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Malaysian Air to Scrap Unviable Routes, Targets 2013 Profit

Malaysian Airline System Bhd. (MAS), the moneny-losing national carrier, said it will cut unviable routes, shed ancillary businesses and form a regional unit in a bid to return to profit in 2013.

The new premium airline will start operations in the second half of next year with an initial 45 Boeing Co. 737-800 planes and fly to cities in Southeast Asia and Greater China, Chief Executive Officer Ahmad Jauhari Yayha told reporters outside of Kuala Lumpur today. Routes being dropped include Johannesburg, Buenos Aires and Rome.

“Malaysian Air needs to make hard and unpopular decisions simply to survive,” said Ahmad Jauhari, who took over in September. “The market environment remains very challenging for Malaysian Air given the increased competition from low-cost and full-service carriers, overcapacity in the Asian aviation sector, high fuel cost and the volatile global economy.”

The Subang, Selangor-based airline, which will target a 2012 loss of 165 million ringgit ($53 million), has also begun discussions on cooperating with budget carrier AirAsia Bhd. (AIRA) after the two airlines’ biggest investors undertook a share swap in August.

Potential areas for cooperation with AirAsia and its long- haul affiliate AirAsia X Sdn. include fuel-purchasing, maintenance, training and ground-handling, which could save Malaysian Air 100 million ringgit annually, Ahmad Jauhari said.

Asset Sales

The airline could also raise as much as 337 million ringgit offloading businesses including engineering, pilot training, cargo and ground services, he said.

The national carrier previously announced turnaround plans in 2005 and 2008 while Idris Jala was CEO. Jala left the carrier to become a government minister in 2009 before fully executing them.

With this latest blueprint, Malaysian Air aims to make an annual profit of 900 million ringgit in 2016, Ahmad Jauhari said. The company lost 1.2 billion ringgit in the first nine months of this year.

The carrier intends to add 23 new aircraft next year as its phases out older fuel-hungry planes, Ahmad Jauhari said. It will spend about 12 billion ringgit on aircraft by the end of 2014, which it may finance through debt and Islamic bonds, he said.

The airline will also join the Oneworld alliance by September 2012. The carrier has been talking to Qantas Airways Ltd., which is already in the airline group, and others about potential partnerships, said the CEO, without providing details.

“We are exploring the possibility of joint ventures with partners in order to serve multiple markets together, while reducing the financial risks of going alone,” Ahmad Jauhari said.

AirAsia Chief Executive Officer Tony Fernandes and partners own 20.5 percent of Malaysian Air following the share-swap. They gave 10 percent of AirAsia to Malaysian Air’s state-controlled parent Khazanah Nasional Bhd. in return. Fernandes and his deputy Kamarudin Meranun also now sit on Malaysian Air’s board.

To contact the reporter on this story: Manirajan Ramasamy in Kuala Lumpur at rmanirajan@bloomberg.net

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

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