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More turbulence ahead for M'sia Airlines

Publication Date : 21-02-2014


For the last couple of years, Malaysia's national airline regularly assured analysts that it would get back into the black this year.

But at its latest conference call with analysts this week to discuss last year's dismal performance, Malaysia Airlines (MAS) stayed pointedly clear of any such assurance.

It was a sign, analysts said, of the pessimistic outlook for the airline, with competition from low-cost carriers and high fuel costs.

MAS, which lost money in most quarters for the past two years, posted a 1.17 billion ringgit (US$353 million) loss last year. Worse, market watchers say its future looks turbulent with no clear skies in sight.

While the impact of low-cost carriers such as AirAsia and newcomer Malindo Air and high fuel costs are felt across the industry, analysts say MAS has other problems - a bloated staff and low productivity.

"It is like the civil service - hardly anyone gets fired because it is too politically sensitive," Aizuddin Pengiran, an analyst at HwangDBS Investment Bank, told The Straits Times.

The airline has 101 aircraft, including six Airbus A-380 planes, and employs about 19,400 people.

Singapore Airlines (SIA) has 102 aircraft and employs 23,000 people while Cathay Pacific has 140 planes and 20,000 staff members.

But in terms of productivity, MAS falls behind. SIA generated about S$651,000 (US$515,031) in revenue per employee last year, while MAS' employees generated half as much - about 727,400 ringgit. Cathay's staff generated the most, at US$537,000.

MAS is controlled by state investor Khazanah Nasional, with a 69.4 per cent stake.

Most of MAS' staff are backed by a powerful union, which reversed an alliance between MAS and AirAsia in 2011 on claims that it would lead to massive job cuts.

Last year, MAS cut salaries and reduced contract workers, trimming staff costs by about 9 per cent to about 2.3 billion ringgit. But it also cut ticket prices to compete with low-cost carriers, leading to bigger losses.

Maybank Investment Bank and RHB Investment Bank have since downgraded the airline from "hold" to "sell".

Meanwhile, AirAsia, which has grown to be the largest low-cost carrier in the region in 13 years, is now valued at more than 6.5 billion ringgit, overtaking MAS' market capitalisation of 4.7 billion ringgit.

In several tweets on Wednesday, AirAsia's chief Tony Fernandes said he was "shocked" by MAS' losses and criticised the airline for squandering public funds.

The government bailed MAS out in 2001 and again in 2012, with several business turnaround plans in between.

The airline has tried cutting unprofitable routes and filling empty seats with discounted fares. It has also sold non-core assets, including prized paintings by famed Colombian artist Fernando Botero.

But market watchers are not impressed.

"MAS cannot keep doing the same thing over and over again, and still hope for some magic to come through," analyst Mohshin Aziz told The Straits Times recently.

He thinks MAS needs a more radical strategy, such as hiving off its divisions like its engineering and cargo units into standalone companies and pushing sales of its premium seats.

"Why not?" Mohshin asked. "Year 2013 was disastrous enough for MAS to know there is no subtle way for a turnaround."

*US$1 = 3.31 ringgit


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