmar Times

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