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Royal Brunei pays the price of decades-long wrong strategy

Luc Citrinot, eTN  Jun 24, 2011

BANGKOK, Thailand (eTN) - Arrogance? Probably. Lack of vision? Certainly. Royal Brunei Airlines (RBA) remains a mystery among Southeast Asian carriers. The carrier serves Southeast Asiaā€™s second wealthiest country after Singapore with a GDP per capita of over US$20,000. But at the same time, the Sultanate of Brunei is one of the least-populated countries among ASEAN members with a population of 360,000 inhabitants. Although Brunei's population is small, the airlineā€™s catchment area is rather attractive. Brunei is the only independent kingdom located on Borneo Island with its population of 20 million inhabitants. Southern Borneo (Kalimantan) belongs to Indonesia, while a large part of Northern Borneo opted half a century ago to rally the Malaysian Federation. An independent and neutral Brunei could then position itself as the ideal international gateway to connect Borneo with the rest of the world.

RBA has preferred to concentrate until today on prestigious routes such as long-haul flights. Its fleet is composed of Airbus A320s and Boeing 777-200 ERs, leased from Singapore Airlines. And instead of offering flights to Sandakan (Malaysia), Balikpapan, Pontianak, and Makassar (Indonesia) or Davao (Philippines) - they are all desperately looking for more international connections - the airlineā€™s management found it more rewarding to propose flights to Auckland, Brisbane, Dubai, London, or Melbourne. Of course, in the tiny kingdom, RBA has been long considered as a toy, an object of pride to be exhibited worldwide.

Unfortunately, this strategy cannot survive anymore in current world air transport. RBA is losing money, a lot of money, on long-haul flights due to the absence of O&D (Origin & Destination) passengers. Flights in transit to Australia from Southeast Asia or London were also wrongly timed, making Bandar Sri Begawan an unattractive alternative. Finally, low-cost carriers in the region ā€“ especially AirAsia in the neighboring cities of Kota Kinabalu and Miri and also in Kuala Lumpur - slowly made Brunei national carrierā€™s own regional network moribund and its proposed fares rather expensive.

The airline is paying the price now of its overrated ambitions. By appointing ex-Aer Lingus executive Dermot Mannion, the airlineā€™s shareholders (in reality the Sultanate of Brunei) show finally that they understand the urgency of the situation. RBA is probably close to financial asphyxia, even though its management will never admit it. But the decisions now taken by Dermot Mannion show that the situation at the airline has been seriously addressed. From August, RBA will terminate flights to Kuching in Sarawak, and from October, it will end most of its intercontinental flights, abandoning Auckland, Brisbane, and Perth, as well as Ho Chi Minh City. From an intercontinental network which still had Frankfurt and Sydney a decade ago, RBA will be only left with three overseas destinations: London via Dubai and Melbourne. And nobody is now certain that those destinations will not be eliminated in a second phase of restructuring.

Meanwhile, Bandar Sri Begawan could be turned into the missing international gateway to Borneo Island and even to neighboring Celebes and Mindanao Islands. Opening new routes in a circle of up to three or four hours around Brunei and offering a more competitive fare structure matching low-cost airlines, could dramatically change RBA's destiny. A good example to take inspiration from is Singapore-based Silk Air, Singapore Airlinesā€™ regional subsidiary. The carrier managed to grow its traffic volume despite low-cost competition by offering a simplified service without compromising on high quality for passengers. RBA managementā€™s announcement this week certainly marks the end of a dream, but probably also of an increasingly frightening nightmare.

Royal Brunei pays the price of decades-long wrong strategy
"I had a dream." RBA Airbus A320 in front of Bandar Sri Begawan air terminal / Photo by L. Citrinot

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