More Bad News For Malaysia Airlines

Aug. 29--Bad times keep coming for Malaysia Airlines, the majority-government-owned carrier that lost airplanes in two tragedies this year.

With a heavy financial hit expected in the second half of the year, the airline said Thursday that it lost $95 million in the second quarter, ended June 30, compared with a loss of $58 million in the same period last year.

After the mysterious disappearance of Flight 370 in March with 239 passengers and crew members on board, the carrier's revenues decreased by 5 percent, to $1.1 billion.

In mid-July, in the immediate aftermath of Flight 17's being shot down by a missile over Ukraine, with all 298 passengers and crew aboard killed, average weekly bookings for Malaysia Airlines declined by 33 percent, the management said Thursday.

A major overhaul is now planned that will include cuts in routes, flights and jobs.

Rebuilding the brand and overcoming intense competition by low-cost Asian carriers and competitors in the Persian Gulf "will be immensely difficult," Brendan Sobie, chief analyst for CAPA, formerly known as the Centre for Asia Pacific Aviation, said in a research report.

Even before the "double tragedies" of Flights 370 and 17, the company's "weak financial performance" made Malaysia Airlines "acutely aware of the need to restructure," the carrier said in a statement.

"We operate in a harsh business environment of stiff competition from regional and global carriers and high operational costs," said the airline's chief executive officer, Ahmad Jauhari.

"Coupled with the impact of the two tragedies, which have damaged our brand, the need to restructure the company was accelerated," Jauhari said, noting that "the full financial impact" will hit in the second half of this year.

Khazanah Nasional Berhad, the majority shareholder in the airline and the investment arm of the Malaysian government, is expected to announce a restructuring plan by the end of the day Friday, Sobie wrote.

On Aug. 8, Khazanah proposed taking full ownership of Malaysia Airlines, buying out the 30 percent stake it does not own. If the proposal is approved, the airline would be delisted from the Malaysian stock exchange and fully nationalized, "which in theory should make it easier to pursue the deep restructuring that is required," Sobie said.

"Profitability will be very difficult to achieve -- even in the long-term -- given the flag carrier's current weak position and the intensive competition in the Southeast Asian market."

The $95 million second-quarter loss marked the airline's sixth consecutive quarter in the red, Sobie noted. Malaysia Air was last profitable in the third and fourth quarters of 2012, but was unprofitable for the full year 2012 as well as in 2011.

The airline has restructured several times over the last decade, but executives were "never able to tackle the underlying problems." Job cuts were difficult "because of union and political sensitivities," Sobie said.

The carrier has had potential suitors in recent years, including Qantas, British Airways, and Etihad Airways, the analyst said.

"Lack of stability" and "what was perceived as reckless growth in some markets put carriers off," Sobie said. "A more rational Malaysia Airlines may find itself making friends, out of opportunity but also necessity."


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