By Chan Quan Min
Malaysia Airlines today posted deepening losses, snuffing out talk of the national carrier finally on its way to a turnaround. The airline attributed the losses to external factors such as increased competition and unfavourable exchange rates.
The airline posted a net loss of RM373.2 million for the quarter ended September 2013 compared to a small net profit of RM37.5 million for the corresponding quarter last year. Quarter-on-quarter net losses have more than doubled.
Operating profit or earnings before interest, taxation, depreciation and amortisation (EBITDA), however, was reported as RM52.4 million in the black.
This is believed to be only the fourth time Malaysia Airlines has posted a small quarterly operating profit since 2011 or in as many as 11 consecutive quarters.
In press release this evening, Malaysia Airlines attributed the losses to increased competition impacting yields, higher expenses affected by the weakening of the ringgit against the US dollar, increased charges at overseas airports (including higher overflying charges), an intensive advertising programme to build the brand, and increased finance costs.
On the quarterly performance, Malaysia Airlines group CEO Ahmad Jauhari Yahya said he was “extremely disappointed.”
“These results emphasise the need to maintain our focus on cost control and drive improved efficiency and performance across all divisions,” Jauhari elaborated.
“Our cost reduction exercise will be intensified and accelerated to remain competitive…. Malaysia Airlines is committed to delivering an exceptional quality product and service that is priced to be competitive in the market.”
Yields lower on intense competition
Today’s third-quarter results announcement comes on the back of a massive increase in seat capacity at the national airline this year coupled with a corresponding increase in passenger traffic.
During the third-quarter alone, Malaysia Airlines carried 41% more passengers year-on-year (y-o-y), accounting for just over a third of total growth in the aviation sector, observed Mohshin Aziz of Maybank IB Research.
In comparison, Malaysia Airlines’ closest competitor, AirAsia carried only 11% more passengers y-o-y in the third-quarter.
Ahmad Jauhari Yahya
Ahmad Jauhari made it a point to emphasise the airlines operational statistics, which were very encouraging this year.
“Over the months of July, August and September, we saw traffic increase 37%, far exceeding the 20% increase in capacity. This contributed to a 13% increase in operating revenue to RM3.8 billion,” the Malaysia Airlines group CEO said.
“However intensifying competition and new competitors with additional capacity in the market has put pressure on pricing, which affected yield.”
Passenger yield is measure of average fare paid per passenger, per kilometre. It is sometimes taken as an indicator of average ticket prices.
Despite the double-digit expansion in operating revenue, operating profit was dragged down by a larger increase, proportionally, in operating expenses on the other side of the balance sheet.
“Whilst we have made much progress to manage our costs and improve productivity, group operating expenditure was higher by 16% compared to the same quarter last year,” Jauhari explained.
“This is principally due to higher fuel and non-fuel variable costs which rose in line with the capacity increase, higher airports and overflying charges, and the weakening of the Malaysian ringgit against the US dollar.”
Between corresponding quarters, Malaysia Airlines reported finance costs more than doubling to RM121.2 million.
Also, the airline reported an unrealised foreign exchange loss of RM86.1 million, compared to a gain of RM93.8 million in the third-quarter last year.
‘Sweating’ assets to boost seat capacity
“The expansion of Malaysia Airlines capacity over the last 12 months was driven through improved utilization of the fleet; not from the addition of new aircraft – signifying increased productivity.
“We are closely monitoring market conditions to ensure the competitive position of Malaysia Airlines. Optimization of all our aircraft and other assets and driving business efficiency is central to our business model,” explained Jauhari.
“The airline business environment is tough. Still, we are pleased with how the market has reacted to our newest products, increased capacity, new destinations and increased frequencies.
“Our seat load factor is at 85%, one of the highest in any quarter in the history of the carrier and in the industry, as well as an improvement of 10% compared to a year ago.
“Using essentially the same fleet count as in 2012, the airline generated an incremental RM362 million in passenger revenue this quarter compared to the same quarter in 2012,” he added.
Despite the losses this quarter, Malaysia Airlines’ cash position has remained strong at RM5.4 billion.
The airline’s total assets stand at RM22.8 billion at the end of September 2013, whilst net gearing remained at 1.5 times.
KiniBiz posted a five-part series on Malaysia Airlines in September. Click here.
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