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M'sia Airlines faces more financial battering

Publication Date : 26-03-2014


Even before Flight MH370 disappeared over two weeks ago, Malaysia Airlines (MAS) was already in dire straits financially.

With a major crisis now on its hands, analysts say it is unlikely the carrier will be able to turn its fortunes around any time soon.

The carrier could face hundreds of millions of dollars' worth of payouts in damages to family members of the victims and a drop in ticket sales. Insurance will help to cover some of the costs.

But MAS, which has a market value of 3.8 billion ringgit ($1.15 million), has been punished on the stock market. After falling to an all-time low of 23 sen last Monday, it clawed back some ground but sank back to 23 sen yesterday.

MAS, 70 per cent owned by Malaysian sovereign wealth fund Khazanah Nasional, last reported a profit in 2010.

The carrier posted its largest quarterly loss last month as it announced its full-year net loss had widened to 1.17 billion ringgit from 432.58 million ringgit in 2012.

More grim numbers lie ahead. It took 32 million euros (US$44 million) and two years to search for the Air France flight that went missing in 2009. Analysts say this case will likely cost much more and take longer.

"Giving any numbers would be difficult because there are multiple layers of search operations going on but it may run into a few hundred million dollars," said Frost & Sullivan's aerospace and defence practice director, Subhranshu Sekhar Das.

The cost of the search operation has been borne by the Malaysian government, but MAS plans to pay $5,000 to each passenger's next of kin and more as the search continues. It will also have to fly the families to the recovery area in Perth and give them accommodation.

Also, families will be able to get compensation from MAS even if the plane is not found. Under an international treaty, airlines are liable for as much as US$175,000 per passenger in the event of disaster. If investigations point to the airline as being at fault, it could be liable for much more.

It is unclear how much insurance will cover. So far, MAS has reportedly received $100 million for the loss of the Boeing 777.

Analysts told The Straits Times they have not been able to reach MAS management to get a clear picture of what the ultimate financial impact will be, but they are sure that it will take time for business to get back to normal.

"The concern now revolves mainly around MAS' near-term pricing power and passenger traffic. Based on past cases, traffic is usually affected for three to five months before recovering," said Kuala Lumpur-based AmResearch analyst Hafriz Hezry.

Another analyst from a Malaysian brokerage, who declined to be named, said: "Two things could happen. Either passenger numbers might take some heat, or MAS will have to lower its prices like crazy."

Still, others noted that MAS has had a good historical track record and that passengers are unlikely to shun the airline for very long, especially if it slashes prices.

In fact, travel agents here say they have not seen a sharp drop in demand for MAS tickets.

Chan Brothers and ASA Holidays said they have not had any cancellations or requests to switch flights from MAS.

Dynasty Travel's marketing director Alicia Seah said: "In the beginning, about 60 per cent of our business travellers asked to switch to a different airline.

However... this has stabilised."

*US$1 = 3.30 ringgit


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