SURVIVING IN COMPETITIVE SKIES
National carrier has to stop relying on govt support, say industry observers
MALAYSIA Airlines Bhd needs to prepare for the impending day when it has to be successful in the competitive airline sector without any government support, say industry observers.
Economist and former transport ministry secretary-general Tan Sri Ramon Navaratnam said it was not sustainable for Malaysia Airlines to continue relying on the government’s financial support.
“As long as Malaysia Airlines knows it will be bailed out, there is no incentive for it to perform its best,” he said recently.
Ramon said to compete effectively in the fierce international skies and make a profit, airlines must resolve the unproductive internal environment and choose the most entrepreneurial options. There is also no substitute for discipline and hard work.
“There has to be a complete overhaul in terms of management and operations,” he said.
Malaysia Airlines’ sole shareholder, Khazanah Nasional Bhd, committed RM6 billion to its fiveyear turnaround plan in 2014. It was recently reported the airline had used up more than half of the amount.
Asian transport equity research firm Crucial Perspective chief executive officer Corrine Png, meanwhile, said factors beyond Malaysia Airlines’ control — the sharp increase in jet fuel prices and weaker ringgit — had contributed to its high operating costs.
“Malaysia Airlines needs to scale back capacity on loss-making routes and work on trimming unit costs further. It should also work on improving risk management, such as fuel and forex (foreign exchange) hedging strategies, to reduce future earnings risks,” she said.
Png said the airline faced stiff competition from AirAsia Group and Gulf carriers’ aggressive expansion with much broader network reach.
Malaysia Airlines’ request for information for the wide-body, twinaisle planes was partly to replace older widebody aircraft, she said.
“This will help improve cost efficiency as the newer generation aircraft are more fuel-efficient. The deployment of wide-body aircraft also makes economic sense on routes where airport slots are constrained.”
Png said for now, it would need financial support from the government to weather challenges, such as unhealthy financial account, a weaker ringgit, rising jet fuel and intense competition from regional peers.
“However, depending on government bailouts is not sustainable in the longer term. Malaysia Airlines needs to work on finding its niche in the industry and look at ways to boost ancillary income.”
She said many long-haul routes between Malaysia and Europe/North America were still under-served and could present growth opportunities if Malaysia Airlines could improve its costcompetitiveness versus sector peers.
Maybank Investment Bank aviation analyst Mohshin Aziz said it seemed that Malaysia Airlines’ yields were too low against its high operating cost.
“The 2017 numbers were particularly disappointing because it was a record year for Asia-Pacific and global airlines. Many airlines made record profits, including AirAsia and AirAsia X,” he said.
“Malaysia Airlines’ fleet consists of ATR, Boeing 737-800, Airbus A330/A320, Airbus A350 and the Airbus A380. It would be more efficient to narrow down the number of aircraft type in the fleet,” he added.