MAB Kargo Sdn Bhd, the air cargo unit of Malaysia Airlines Bhd, expects to benefit from its parent’s plans to order wide-body aircraft as part of its growth plans.

“Malaysia Airlines is planning to acquire more wide-body planes to increase capacity and service for potential new routes. That is good news for us and we certainly aim to grow in tandem with it,” MAB Kargo chief executive officer (CEO) Ahmad Luqman Mohd Azmi told The Edge Financial Daily in an interview.

On June 20, the Centre for Aviation reported Malaysia Airlines Bhd CEO Peter Bellew as saying that the national airline plans to nearly double the size of its passenger wide-body fleet over the next few years from 21 aircraft to 36.

Ahmad Luqman, 43, said that this bodes well for MAB Kargo which currently derives 64% of its revenue from the belly space of Malaysia Airlines’ passenger airplanes. The rest comes from selling the space on its three Airbus A330-200 freighters.

The air cargo unit expects a turnaround in the current financial year ending Dec 31, 2017 (FY17), after several years of losses.

“We didn’t achieve [a] profit last year, but the losses were very much less than what we used to book. We are on track to meet our internal target [to turn a profit] in FY17,” said Ahmad Luqman.

He attributed the smaller losses in FY16 to the company’s replacement of its Boeing 747-200 freighters with the more efficient A330-200 freighters as it restructured in 2015. This was despite a 21% decline in MAB Kargo’s cargo volume to 23,000 tonnes in FY16, from 29,000 tonnes in FY15.

As a result, MAB Kargo’s revenue dropped to RM1.1 billion in FY16, a far cry from the RM2 billion mark that it enjoyed in FY11.

“We wanted to shrink the network to a level that we are able to manage our business better. Even though revenue and cargo volume were down, we saw a 90% improvement in our profitability compared with the year before,” he added.

According to Ahmad Luqman, this year’s better performance will be driven by its anticipated 12% growth in volume, an increase in capacity from its parent and tie-ups with other air cargo players.

“With Malaysia Airlines’ plan to serve 11 new routes in China this year, this will help boost revenue from cargo on passenger flights,” he said.

He also cited Malaysia Airlines’ upgauge to A330-300 from 737-800 on its Kuala Lumpur-Hong Kong route on Jan 1 as enabling MAB Kargo’s capacity to increase by nearly fourfold.

Still, Ahmad Luqman warned that air cargo yields are likely to remain under pressure as airlines deploy newer more fuel-efficient aircraft.

According to Boeing’s World Air Cargo 2016/2017 forecast, freight yields have declined at an average rate of 2.1% every year in the last 20 years — no thanks to lower productivity gains, technical improvements, and competition between carriers.

“This is where MAB Kargo needs to carve our own niche. We need to differentiate ourselves and know in which market segment we want to serve,” said Ahmad Luqman.

He also said the air cargo unit has no immediate plans to increase its capacity.

“If there is a requirement to add more capacity to meet increased demand, then, sure, we will start to consider adding more capacity.

“However, I don’t foresee MAB Kargo purchasing new planes or freighters. It would be more on working with like-minded partners,” he added, noting that MAB Kargo does not discount the option to lease additional freighters if necessary.

Source: theedgemarkets.com