Malaysian Air Faces Cancellations After Twin Disasters

July 28 (Bloomberg) -- Andrew Herdman, director general of the Kuala Lumpur-based Association of Asia Pacific Airlines, talks about the downing of a Malaysian Airline System Bhd. aircraft and the prospects for the carrier. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)

Malaysian Airline System Bhd. is facing a spate of passenger cancellations after the carrier’s second disaster this year, adding to the strains of a company that’s bracing for a fourth consecutive annual loss.

Travel agents from Melbourne to Singapore, New Delhi and Malaysian Air’s home country said they’ve seen a spike in withdrawn reservations since MH17’s downing this month -- with cancellations climbing above 20 percent in some places. The Samoan women’s rugby team switched to Thai Airways International Pcl from Malaysian Air on July 27 for a flight to a world cup event in France.

The cancellations may add to the financial difficulties of an airline whose state-run parent, Khazanah Nasional Bhd., estimated it only had enough cash to operate for a year even before the latest crash. The two Malaysian Air disasters have left 537 people dead this year, which means 2014 will be the worst year in almost a decade for commercial airline fatalities.

Passengers “are very, very afraid about anything else happening again,” said Ann Chitumbalam, manager at Escape Travel Sdn.’s branch in Petaling Jaya, who’s seen about 30 percent of Malaysian Air bookings through her office canceled. Ticket holders “don’t want to take a risk,” she said.

Photographer: Charles Pertwee/Bloomberg

Members of Malaysian Airline System Bhd.'s (MAS) ground staff serve passengers at check-in counters at Kuala Lumpur International Airport (KLIA) in Sepang, Malaysia. Close

Members of Malaysian Airline System Bhd.'s (MAS) ground staff serve passengers at... Read More

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Photographer: Charles Pertwee/Bloomberg

Members of Malaysian Airline System Bhd.'s (MAS) ground staff serve passengers at check-in counters at Kuala Lumpur International Airport (KLIA) in Sepang, Malaysia.

Chitumbalam said she received a text-message from a businessman within hours of the crash, canceling a trip to Amsterdam on Malaysian Air.

Four Months

The airline said July 19 it would refund fares to customers postponing travel or canceling their tickets, including non-refundable ones. It also agreed to waive any fees for people changing travel plans to any destination Malaysian Air flies to during 2014, as long as they applied from July 18 to 24.

Subang-based Malaysian Air, responding by e-mail to questions about passenger traffic, declined to give numbers of cancellations or to comment on ticket prices.

While passenger traffic figures since the July 17 downing of Flight 17 aren’t available, Webjet Ltd. in Melbourne estimates it’s canceled about a quarter of its Malaysian Air bookings since the disaster, which killed all 298 people on board and occurred four months after the disappearance of Flight 370.

Yatra.com, a New Delhi-based, online travel agent, saw an increase in cancellations and a dip in Malaysian Air bookings after the latest incident, said Sharat Dhall, the company’s president.

‘Double Whammy’

“It’s just natural to be worried,” Sera Mika, manager of the female Samoan rugby team, said by phone from Auckland. “We did have a lot of concerns.”

Photographer: Brent Lewin/Bloomberg

The Malaysian Airline System Bhd. (MAS) logo is displayed on an aircraft's wingtip at Kuala Lumpur International Airport (KLIA) in Sepang, Malaysia. The airline said July 19 it would refund fares to customers postponing travel or canceling their tickets, including non-refundable ones. Close

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Photographer: Brent Lewin/Bloomberg

The Malaysian Airline System Bhd. (MAS) logo is displayed on an aircraft's wingtip at Kuala Lumpur International Airport (KLIA) in Sepang, Malaysia. The airline said July 19 it would refund fares to customers postponing travel or canceling their tickets, including non-refundable ones.

In Singapore, Dynasty Travel estimates passengers will think twice before booking flights with the airline.

“Many will avoid Malaysian Air for the time being,” said Alicia Seah, spokeswoman at Dynasty Travel, one of the three largest leisure travel agents in Singapore, without specifying any number for cancellations. “This is certainly a double whammy for the airline.”

Malaysian Air, which racked 4.13 billion ringgit ($1.3 billion) in losses in the past three years, will probably lose more than 1 billion ringgit in 2014 as it grapples with costs and an exodus of passengers, according to the average analyst estimate compiled by Bloomberg.

Loyal Customers

Thirteen of 15 analysts whose ratings are tracked by Bloomberg say investors should sell the airline’s stock while two say hold. The carrier’s shares have declined 29 percent this year, after dropping in each of the past six years.

In June, before the latest disaster, Malaysian Air carried 3.1 percent fewer passengers than a year ago, the second straight monthly drop. The previous month saw the highest proportion of empty seats since 2009.

Reversing that trend would involve restoring the loyalty of customers such as Vincent Sim, a 35-year-old self-employed Singapore resident.

“The airline is going through such bad time, but I will definitely fly with them in the future as their prices, service and aircraft are on par with that of Singapore Airlines and Emirates,” Sim said.

Malaysian Air has sought to lure passengers by offering lower fares. Today is had six of the ten cheapest single-stop fares for early-December return flights between Sydney and London on price comparison site skyscanner.net, undercutting China Southern Airlines Co. and Cathay Pacific Airways Ltd.

Cutting Prices

At A$1,818 ($1,712), Malaysian Air’s cheapest return fare is 4.2 percent cheaper than its lowest-priced option a week earlier. The new rate would result in the carrier being paid less than 5 U.S. cents per kilometer over the 34,260-kilometer (21,300-mile) round trip. That compares to average costs of 5.34 cents per kilometer on Malaysian Air’s network in 2013, according to data compiled by Bloomberg.

“They are under severe cost pressure,” Tan Kam Meng, an analyst at TA Securities Holdings Bhd. in Kuala Lumpur, said by phone. “I don’t think cutting airfares would be an advantage.”

While travelers and prices adjust to perceived risks, the downing of Flight MH17, 60 kilometers from the Ukrainian city of Donetsk, brought that region’s conflict back into the global spotlight. Rather than prompting a pause in the fighting, it risks escalating hostilities while world leaders pressure Russian President Vladimir Putin to speed an investigation. Some evidence points toward the plane being brought down by a surface-to-air missile.

Appreciating Service

Malaysian Air Chief Executive Officer Ahmad Jauhari, who said in a June interview that he may modify the airline’s future plane orders as a result of the MH370 disappearance, may need to reduce frequencies on some international routes, according to a May 16 report by CAPA Centre for Aviation, a Sydney-based consultancy.

The carrier had previously anticipated ordering as many as 100 planes for delivery from late 2016 or early 2017, a person familiar with the matter said in February.

While cheaper prices may deter defections, some people will be harder to convince.

“I will not travel MAS,” Chen Shiying, a science tutor in Singapore, said in reference to Malaysian Air. He says he’s been shunning the carrier for some time because it is “suay,” or unlucky in the Hokkien dialect. “It might not be their fault, but still, I would want to avoid taking them.”

To contact the reporters on this story: David Fickling in Sydney at dfickling@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editors responsible for this story: Dave McCombs at dmccombs@bloomberg.net Young-Sam Cho

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