Just six months ago, Malaysia Airlines’ (MAS) chief Ahmad Jauhari Yahya spoke of returning the carrier to profitability, with progress being made day-to-day, slowly but surely.
In 2013, the Malaysian flag carrier added 20% capacity, bringing about a 30% increase in passenger traffic, all while using the same number of aircraft and staff as the year prior. MAS was also aware of the stiff competition in the home market with not just AirAsia but also new entrant Malindo Air in the picture, and was clear that it would compete by offering reasonably priced tickets with a value proposition to its customers.
And then the MH370 tragedy struck.
Last week, the carrier disclosed that its net loss for the first quarter of 2014 widened to M$443.4 million ($263.6 million), expanding nearly two thirds from the M$278.9 million loss recorded a year earlier. This is MAS’s worst quarter in over two years, as it saw a “dramatic impact” on sales from the vanishing of MH370.
In its 2013 financial year, MAS' comprehensive loss tripled to a staggering M$1.05 billion, and the figure looks set to increase this year, given its first quarter performance.
MH370 has hit China sales especially hard, with sales in the mainland falling some 60% year-on-year in March. Of the 227 passengers on MH370, two thirds were Chinese nationals. The aircraft' disappearance, and the anguish of the victim's families, received blanket coverage in the Chinese media during March and April.
Over the years MAS has consistently increased its China capacity. Flightglobal’s Capstats database shows that in 2010, the carrier offered 435,286 seats from Kuala Lumpur to five Chinese cities. In 2013, the number of seats offered soared 40% to 612,706.
MAS' services to China
Its market share on services from Malaysia to China, however, has seen a slight erosion. FlightMaps Analytics shows that in April 2013, MAS offered 30.5% of all seats out of Malaysia to Chinese cities, while AirAsia and AirAsia X held a combined 52.7% share. This April MAS accounted for 29.8% of the seats, while the AirAsia Group held a dominant 55.8% lead.
Lingering questions about the loss of MH370 are bound to keep resurfacing, creating an-all-but impossible public relations obstacle to MAS's rebuilding of its shattered reputation among Chinese travellers. And aside from competition from AirAsia X on China routes, it must also compete with China Eastern, China Southern, and Shanghai Airlines.
FlightMaps Analytics shows that MAS’ top routes however, are still domestic services, where it will continue to face immense cost and fare pressures from low-cost experts AirAsia and Malindo. Its top three routes in terms of the number of seats offered are from Kuala Lumpur to Kota Kinabalu, Kuching and Penang. Thereafter, its top routes are international services to neighboring Singapore and Jakarta.
The carrier says it is now re-considering its business model to ensure sustainability of the business in the harsh environment. Its next step forward is critical to its long-term success or near immediate failure.
“A thorough review of operational processes and plans is ongoing to ensure a stronger Malaysia Airlines emerges following the MH370 crisis, to deal with the harsh business environment that we operate in,” says the airline.
Affin Investment Bank, in an analysis report, maintains a “sell” of the beleaguered carrier’s shares. MAS’ share price has more than halved in the last year dropping from M$0.4 to the current M$0.15.
“Under such circumstances, we believe fare competition will continue to remain stiff and yield will likely be further compromised,” it adds.
In the end, MAS's fate may well be decided by the Malaysian government, which holds over 65% of the ailing carrier. In recent media interviews, Malaysia prime minister Najib Razak has indicated that the government is keeping its options open with MAS, including a possible bankruptcy. MAS's status as a high profile employer - not to mention its influential unions - has traditionally made the government wary of implementing major changes.
Few airlines, however, have ever climbed out of a hole as deep as that in which MAS now finds itself.