Non-stop service to London will be ‘game-changer’ for RB, says CEO

October 24, 2018

Seven years after a major restructuring, the national airline banks on route improvements, regional growth for profitability

BANDAR SERI BEGAWAN – Royal Brunei Airlines (RB) is gunning for a larger market share of the Melbourne to London route as it prepares to launch its first direct flight from Bandar Seri Begawan to London Heathrow on Saturday.

CEO Karam Chand said the daily non-stop service would significantly improve RB’s product in the long-haul market, making it a more attractive option for passengers flying from Australia to the UK.

“The competition on that route is intense. For us to offer two stops from [Australia] compared other airlines’ one stop — it’s not competitive, guests are looking for more seamless journeys,” he said in a recent interview with The Scoop.

Previously, the airline flew to London with a stopover in Dubai, with passengers having to transit for over an hour to allow for refueling and a crew change.

The additional stop meant that RB was capturing just 13 percent of Melbourne-London traffic.

“Dubai wasn’t a bad option for us, it helped us over very many years, but direct connectivity is a big game-changer. What it does is for the first time is offer a non-stop product from Brunei to Europe,” Chand said, adding that a direct flight can boost trade and and investment into the sultanate.

RB CEO Karam Chand gives a speech during the handover of the airline’s first A320neo from the Airbus Delivery Centre in Toulouse, France, May 25, 2018. Photo: Ain Bandial/The Scoop

The CEO noted that RB supports the vast majority of air freight coming in and out of Brunei, with Singapore Airlines and Malaysia Airlines providing some additional capacity.

“We are a national airline, we have a nation-building role to play and we play that very successfully on a daily basis.”

“[RB] supports the import of food items, pharmaceuticals and what not. We also support export markets — and as it builds we can take products to Australia, to Dubai, to London, to Japan.”

In it for the long-haul?

While RB’s focus is on expanding its short and medium-haul network in East Asia, the non-stop service to London opens up the possibility of growing its long-haul network, particularly with the addition of a fifth Dreamliner this year.

The CEO said they would not rule out adding more long-haul destinations, but it is unlikely given that expanding into Asia is seen as a “less risky option”.

The recent purchase of seven Airbus A320neo with improved range will also make it less costly for RB to operate medium-haul routes such as Seoul and Tokyo, compared to using the widebody Boeing 787 Dreamliners.

“In the past, we operated the Boeing 767 to some of these markets, but it was just too big and the operating costs on those are just too high,” Chand said.

“Destinations like Taiwan, China, Japan, India — these are big populations within six hours of Brunei and with high disposable income… Let’s target that, and if it’s successful, then we can target long-haul as the next step.”

With the Brunei-London route carrying an average passenger load of 71 percent — well below industry averages — and surging oil prices pushing fuel costs up, the question remains whether a boutique airline like RB can build the critical mass to make long-haul a profitable enterprise.

Chand said government-linked companies like RB don’t disclose financial information, but that the long-haul network is “doing what it’s meant to do”.

“We’re bringing Brunei connectivity to the rest of the world,” he said, explaining that the airline provides 80 percent of seats in and out of the sultanate.

“We provide seats during peak season when all the competitor’s seats are sold out. If we didn’t have seats during these periods, Bruneians wouldn’t be able to travel or they would have to pay very high fares to travel.”

A rebranding journey

In 2011, the airline underwent a major restructuring that included downsizing its workforce, fleet simplification, as well as axing five out of 18 destinations.

After going through a rebranding exercise, RB emerged as a boutique full-service carrier, aiming to carve out a niche in the intensely competitive Southeast Asian marketplace.

“In terms of our finances, it is a significant improvement from what it was in 2010,” the airline chief said, with industry publications noting that the focus on regional growth has helped RB put short-haul operations back in the black.

Bruneian officials and RB staff pose for a group photo in front of the airline’s first A320neo before take off from the Airbus Delivery Centre in Toulouse, France on May 25, 2018. Photo: Ain Bandial/The Scoop

But with the price of oil now at a four-year high, the carrier’s operating costs are expected to climb, and the airline is considering tacking on a fuel surcharge to airfares.

“We don’t get subsidised fuel, we pay the global price… So if fuel prices goes up by 20 to 30 percent, that’s a sizeable increase to your costs.

“This factor is very challenging for us, but is very important for the [domestic economy]. The nation will benefit and that’s great but the cost [of flying] will increase for consumers,” Chand said.

“We try to mitigate where we can, but if we increase fares too much, the public stop traveling. It tempers the demand so much that you see load factors drop.”

Destination Brunei

The CEO said having a non-stop service between the UK and Borneo would be a plus for inbound tourism.

The airline was also recently appointed the lead marketing agency for Brunei Tourism, engaging M&C Saatchi of Singapore to help promote the sultanate abroad.

“The UK market is a very significant one for outbound tourism… there is big potential to get tourists coming from the UK… If you look at [the market research] Borneo comes very high [among destinations favoured] by [travelers in] the UK and Europe.”

Brunei Tourism’s latest destination campaign:

 

With tourist traffic from China and Korea growing rapidly, the airline is mulling increasing the frequency of flights to Korea and plans to add a seventh mainland China destination in 2019.

But ultimately, RB’s profitability will be decided by how much visitor traffic comes in and out of Brunei, Chand said.

“How you operate, how you get economies of scale — all of those things are significant in a competitive marketplace, and that is the challenge we face.

“Brunei is one of the few markets in the world where you don’t have a big outbound market — we’re limited by our small population. We have 259,000 visitor arrivals per year by air. Singapore gets that in one week,” he added. “We have to change this demand equation.”


This article was updated on October 26, 2018 at 2.41am.

Ain Bandial

The Scoop