Malaysia Airlines unlikely to turn around in the short term

PETALING JAYA: Analysts are not convinced that the national flag carrier Airlines Bhd would be able to turn around its loss-making business anytime soon, as weakness in consumer sentiment suggests continued sluggishness in the local tourism industry.

An aviation analyst who spoke to SunBiz on condition of anonymity said, in view of the anticipation of weak consumer sentiment this year, the demand for air travel is expected to slightly taper off compared to last year.

“This year, we expect the interest to travel to slow down a bit given the anticipated weaker consumer sentiment. This may also affect the airline’s airfares or overall yield.

“So I believe it is not possible for them (Malaysia Airlines) to be profitable this year or in the next few years. I don’t see that it is possible for them (to even) break even this year,” he added.

The analyst said the strengthening of the ringgit against the could also affect the airline’s operational costs and thus weigh down its revenue which is mainly denominated in ringgit term.

In addition, he said the higher jet fuel prices, coupled with a softer macro-economic environment are among the main reasons that may wreck the airline’s five-year turnaround plan, which was set by its sole shareholder Khazanah Nasional Bhd in 2014.

MAB recently announced that it incurred lower losses last year, but it did not disclose the amount of losses.

Its total revenue for 2018 was 1% higher than 2017, while overall load factor stood at 78%. Revenue average seat per kilometre also saw a marginal increase of 2.0% due to improved pricing segmentation.

In a brief reply to queries by SunBiz, Malaysia Airlines said it is currently in close discussions with its stakeholders and board of directors on the group’s second phase long-term turnaround plan.

“The airline will update the market once ready,” it added.

Speaking of the recent calls to shut down the airline, analysts opined that it may not be a good idea as the move could cause disruptions to the nation’s tourism industry.

“The government needs to really think about it before they come up to that decision. If we look at it as just one entity alone, yes it should be shut down.

“But they (the government) need to ask themselves if they shut down the airline, how it is going to affect the tourism industry, business spending as well as the government’s budget,” he added.

MAB was taken private by Khazanah as part its turnaround programme in 2014. Khazanah had injected investments worth RM6 billion to support the airline’s turnaround plan with the aim of returning MAB to profitability by late 2017 and to relist the company thereafter.

Early last year, Khazanah said it expected the airline to return to profitability in the first half of 2019.

Nonetheless, MAB remained the major drag of Khanazah as the airline accounted for half of its RM7.3 billion impairments last year.

The sovereign wealth fund recorded a pre-tax loss of RM6.3 billion last year, the first annual loss since 2005, bogged down by higher impairments, lower dividend income and fewer divestments.

Source: The Sun Daily

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