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UPDATE 2-Malaysia Airlines warns of poor second-half earnings after jet disasters
August 28, 2014 / 11:50 AM / 3 years ago

UPDATE 2-Malaysia Airlines warns of poor second-half earnings after jet disasters

(Adds details on competition, fare cuts)

By Al-Zaquan Amer Hamzah and Yantoultra Ngui

KUALA LUMPUR, Aug 28 (Reuters) - Malaysia Airlines has warned of poor second-half earnings as passenger bookings continue to fall in response to the loss of two aircraft in separate disasters this year.

The two tragedies are expected to hit earnings in the months from July to December, as average weekly bookings declined 33 percent, with numerous flight cancellations immediately after the shooting down of Flight MH17 over Ukraine in July, the airline said.

Malaysian Airline System Bhd (MAS) said on Thursday its second-quarter net loss grew to 307.04 million Malaysian ringgit ($97.6 million) from 175.9 million a year earlier, though the result was an improvement from the net loss of 443 million in the first quarter.

The April-June earnings are the first to fully reflect the impact on sales of the unexplained disappearance of Flight MH370 in March.

The airline is set to be taken private by its majority shareholder, state fund Khazanah Nasional Bhd, in a move to revamp its business devastated this year by MH370’s loss and the MH17 incident.

MAS said the MH17 incident had derailed “all the hard work and effort” to regain market confidence it had put in after the loss of MH370.

Seat load factors fell 6.7 percentage points to 74 percent, next to a 9 percent increase in capacity during the quarter. Operating expenses rose 2 percent on higher fuel costs, which rose on the company’s capacity increase and the weakening of the ringgit against the dollar.

“The fact that both incidents have occurred within such a short span of time had exacerbated the situation and severely damaged the airline’s brand and business reputation, accelerating the need to restructure the company,” it said.

Even before the aircraft tragedies, the carrier that was one of southeast Asia’s most prestigious airlines in the 1990s had been squeezed between high-end rivals, such as Singapore Airlines, and Asian budget carriers. The company has not made an annual profit since 2010.

The company’s shares will be suspended on Friday ahead of the announcement of its planned restructuring by Khazanah, a source told Reuters.

About a quarter of the carrier’s nearly 20,000 staff may lose their jobs in the overhaul, with some international routes to be abandoned as new management is brought in, sources said.

WORST QUARTER

The impact of the March 8 disappearance of Flight MH370, bound for Beijing from Kuala Lumpur, had tipped the carrier into what was then its worst quarterly performance in more than two years. Sales in China declined 60 percent in March after the incident, it said earlier this year.

Both passenger numbers and yields fell on intense competition in its home market and internationally, said MAS.

By contrast, AirAsia’s net income for the second quarter jumped five times from the previous year to 367.16 million ringgit, though operating profit fell 17 percent due to losses in its overseas associates.

MAS has had to cut fares on most of its routes in an attempt to lure back nervous passengers, though it is too early to gauge its success. It has almost doubled its commission payments to Australia-based travel agents to revive sales there, according to Australian media reports.

A MAS flight to Hong Kong in the week from Aug. 30 is around 16 percent cheaper than Cathay Pacific. Flights to Tokyo in the first week of September were 19 percent cheaper on MAS than Japan Airlines.

According to its July operational figures, the domestic load factor was at 68.1 percent, down 9.9 percentage points from a year before. International load factors were 76.1 percent, down 7.9 points. Overall load factors fell 8.1 percentage points to 75.2 percent.

The 2014 overall load factor has fallen 4.2 percentage points to 75.1 percent.

In its last results announcement in March, MAS passenger numbers had already been reeling from the MH370 incident, with sales from China down 60 percent and more travelers choosing to shun long-haul travel.

AirAsia last week announced a one-week sale with flights to Australia from $29 and domestic fares as low as $12. AirAsia X, the budget airline’s long-haul arm, is the only other airline other than MAS to have direct flights from Kuala Lumpur to Australia.

A flight from Kuala Lumpur to Sydney in September costs as little as 399 ringgit ($126) on AirAsia and 1,830 ringgit ($580) on MAS.

1 US dollar = 3.1475 Malaysian ringgit Editing by David Clarke and David Holmes

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