Bluer skies ahead for Malaysia Airlines
A QUESTION OF BUSINESS
By P. GUNASEGARAM
Its huge losses belie a much brighter future if the right steps are taken
AT first glance, one can be excused for surmising that Malaysia Airlines is in deep trouble – actually it’s not. In fact a careful examination of the figures shows that it is very close to a turnaround and it needs only to tweak its revenue management to get it to show profits.
For all airlines, the final quarter of last year was a difficult one, the main reason being rising costs of jet fuel along with the rise in oil prices.
To manage that, Malaysia Airlines needed to maximise yields to recover cost increases. Yield is the amount ...view middle of the document...
This may or may not be a kitchen sinking exercise – an exercise to make huge provisions to make the situation look better in future – but Malaysia Airlines’ problems are not as bad as what the figures show at first glance.
Malaysia Airlines is not alone in terms of a tough final quarter for last year. Singapore Airlines’ net income was more than halved to S$135mil by a 33% rise in fuel costs.
But there is one difference, Singapore Airline’s yield for the quarter was S$12.1 cents or some 29 sen which gave it a good cushion in bad times. Malaysia Airlines’ for the full year 2011 was just 24.7 sen but indications are that even that might have been at the expense of capacity utilisation.
The quarterly results show that revenue management continues to be poor.
For the quarter in question, capacity as measured by the ASK went up only a marginal 1% but traffic as measured by RPK was down 6% and the seat load factor down five percentage points to 72.5%
The yield may have increased (for the full year, it rose 4% to 24.7 sen, but the figure for the quarter was not readily available in the results and presentation announcements) but the capacity was less utilised, reflected by revenue remaining static.
It has been estimated that at constant load factors a one percentage point increase in yield will lead to a RM500mil increase in revenue for Malaysia Airlines. If that’s the case, and if Malaysia Airlines increased its yield by around five percentage points to match Singapore Airlines, the incremental increase in revenue would be RM2.5bil, enough to give it healthy profit of more than a billion ringgit!
On a full-year basis, its net loss is RM2.524bil. If you took out the RM1.095bil one-off provisions, it works out to a loss of RM1.429bil. The main contribution to the loss is a one third rise in fuel costs to RM1.462bil if not for which the airline would have made a small profit.
That’s still bad but not so bad that Malaysia Airlines cannot recover from this. The underlying problem is revenue management – if you got everything else right and got revenue management wrong, then the airline is, well, screwed. But get that right while holding a reasonable handle on costs and the airline will be OK.
There’s another thing going for Malaysia Airlines, its planes are being renewed. That will mean considerable savings in fuel costs. Add that in with improvement in yields and load factors and you have a powerful combination for turnaround.
It’s way too early to write Malaysia Airlines off. In fact, it is actually poised for what would be a surprising turn around in one to two years, provided it manages revenue well, makes best use of its new fleet, keeps other costs under control and fuel costs do not rise excessively.
Why, it may even be much bluer skies ahead for Malaysia Airlines. That means its owners, mainly the Government, should not be in too much of a rush to sell the airline. Turn it around first and you will get a much better price.