The future for MAS

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By TESTCustomwebLP TESTCustomwebLP August 29, 2014 19:56

The future for MAS

Malaysian Airlines (MAS) has confirmed the restructuring information that we all knew to be the case following weeks of press leaks – 6,000 staff are to be cut and Khazanah Nasional, the state investment company that owns a 69% stake in the airline, will take 100% ownership  marking the start of a US$1.9bn restructuring. However the figures for Malaysian Airline System showed that the quarter ending June 30 was not as bad as we first thought with losses at 307m ringgit ($97.4m), from 176m ringgit for the same period last year. But MAS posted an FX gain of 52m ringgit during the period, which softened the losses.

The figures behind the loss though were troubling as operating revenue fell 7% to 3.34bn ringgit while capacity rose 9% year on year for the quarter pushing the airline’s load factor 6.7pp lower to 73.7% from 80.4% for the same quarter last year. Now these load factors incorporate figures from many days before the MH370 disappearance and so it is key to refer to load factors post-MH370 news spreads throughout March/April. Load factor for May 2014 was 9.5% lower than May 2013 at an unsustainable 68.9%.  This drop was mainly from APAC travelers but load factors following the shooting down of Flight MH17 fell away by at least the same amount again with a fall in European/Western travelers in line with the APAC fall in numbers which would put the airline in the 60% load factor region. This is too low for services to continue.

But we need to remain forward looking with regard to this story and that takes us to the positive potential for the future. Speculation is the mantra one might think but there are matters which can be confirmed. Given that the airline is now 100% in private hands, it no longer needs to publicly report figures and as such it can, if it wishes, keep a lid on the figures for this current quarter that are set to be shocking enough to cause further bad press globally. The airline can now cut routes, staff and its fleet at breakneck speed and it is highly likely, although not publicly confirmed, that the airline can count on government measures in support of its continued business activities. This would lend itself to a JAL-style turnaround.

However, in order to turn around the airline, there has to be something left at the end of the line that is able to compete with AirAsia and co and that means Malaysia Airlines may well need to rebrand (maybe as MAS) and become a very lean mean low-cost airline in order to survive mirroring the AirAsia and AirAsia X models and overlapping the same to a greater extent. A high risk strategy indeed, especially given that this will require a large number of new aircraft with highly competitive cost economics.

In the event AirAsia should be returning to the table, maybe as part of the TUNE collaboration again, to snap-up MAS routes and slots. Having the likes of AirAsia completely overlapping its feeder network could yet spell the end of MAS as a major airline instead leaving it as a venture to be purchased and grown on the back of another major airline such as Etihad.

In the event it is likely that Malaysia Airlines will have to maintain its current in-flight service levels in order to seamlessly fit-in with the OneWorld network which will connect it on routes that it is pulling back from. As such it could be argued that Air Seychelles and the current Jet Airways turnarounds effected/being effected by Etihad are very good templates for what needs to be done at Malaysian Airlines with OneWorld partners British Airways/IAG feeding the Malaysian Airlines network. But BA does not have the fleet to do this in full, whereas of course the Middle East majors do have the connectivity to take up the slack and from what we have seen of late that is exactly what has happened in part. Only the Malaysia government with interventions such as tax incentives and the like will be able to prop-up Malaysian Airlines as a large-scale global carrier in the long term. There are too many factors in play to create any sort of reliable future scenario for MAS, so maybe it is best left to this following paragraph to bring the whole situation into perspective:

Ahmad Jauhari Yahya, group chief executive of Malaysia Airlines, said his team had anticipated the impact of Flight MH370 on the company’s performance in the second quarter. “Given that, our team put in much hard work and effort to regain market confidence and rebuild sales. Tragically, just as we were beginning to see signs of recovery in all regions, we were dealt the blow of Flight 17.”

There is little they could do in the face of such poor luck.

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By TESTCustomwebLP TESTCustomwebLP August 29, 2014 19:56