MAS has great potential to be a world-beating airline, if the government can leave it alone

Victoria
By Victoria March 19, 2012 15:58

MAS has great potential to be a world-beating airline, if the government can leave it alone

Malaysia Airlines (MAS) has suffered extreme losses (for the year to December 2011, the national carrier made a loss of RM2.5 billion (S$1 billion), but as reported on this news service the share swap deal with Tune Air Group along with the changes set out in its December 2011 business plan, have given the airline the blueprint to become a truly “preferred premium carrier”, it stated goal.

Kuala Lumpur is perfectly placed to become a major Asian hub with the successful expansion and recovery of MAS and with substantially lower labour costs in the region, the airline has the potential to launch a serious threat to more established players such as Singapore Airlines, Cathay Pacific and even the gulf carriers, to become a major hub-and-spoke airline. But the recovery of MAS is a heavily politicised issue, particularly since the airline’s employee union (Maseu) has voiced concerns over the share swap deal with Tune Air.
In August 2011, Tune Air, which is the investment vehicle of AirAsia co-founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun, bought a 20.5% stake, or 685.14 million shares in MAS at RM1.60 while MAS major shareholder Khazanah Nasional took up a 10% stake, or 277.65 million shares, in AirAsia at RM3.95 under the deal.
MAS is also trimming unprofitable routes and making changes at home to cut costs as much as possible in a bid to stave off bankruptcy, which remains a very real concern. Job losses are the ultimate concern of any union, but in this case Maseu has declared that it wants the share swap deal unraveled. These demands are simply untenable in the face of record losses at the airline but the government has to listen to its voters. The recovery plan tabled by MAS with the aid of Mr Fernandes can turn the airline back to profitability and create a world-class airline but only if it has support from the Malaysian government. The alternative is bankruptcy and the loss of a national airline. Make no mistake, this is the last chance for MAS. The union and the government need to realize this and work with management to strengthen the company for the good of all parties.
Meanwhile, oil spikes are causing sleepless nights for many airline CEOs. The amount of available oil is shrinking due to tensions with Iran, which is causing spikes expected to reach $150 a barrel soon.
The situation today is worse that when action in Libya interrupted oil supply and forced the US to tap into its Strategic Petroleum Reserve to keep prices down. There are rumblings that the US and the UK will soon take similar action. The Energy Information Administration states that spare oil capacity stood at 2.5 million barrels a day on average in January and February this year, compared with 3.7 million barrels a day in the same period last year. Production levels are down, with technical problems forcing the loss of 750,000 barrels a day from Canada to South Sudan, even before disruption from the Iranian situation, while demand levels are exceeding production by 1.1million barrels a day.
On Friday, light, sweet crude for April delivery rose $1.95, or 1.9%, to at $107.06 a barrel on the New York Mercantile Exchange. May Brent crude on the ICE Futures Europe exchange settled up $3.21, or 2.6%, at $125.81 a barrel.
The International Monetary Fund fears surging oil prices pose a serious risk to the global economy, and Bank of America has predicted that the global economy cannot afford oil prices above $130. Airlines in particular cannot afford this spike in prices to continue and for those airlines that are not hedged, this will be a painful and potentially destructive scenario to be played out for the remainder of the year.

Victoria
By Victoria March 19, 2012 15:58
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