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Malaysian Air Reviews Future Plane Orders After MH370

Updated on
A multination search across the Indian Ocean has found no trace in what has become the world’s longest search for a missing plane in modern aviation history. Photographer: Charles Pertwee/Bloomberg
A multination search across the Indian Ocean has found no trace in what has become the world’s longest search for a missing plane in modern aviation history. Photographer: Charles Pertwee/Bloomberg

June 26 (Bloomberg) -- Malaysian Airline System Bhd. may modify plans for future plane orders after the disappearance of Flight 370 more than three months ago deterred passengers and tarnished the national carrier’s reputation.

“The fleet plan is under review,” Chief Executive Officer Ahmad Jauhari Yahya said in an interview in Kelana Jaya, near Kuala Lumpur yesterday. “The existing order is not impacted, only the future” plans, he said.

Malaysian Air had anticipated ordering as many as 100 jets and was considering a range of models from both Airbus Group NV and Boeing Co., a person familiar with the purchase strategy told Bloomberg News in February. Traffic plunged since Flight 370, with 239 people on board, vanished on a routine trip to Beijing from Kuala Lumpur March 8.

A multination search across the Indian Ocean has found no trace in what has become the world’s longest search for a missing plane in modern aviation history.

Malaysian Air carried 4 percent fewer passengers in May from a year earlier, according to a statement on its website. It filled 68.9 percent of its seats, compared with 78.4 percent a year earlier.

“The way things are going, you can’t think of expansion, you have to think about survival,” Mohshin Aziz, an analyst at Malayan Banking Bhd., said in a phone interview from Kuala Lumpur today. “To get themselves out of the current situation, perhaps they should shrink in size rather than grow. Discontinue services to Europe and North Asia, just focus on the shorter-haul, medium-haul routes where they are doing fairly alright.”

Shares Rebound

Malaysian Air shares closed 5.1 percent higher in Kuala Lumpur, rebounding from the steepest two-day decline in five weeks.

Subang-based Malaysian Air had anticipated taking deliveries of the new planes starting late 2016 or early 2017, the person said in February. The carrier needs new fuel-efficient jets to cut costs amid rising competition from discount airlines such as AirAsia Bhd., which have ordered hundreds of planes to tap Asia’s rising travel and contributed to three straight annual losses at Malaysian Air.

The company is looking at all options in an effort to turn around, Ahmad Jauhari said.

Low-Cost Competition

“We’re not pushing for short-term gains,” he said. “Whatever we do, things should be sustained over longer term.”

There are about 50 low-fare carriers operating in Asia Pacific and more are expected later this year as the region’s increasing urbanization and growing middle class fuel a surge in travel. Asia’s growth contrasts with the mature markets of the U.S. and Europe, where over-capacity has led to consolidation.

AirAsia, the region’s biggest discount carrier, already has 159 narrow-body aircraft with 333 on order and 50 on options, according to data compiled by Bloomberg Industries as of April 16. Indonesia’s PT Lion Mentari Airlines has 95 planes in service with 526 on order.

Close to half the world’s air traffic growth will involve Asian routes over the next 20 years, Boeing marketing chief Randy Tinseth has said, with carriers from the region acquiring 12,820 more aircraft, or 36 percent of the global total. Airbus puts the figure at 11,000 planes.

Investigators searching for the Boeing 777-200 aircraft will shift their focus to a new location south of previous searches after three months of combing the Indian Ocean failed to find debris.

The search is expected to resume off Australia’s west coast in August and could take as long as 12 months, Deputy Prime Minister Warren Truss said at a press conference in Canberra today. Investigators had previously done aerial searches in the region and had abandoned it after data suggested the Malaysian Air jet may not have traveled that far, he said.

MH370’s disappearance has baffled authorities because contact was lost less than an hour into the trip. The jet vanished from civil radar while headed north over the Gulf of Thailand.

To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Shamim Adam, Molly Schuetz

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