By Chan Quan Min
Malaysia Airlines continues to bleed red ink, posting another quarter of deepening losses in its first reporting quarter since the March 8 disappearance of flight MH370.
The national carrier posted a net loss of RM442 million for the first-quarter of 2014, almost double the same quarter last year after adding almost RM195 million in operating expenses.
In a statement, Malaysia Airlines said the MH370 incident had a “dramatic impact” on its financial performance during the three-month period ended March.
The disappearance of the Beijing-bound Boeing 777 aircraft with 239 passengers and crew “triggered a major short-term reaction in consumer behaviour, with the airline observing high cancellation of existing bookings and reduction in long haul bookings in favour of short haul bookings,” Malaysian Airlines said.
“Sales from China fell some 60% in March, soon after the disappearance of the aircraft,” the airline admitted.
On March 8, Malaysia Airlines flight MH370 bound for Beijing mysteriously disappeared from radar screens. The majority of the passengers on the missing flight were China nationals.
In the two months since, the location of the missing aircraft has been narrowed down to a vast search zone in some of the Indian Ocean’s most remote waters off Western Australia. No physical trace of the aircraft has been found.
Paltry operating revenue growth of 4% at Malaysia Airlines did not keep pace with a massive 19% increase in seat capacity.
Meanwhile, operating expenses increased 6%, mainly due to an increase in fuel cost by 14% from flying more flights and the weakening of the ringgit against the US dollar.
Yield, a measure of average ticket prices, plunged 9% year-on-year “as a result of competition and weakened consumer demand.” The drop in yields widens even further the yield gap between Malaysia Airlines and its international competitors.
Over the past year the national airline has pursued a ‘load active, yield passive’ strategy, technical language for heavy discounting to boost passenger numbers and subsequently, revenue.
But analysts had warned that such a plan could backfire if the airline is unable to generate enough additional income from new customers to make up for income foregone from discounting.
Ahmad Jauhari Yahya
Despite this Malaysia Airlines CEO Ahmad Jauhari Yahya has not shied away from “pricing to the market.” He has repeatedly said the airline’s focus is to “drive revenue, revenue, revenue.”
Malaysia Airlines reported savings in leasing costs from its fleet renewal programme.
Malaysia Airlines’ worst quarter on record was the fourth-quarter of 2011 or 4Q11, when one-off provisions related to jet deliveries and maintenance pushed it to a RM1.28 billion net loss.
Fourth corporate restructuring confirmed
Talk has been rife that Malaysia Airlines will soon undergo a corporate restructuring, in what would be its fourth such rescue effort in two decades. The airline confirmed such plans yesterday in a media statement.
One of the options, as speculated by Maybank Research, is a stock market listing of the airline’s profitable divisions together with the sale of stakes in two aviation businesses in order to unlock deep value.
According to estimates by the same research house, Malaysia Airlines could have an intrinsic value of RM4.15 billion, about 20% more than its current market capitalisation on Bursa Malaysia.
Malaysia Airlines shares have been languishing at all-time lows, ending the day’s trade at 21 sen.
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