Brunei Darussalam's flag carrier sees major overhaul

In line with much of the transport sector in Brunei Darussalam, Royal Brunei Airlines (RB) underwent a five-year restructuring process between 2011 and 2016. This overhaul involved rebranding, service enhancements and simplification of the flight network and fleet, including the assimilation of South-east Asia’s first Boeing 787-8s. These steps were taken in response to heavy losses, the full extent of which are unknown due to the carrier not disclosing its financial reports.

According to RB’s former deputy chairman, Dermot Mannion, the restructuring programme turned out to be well-timed, as it coincided with the South-east Asian region becoming the most competitive aviation market in the world. In the face of this competition, Mannion announced at an industry meeting in June 2015 that passenger load factors were above 70% and continuing to rise. This was important news, as in the past RB had suffered from low load factors and returns that were well below industry averages.

Key to boosting the airline’s competitiveness was a focus on customer service. “We invest a lot of time and effort in training to ensure that we offer the type of customer service that international standards demand,” Mannion told local media at the airline’s 40-year corporate anniversary event in 2015. This service is now provided by a largely Bruneian workforce. “Feedback from passengers has been positive, and we are taking advantage of the natural hospitality of Bruneians, which has become a significant element of our customer service programme,” Mannion said. Changes to the staff profile were accompanied by the workforce being pruned back to 1500 employees from 2000, along with $100m worth of cost-cutting.

NEXT STEPS: In March 2016 RB announced that Mannion would be leaving the company at the end of his five-year contract. Moving forward, a new five-year plan (2016-21) is centred around seeking out markets for additional services and expanding RB’s regional network. A longer-term strategy could see the airline looking further afield to GCC member states in order to develop ties with a larger carrier in the form of a joint venture or cross-equity shareholding.

Such a collaboration may already be on the horizon, as RB announced in June 2015 that it had struck up a strategic partnership with the emirate of Ras Al Khaimah in the UAE. The agreement will see RB and the tourism development authority of Ras Al Khaimah promote the emirate as a destination to markets in the UK and Australasia. “The UK market will be a key focus of attention, and subsequently the partnership will be rolled out in other markets across Australasia,” Mannion said during the announcement, adding that RB would open a new office in Ras Al Khaimah as part of the deal.

EXPANSION PLANS: With Mannion’s departure, Karam Chand, former chief commercial and planning officer at RB, has taken over the helm as CEO. Chand said the airline will use its newly upgraded 12-strong fleet of aircraft to expand its network to destinations such as Beijing, Tokyo, Brisbane, Perth and India. Many of RB’s unprofitable long-haul flights were dropped during the restructuring process, but the carrier still flies to Dubai, London and Melbourne, and maintains seasonal routes to Jeddah. Profitability on these routes has been aided by the transition from a wide-body fleet composed of six Boeing 777s to one made up of four smaller and more efficient Boeing 787-8s (B787-8s).

RB has typically focused on regional yields in terms of developing its network, a trend that looks set to continue as higher returns from local traffic have historically boosted RB’s operational performance. Point-to-point traffic makes up around 70% of RB’s traffic across its regional network, while transiting passengers account for 80% of traffic on the long-haul London, Dubai and Melbourne routes. During restructuring, RB dropped five routes: Auckland, Brisbane, Ho Chi Minh City, Kuching and Perth. In 2014 Ho Chi Minh City returned as a destination, and Bali was added to the route map. RB’s current network covers 16 destinations, including Brunei Darussalam itself.

A YOUNGER FLEET: As of 2016 RB’s fleet consists of four B787-8s, four Airbus 320s (A320s) and two Airbus 319s (A319s). In addition to these aircraft, the carrier is currently leasing two current-engine-option A320s (A320ceos) until 2023, a decision undertaken to speed up the phasing out of its 12-year-old A319s and eight-to-11-year-old A320s, according to airline industry group the Centre for Asia Pacific Aviation (CAPA).

These older aeroplanes are set to be replaced by seven new-engine-option A320s (A320neos) before 2020. RB placed an order in May 2014 for the A320neos – which offer longer range, lower operating costs, and reductions in engine noise and emissions – with the option to receive delivery of three additional A320neos before 2021.

