One year after Malaysia state investment fund Khazanah Nasional announced its radical 12-point recovery plan for Malaysia Airlines (MAS) there are signs of progress, but analysts are still dubious about the carrier's prospects.

Announced on the back of the MH370 and MH17 air disasters, the plan called for a number of key changes. The strategy, entitled “Rebuilding A National Icon – The MAS Recovery Plan”, featured four broad categories covering fresh policies on governance, financing, leadership, human capital, as well as regulatory and enabling environment. It amounted to a completely new model for the ailing carrier.

Progess has been made. MAS has been delisted and shed some 6,000 staff from its 20,000 member workforce. There has been a good deal of trimming, such as the reduction of catering costs by up to 25% after two new agreements with Brahim’s Airline Catering (BAC).

Perhaps the biggest change was the arrival of a well-known airline-fixer boss in the form of Christoph Mueller, formerly of Aer Lingus. He was appointed as chief executive in December 2014 and assumed leadership effective 1 May.

In his first media interview in June, Mueller was blunt about the condition of his charge, which he stated is “technically bankrupt” after years of financial mismanagement.

I believe we have to reach a point where we see the revenue measures are resonating with the market," he said. "We have to see that cost cutting measures are showing in our profits and losses, and then I have enough confidence to even think about [buying more aircraft].”

Khazanah is also in the process of disbursing a MYR6 billion ($1.42 billion) conditional investment funding to overhaul the national carrier on a staggered basis. MYR1.4 billion was disbursed as payments to shareholders during a share buyback exercise, while MYR 1.6 billion was set aside for restructuring and retrenchment costs. The remaining MYR3 billion will be progressively injected into MAS.

In addition, the carrier’s route network has been reduced, with five passenger services from Kuala Lumpur already cut. Cut destinations include Frankfurt, Kochi, Kunming and Krabi. Istanbul will be cut on 26 August. In addition, the Kota Kinnabalu-Porto Princesa service via MASWings has ceased.

MAS’ suspended routes since Aug 2014

MAS suspended routes 2014-2015

FlightMaps Analytics

CapStats also shows that MAS has reduced its capacity over the past year. It’s latest full-month ASKs for August 2015 came in at 4.7 billion, down from 5.2 billion last August. Departure numbers have also fallen from 15,192 to 14,457. Seat numbers, however, have risen to 2.15 million from an earlier 2.13 million. This suggests the upgauging of certain flights, but with fewer frequencies.

The jury is still out

For all of MAS’ cost cutting and turnaround measures, analysts still say it is too early to judge the airline’s restructuring progress.

Mohshin Aziz, analyst at Maybank Investment Bank cites the lack of financial data by MAS as “failure to properly update the public”.

“We can’t convincingly say if they are out of the woods. But what we know is that the process has been smoother than expected; staff are not going on strike and that no other major accidents have happened.”

Shukor Yusof, founder of aviation advisory firm Endau Analytics, is critical of MAS’ actions, saying the carrier has “yet to address the root concern” – future positioning.

“The longer they delay this, the more they risk losing key market share. As it is, they are already becoming irrelevant. The AirAsia Group has more or less become the de-facto flag carrier for Malaysia given their greater number of planes, visibility and clout.”

Yusof feels that MAS needs to think longer term, beyond their 2017 target of returning to profitability.

“It is amateurish to think that by scaling down their network and cutting back costs, whilst relying on their OneWorld partners for leverage, that they will be able to turn the corner. They need to have a succession plan. What happens after Mueller has completed the job?”

Aziz, meanwhile, adds that the worsening Malaysian economy is the last thing the carrier needs at this critical juncture.

“The weak ringgit against the greenback has not helped MAS at all, causing an impact on sentiment, especially with fears of recession looming. There is now even less optimism for travel. The next few months will be more challenging than initially thought.”

A380 blues

As part of its 12-point restructuring plan, MAS was to reduce its fleet size. Flightglobal’s Ascend Fleets database, however, shows that the carrier has made no clear progress in this area. It shows that MAS operates a mixed fleet of 97 aircraft, with 10 Boeing 737-800s on order - exactly the same as one year ago.

Aziz is fearful that the carrier will continue to face difficulties in fleet management, including the planned disposal of two of its six Airbus A380s.

“The A380 is not an easy aircraft to sell or lease, especially to the secondary market. Singapore Airlines’ (SIA) first batch of A380s will have their operating leases expiring soon, and it looks like they will not renew the leases. MAS will find it even harder to get rid of its unwanted aircraft. Moreover, the unjustified negative sentiment of the MAS brand is still there.”

Ascend shows that SIA’s first batch of A380s comprises three 2006-vintage and two 2007-vintage units. All five are managed by Doric, with its lease terms expiring between October 2017 and June 2018.

Yusof questions MAS's original decision to acquire the A380. He feels the airline’s network did not call for such a large aircraft.

“The A380 is simply not a plane needed in the current environment," he says. "MAS still cannot justify the six aircraft and make it profitable.”

Aziz says offloading the aircraft should be a priority.

The industry's toughest job

So, on the first anniversary of its turnaround plan much has changed at MAS, but much remains the same. Given its delisting, it is impossible to say how it is performing financially, but given the limited changes so far, it is unlikely that the carrier is turning a profit and competition from low cost carriers and the big Persian Gulf carriers is as prevalent as ever.

At the beginning of 2015 Mueller's new job was billed as "the toughest in aviation." This is still very much the case.

Source: Cirium Dashboard