Malaysian Air Sees Urgent Review of Business as Losses Widen

Malaysian Airline System Bhd. said the disappearance of Flight 370 has put additional stress on the company’s operations, forcing it to reexamine more urgently its business plan after reporting the biggest loss since 2011.

The carrier had a net loss of 443.4 million ringgit ($137 million) in the three months ended March 31, compared with 278.8 million ringgit a year earlier, it said in a statement today. Revenue rose to 3.6 billion ringgit.

Malaysian Air had been struggling with increased competition and higher costs even before the disappearance of MH370 as rivals such as AirAsia Bhd. flooded the region with planes and drove down fares. The company missed its target to be profitable last year as rising prices for items including fuel, maintenance and financing wiped out revenue gains, and pointed to an unfavorable foreign exchange rate environment as an additional challenge this year.

“The reality of our situation following the MH370 incident and the challenging business environment has made it even more imperative and urgent that the group relook at its business model and plans going forward to ensure sustainability of the business,” the company said. “A thorough review of operational processes and plans is ongoing.”

Cost Focus

The government-controlled airline said yesterday it will share the plan with relevant stakeholders at an appropriate time when necessary approval and endorsement have been obtained, and that winning back customers and a “relentless cost focus” will be part of the recovery strategy.

The Subang, Malaysia-based company lost a total 4.57 billion ringgit since the start of 2011. Analysts now project losses through 2016 for the airline, according to data compiled by Bloomberg. The carrier said today it’s operating in a “harsh business environment.”

Listing Malaysian Air’s profitable divisions and selling stakes in two aviation businesses could raise 4.15 billion ringgit, Malayan Banking Bhd. analyst Mohshin Aziz said in an April 16 report. The company has a market value was about 3.5 billion ringgit.

Government investment company Khazanah Nasional Bhd. owns a 69.4 percent stake in the airline, according to data compiled by Bloomberg.

The carrier’s finance costs rose 23 percent to 121.9 million ringgit last quarter from a year earlier, while the airline yield declined 9 percent. Malaysian Air had a foreign exchange gain of about 0.9 million ringgit last quarter, compared with a loss of 21.3 million ringgit a year earlier.

Shares Decline

The airline’s shares have dropped almost 45 percent over the last year, compared with the 5.4 percent increase in the FTSE Bursa Malaysia KLCI Index in the same period.

Flight 370 with 239 passengers and crew vanished from civilian radars on March 8 while headed north over the Gulf of Thailand. It then doubled back over Peninsular Malaysia and flew south into some of the world’s most remote waters. No physical trace of the aircraft has been found in what has become the longest hunt in modern aviation history.

The incident “triggered a major short-term reaction in consumer behavior, with the airline observing high cancellation of existing bookings and reduction in long-haul bookings in favor of short-haul bookings,” the company said today.

The airline’s capacity climbed 19 percent last quarter while seat factor was at 76 percent in the period. Fuel costs rose 14 percent last quarter even as the price of jet fuel declined, the company said, citing the increase in capacity and the impact of a weaker ringgit versus the U.S. dollar.

Civil aviation regulators need to improve airliners’ tracking and communications systems, and upgrade the capabilities of black boxes after the disappearance of Flight 370, Malaysian Prime Minister Najib Razak wrote in an opinion article published in The Wall Street Journal yesterday.

The incident has put the carrier under global scrutiny, jeopardizing its reputation and prompting boycotts by travel agents in China. It has also hurt the country as a travel destination with Chinese tourists canceling their visits to the Southeast Asian nation, according to Malaysia’s tourism promotion agency.

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