Malaysian Air to Cut Unprofitable Routes, Retire Planes on Loss

Malaysian Airline System Bhd. (MAS), part- owned by AirAsia Bhd. (AIRA)’s head Tony Fernandes and partners, said it will pare unprofitable routes and accelerate the retirement of older planes after posting a third straight quarterly loss.

New higher yielding routes in Asia may be unveiled as part of a business plan to be announced next month, the Subang, Selangor-based carrier said in a statement. Malaysian Air also expects to generate cost-savings through cooperation with AirAsia in areas including training, grounding-handling and maintenance, it said.

Malaysian Air posted a third-quarter net loss of 477.6 million ringgit ($150 million) because of higher fuel costs. It predicted a “weaker” fourth quarter because of the global slowdown. The carrier will work with AirAsia, the region’s biggest low-cost airline, after the two companies’ main investors agreed to a share swap in August.

“The restructuring of MAS’ operations will be a daunting task,” Joshua Ng, an analyst at RHB Capital Bhd., said in a report today. He downgraded the airline to “underperform” from “market perform” and lowered his target price 27 percent to 1.04 ringgit.

The carrier fell 0.7 percent 1.35 ringgit at 10:32 a.m. in Kuala Lumpur trading. It’s tumbled 35 percent this year, compared with a 45 percent jump for AirAsia. Malaysian Air is worth $1.4 billion, less than half the budget carrier’s market value.

Fuel Costs

Malaysian Air boosted sales 4.9 percent to 3.57 billion ringgit in the three months ended Sept. 30. Costs rose 10 percent to 3.72 billion ringgit, mainly due to a 396 million ringgit increase in fuel cost, the airline said in the statement. It posted a profit of 233 million ringgit during the same period a year earlier.

“The operating environment for airlines in general remains challenging for the fourth quarter,” Malaysian Air said in the statement. “Not only is jet fuel price staying high, the worsening economic situation in Europe is being translated into weak forward booking profiles for our long-haul routes.”

AirAsia Chief Executive Officer Fernandes and partners own 20.5 percent of Malaysian Air through Tune Air Sdn. following the share deal. Khazanah Nasional Bhd., Malaysia’s state investment company, got 10 percent of AirAsia under the accord. Fernandes and his deputy Kamarudin Meranun joined the Malaysian Air board as non-executive directors on Aug. 11.

AirAsia is due to report earnings after the 5 p.m. close of trading today.

To contact the reporter on this story: Gan Yen Kuan in Kuala Lumpur at ykgan@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.