Air Disasters Impact Malaysia Airlines Results
SUBANG – AVIATION – Malaysia Airlines will eliminate six thousand employees from the company’s roster as it attempts to recover from a two jet disasters that have his the airline very hard. The Malaysia Airlines brand has been hurt by first the lost of MH370 which has not yet been recovered, and the lost of MH17 which was shot down over the Ukraine.
Malaysia Airlines has reported a major net loss of RM307 million ($127,680,492.55 CDN) for the second quarter of 2014. This loss is in addition to the First Quarter loss of RM443 million.
“We expected the impact of MH370 on the performance in Quarter 2. Given that, our team put in much hard work and effort to regain market confidence and rebuild sales. Tragically, just as we were beginning to see signs of recovery in all regions, we were dealt the blow of MH17”, said Malaysia Airlines Group Chief Executive Officer, Ahmad Jauhari Yahya.
Having lost substantial potential revenue from the popular MATTA Fair in early March and the decision by MAS to impose a deliberate advertising black-out in March and April due to the tragedy of MH370, more aggressive marketing activities picked up in May and June.
The market responded positively to the Malaysia Airlines Travel Fair (MATF) held in May which saw sales increase 29% and higher than average daily sales compared to previous fairs that ran earlier in the year. MATTA Sabah, MATF Penang plus a greater push in all markets around the world further helped sales and restored confidence in MAS.
Seat factor which fell 9.5 ppts in May to 68.9% was seen to pick up in June to return to above the 80% levels again.
For Q2 2014, Capacity rose 9% year-on-year based on improved aircraft utilization; however traffic remained the same year-on-year. Consequently, the airline’s Seat Factor recorded a fall of 6.7ppts for the Quarter to 73.7% compared to 80.4% in the previous year. Malaysia Airlines carried 4.2 million passengers in the months of April to June 2014.
Fuel expenditure in Q2 2014 rose 10% to RM1.53 billion compared with the previous corresponding period due to a rise in fuel price and weakening of the Ringgit against the US Dollar.
In an effort to reduce fuel costs and increase productivity, Malaysia Airlines brought forward the retirement of its older Boeing 734 fleet from end 2014 to mid-June. As at mid-August, the Group’s fleet comprised 127 aircraft. Of this, Malaysia Airlines’ operates 88 aircraft, which includes 54 B738s, 15 A330s and 6 A380s. The average age of the fleet for the Group as at 30 June 2014 is 5.28 years.
For the first half of 2014, total revenue fell 2%, however total expenditure grew 4%. Fuel costs, representing 43% of total expenditure, was 12% higher. Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) stood at negative RM134 million for the first half of 2014 against a positive RM258 million in the same period one year ago. Depreciation charges (RM460 million) and finance costs (RM241 million) continued to remain high.
Despite increases in capacity and revenue as well as cost saving measures and productivity improvements, the Group has continued to report weak financial performance.
The weak financial performance has made Malaysia Airlines acutely aware of the need to restructure the Company’s operations, even prior to the double tragedies of MH370 and MH17. The occurrence of the two incidences within a short span of 4 months served to worsen the situation further.
“We operate in a harsh business environment of stiff competition from regional and global carriers and high operational costs. Coupled with the impact of the two tragedies which have damaged our brand, the need to restructure the Company was accelerated. The full financial impact of the double tragedies of MH370 and MH17 is expected to hit Malaysia Airlines in the second half of the year”, said Ahmad Jauhari.
“Our Company has had to undergo a thorough re-examination and re-evaluation in order to reposition ourselves as a stronger and more sustainable Malaysia Airlines for the future”, said Ahmad Jauhari. On 8 August 2014, majority shareholder, Khazanah Nasional Berhad, announced its intention to take full ownership of Malaysia Airlines and delist it from Bursa Malaysia. If approved, it will put into action a plan to restructure the airline group towards returning it to profitability.
