June 15 (Bloomberg) -- Malaysian Airline System Bhd. intends to almost double its Asia-Pacific destinations in three years as part of a turnaround plan prompted by five straight quarterly losses.
The carrier may fly to 25 cities in countries including China, Japan and India by 2015, compared with 13 regional destinations now, Chairman Md Nor Yusof said in an interview yesterday in Subang, near Kuala Lumpur where the carrier is based. Flights on some existing routes will also be increased by as much as 50 percent, he said.
“The airline business is closely linked to the economic cycle and there is a consensus that the Asia-Pacific region is the bright spot,” Md Nor said. “There’s plenty of reasons to be optimistic.”
The carrier may also make some job cuts as part of the restructuring to be announced at a June 21 annual shareholders’ meeting, Md Nor said without elaboration. The new proposal comes after parent companies of Malaysian Air and AirAsia Bhd. last month unwound a share swap agreement following complaints by the national carrier’s biggest union.
Malaysian Air was unchanged at 1.15 ringgit at close of trading in Kuala Lumpur today. The stock has dropped 12 percent this year, compared with a 3 percent gain in the benchmark FTSE Bursa Malaysia KLCI Index.
“Despite the ongoing reforms, such as network reviews, we expect Malaysian Air to continue to report losses in its 2012 financial year,” Annuar Aziz, an analyst at Credit Suisse Group AG said in a report today. “The weakness in the passenger network has been matched by weak cargo demand.”
Annuar downgraded the stock to underperform from neutral, cutting its price target to 90 sen from 1.50 ringgit. This means its total return is expected to underperform Malaysia’s benchmark index by as much as 15 percent over the next 12 months, Credit Suisse said.
East Asia and the Pacific region is forecast to expand 7.6 percent this year and the growth may accelerate to 8.1 percent in 2013, compared with 2.5 percent and 3 percent for the global economy, the World Bank said in a report on June 12.
Malaysian Air will stick to its existing planes orders, Md Nor said. The carrier took delivery of the first of six on-order Airbus SAS A380 superjumbo last month. It will start services with the plane on July 1 with a trip to London.
“The bookings for the A380s have been good and there is a waiting list at the moment,” Md Nor said, declining to elaborate.
The airline, which earlier planned to own new planes, has now turned to the Malaysian government to purchase the A380s and two A330s worth 5.3 billion ringgit ($1.7 billion). The carrier can lease the planes from the government with an option to buy them at the end of the contract, Md Nor said. Talks are still on with the Finance Ministry, he said.
Malaysian Air will cooperate with AirAsia in areas including procurement, aircraft maintenance and training as it seeks to pare costs, Md Nor said. Khazanah Nasional Bhd., which controls 69 percent of the carrier, exchanged back its 10 percent stake in AirAsia for 20.5 percent of Malaysian Air last month.
Malaysian Air posted a loss of 171.8 million ringgit in the three months ended in March because of higher fuel costs and competition from low-cost carriers. It may report an annual loss of 529 million ringgit, according to the average of 12 analyst estimates compiled by Bloomberg. The carrier had a loss of 2.5 billion ringgit in 2011.
The airline this month sold 1 billion ringgit of Islamic bonds that didn’t have a set maturity in the country’s first offering of such debt. It has commitments from investors to buy the remaining 1.5 billion ringgit of the so-called perpetual sukuk, according to Chief Executive Officer Ahmad Jauhari.
The funds will be used for working capital and to refinance existing loans, the carrier said in a May 22 statement. The company has 4.3 billion ringgit of bonds and loans including the sukuk sold this month, according to data compiled by Bloomberg.
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