‘MALAYSIA AIRLINES NEEDS NEW PLAN’
Overcapacity seen continuing to impede national carrier’s restructuring efforts
MALAYSIA Airlines Bhd will need to successfully implement a new business and restructuring plan to compete more effectively amid a challenging market environment, say analysts.
Khazanah Nasional Bhd managing director Datuk Shahril Ridza Ridzuan recently said the Malaysian aviation industry was experiencing overcapacity, given the size of the market.
Malaysia Airlines, which includes turboprop subsidiaries Firefly and MAS-wings, competes with AirAsia, AirAsia X and Malindo.
The sovereign wealth fund said overcapacity in the local aviation sector has continued to impede Malaysia Airlines’ restructuring plan as the airline was struggling to maintain its profitability this year.
Malaysia Airlines reported a net loss of RM792 million in the financial year ended Dec 31 last year, which was marginally smaller compared with the RM812 million loss previously. Revenue last year improved by only 0.8 per cent to RM8.74 billion, from RM8.67 billion previously.
There was no explanation for the financial results given in the report filed with CTOS recently.
However, Malaysia Airlines group chief executive officer Captain Izham Ismail had in March said the airline’s overall performance for 2018 was affected by intense competition with supply outstripping demand, volatility in fuel and foreign exchange.
Khazanah said it had injected a huge capital in the Malaysia Airlines group over the last five years under the restructuring plan. But it did not go smoothly as it missed its target.
Based on the business plan provided in 2014, Malaysia Airlines was expecting to break even last year and be profitable this year. However, market observers are expecting a loss this year as conditions remain challenging.
Singapore-based independent analyst and consultant Brendan Sobie of Sobie Aviation recently said that for Malaysia Airlines to successfully overcome challenging market conditions, it is crucial to allow its executive team to implement major changes, including to its fleet and network without any interference.
“Expect a possible reduction in the size of narrow-body aircraft as a solution to the overcapacity issue that would enable Malaysia Airlines to focus better on the full service end of the market while increasing frequencies,” he said.
Sobie said a reduction in the narrow-body aircraft size would result in better schedules for business passengers and connecting traffic while ceding low fare point-to-point passengers to low-cost carriers such as AirAsia.
He said the evaluation of smaller Airbus A220s and E195-E2s to replace some of Malaysia Airlines’ 737-800 fleet as part of a request-for-proposal with Airbus and Embraer marks an intriguing attempt to consider new solutions.
“The decision to delay the 737 MAX deliveries, initially slated to begin next year, is sensible as Malaysia Airlines contemplates a down gauging strategy under its new business plan.”
Sobie also urged the government to quickly approve the phase-out of the superjumbo A380 as the airline is now being forced to be kept for more than another decade although the jets are way too large and are highly unprofitable.
He said the decision to delay plans to select and order new wide-body aircraft was sensible.
“Malaysia Airlines should relook at medium-size new generation wide-bodies once a decision is made on the future narrow-body mix, which may also include long-range A321XLRs,” he said.