Analysts expect the A320neos to create opportunities for new medium-haul routes to north and south Asian destinations and Australia. Another more definite outcome relates to passenger capacity, as the two A319s in use seat eight passengers in business class and 114 in economy, whereas the A320s that will replace them are configured to allow 12 business-class passengers and up to 138 economy-class travellers. Subsequently, routes that are served by the A319 today will be able to carry 50% more business customers and 21% more economy fares following the transition to the new aircraft. RB will return its four older A320s during the new five-year plan, meaning it will have a narrow-body fleet of at least nine aircraft by 2021.

Supplementary to this narrow-body fleet expansion, RB will take delivery of a fifth B787-8. The addition of this Dreamliner was deferred until 2018 during the restructuring programme, as the company was more focused on improving the profitability of its long-haul services than on further expansion. By the end of 2021 RB’s fleet will total 14 aeroplanes, including the two A320s it is leasing, and its total seat count could reach 2620, up from the 2136 seats available today – a 23% increase.

BOUTIQUE AIRLINE: As well as entering a partnership with a larger airline, plans are in place to position RB as a “boutique” carrier. According to CAPA, the airline is “following a boutique full-service carrier model, aiming to carve out a niche in the intensely competitive South-east Asian marketplace”. The expected increase to the fleet’s narrow-body business-class seating capacity with the new A320s should help facilitate its drive toward being an airline with an emphasis on quality. The fact that RB’s regional routes experience high demand for premium seats makes these upgrades even more significant.

Ancillary to these developments, RB is reportedly considering using the B787-8 on more of its regional flights. This is to take advantage of the aircraft’s 18 lie-flat business-class seats and 50% higher premium seat capacity than the A320s in service currently. This strategy, already popular with business-class travellers flying in and out of Singapore, could also be rolled out to the carrier’s Kuala Lumpur routes, on which there is also high demand for business-class seating.

DIGITALISING FLIGHTS: In addition to rolling out new aircraft and pruning back the company’s flight network, technical advances were introduced in the 2011-16 five-year plan to increase customer satisfaction and operational efficiencies. In June 2015 RB announced it had enacted substantial enhancements to its online booking experience by adopting an enhanced e-retail platform provided by Amadeus – an IT provider for the global travel and tourism industry. The platform has a booking management feature accessible both online and on mobile devices, and complies with the US Department of Transportation’s accessibility mandate. Commenting on the new platform, Chand said, “Our partnership with Amadeus is critical in helping us deliver a better and more accessible experience to our travellers, at the same time boosting revenues through online and mobile sales channels.”

In addition, RB has digitised its cockpits by adopting an “electronic flight bag” service. Created by SITAONAIR, the cloud-hosted service delivers paperless operational information to pilots on board the A320 fleet and as a backup on the B787-8 fleet. The paperless operations have been implemented to reduce costs and enable RB pilots to exchange data in real time by using data link services and flight messenger and tracker systems.

CODE SHARING: In 2016 RB finalised a codeshare agreement with Turkish Airlines (THY), which is expected to increase passenger demand for flights to the Sultanate. Under the agreement, which came into force on February 22, passengers of the two airlines will be able to make connecting flights between Bandar Seri Begawan and Istanbul via the Middle East hub of Dubai.

The deal greatly extends the reach of RB, as its new codeshare partner has undergone its own rapid expansion in recent years: THY now serves 284 destinations with some 300 passenger and cargo aircraft. For RB, the THY deal presents an avenue for growth beyond Asia. While the carrier already has a number of codeshare agreements in place, all are with regionally based airlines.

A NEW BREED: In March 2016 RB made headlines when three of its pilots became the carrier’s first all-female flight crew, flying a B787-8 from Brunei Darussalam to Jeddah. RB appears dedicated to helping more women achieve success in this male-dominated industry as it offers engineering apprentice programmes to both sexes.

In spite of these evolutions, it will be necessary for the carrier’s management to devise strategies that enable it to compete successfully with the region’s growing number of low-cost carriers and larger, full-service carriers. This is particularly vital in light of the increased competition expected due to the ASEAN Open Skies policy.

However, recent figures are promising, with inbound traffic up 8.6% year-on-year to 218,000 arrivals in 2015, according to data from the Ministry of Primary Resources and Tourism. An upgraded fleet and increased passenger figures could allow the carrier to push toward profitability in the coming years, and according to RB’s latest five-year development plan, with a newer fleet, improved technology and a smarter, sleeker network it will break even or achieve profitability by 2021.

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The Report: Brunei Darussalam 2016

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