Malaysia - Possible lifeline for MAS

Asean Open Skies policy to do good provided MAS adopts right strategies

KUALA LUMPUR: Malaysia Airlines (MAS), could overcome its present financial turbulence and head into clearer skies when the Asean air services is liberalised by 2015 if it adopts right strategies, say industry observers.

MAS would have to adapt to the Asean Open Skies policy which would change the landscape of the aviation industry in Asean with the lifting of tariffs as well as resultant lower cost in passengers and cargo traffic. Hence, it needs to do things right.

OSK aviation analyst Ahmad Maghfur Usman said despite the stiff competition from many leading airlines in the region, MAS could still survive, if the right strategies were adopted.

“It should adopt the right pricing strategy and target the premium market segment/rates and work on that,” he told Bernama.

On a positive note, he said the first quarter results of MAS showed that it had managed to boost yields year-on-year by 12.5% to 27.1 sen per Revenue Passenger Kilometre (RPK) after trimming its unprofitable routes to focus on high-yielding ones.

OSK Research in its quarterly review of the national carrier's results, said it was wise to focus on boosting yields, hence higher ticket prices instead of competing head on with AirAsia for both domestic and international passengers.

While yields were up, cost remained stubbornly high as MAS' cost per available seat kilometre of 27.7 sen continued to inch higher by 5.4% year-on-year.

It was reported that rivals such as Cathay Pacific and Singapore Airlines operated with higher cost but had better yields due to higher-yielding first and business class seats.

Ahmad said MAS could stand a better chance to boost yield and its competitiveness with the fuel efficient Airbus A380 and other new aircraft in its fleet.

MAS' A380 is expected to have its inaugural flight on July 1 on the Kuala Lumpur-London route.

It will finance its RM6bil capital expenditure for its fleet of aircraft deliveries this year, which will include 23 next generation aircraft.

This will also enable MAS to be leading the list of young aircraft fleet among regional airlines by 2015, according to industry observers.

“The move to buy new fleet, which is more fuel efficient, is better late than never as MAS has three more years to prepare for the tougher competition when the market is liberalised by 2015,” OSK's Ahmad said.

OSK Research said after MAS announced its proposed three pillars of financing in the near term, the delivery of new aircraft would not be an issue although this might be delayed by a few months to first half of 2013.

The three pillars of financing involved a RM2.5bil sukuk programme, aircraft leasing arrangement as well as commercial funding.

In relation to this, Ahmad stressed that cost cutting measures should be sought to enable MAS to stay afloat amid the challenging outlook in the aviation industry.

Recent reports indicated that regional airlines showed profit declines in first quarter of this year with some suffering losses due to higher fuel prices and weak passenger yields as well as challenging cargo market.

Ahmad said MAS should also forge collaboration with other airlines in areas like cargo handling, catering and Maintenance, Repair and Overhaul so that there could be economies-of-scale in its operations.

OSK Research said MAS was back on the drawing board on its turnaround plan after ceasing talks with Qantas in setting up a regional premium carrier and following discontinuation of the share swap with AirAsia.

The research house is expecting losses to narrow further after MAS reported its fifth consecutive quarter of being in the red in the first quarter of this year. This also depends on the effectiveness of cost cutting efforts, where losses are to narrow further with capacity cuts. As part of the airline's network rationalisation, 12 routes were cut.

OSK Research expects investor sentiment on MAS to turn positive with the impending resolution of its capex (funding needs.

A recent Skytrax website showed that MAS' ranking was under review and that the carrier was in danger of losing its five-star airline status.

Industry observers believe that MAS needed to regain its ranking to get into the premium market.

As to whether it could regain its shine and boost its competitiveness, Ahmad said there was no way for MAS to look back. It needed to look forward and face the battle upfront.

In other words, it needs to pull up its socks now.

Bernama

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