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MH370 has 'dramatic impact' on Malaysia Airlines profit

Flight MH370's disappearance had a "dramatic impact" on Malaysia Airlines earnings in the first quarter, the company said Thursday, pushing it to a wider loss likely to fuel calls for a shake-up of the struggling carrier.

business Updated: May 15, 2014 19:27 IST

Flight MH370's disappearance had a "dramatic impact" on Malaysia Airlines earnings in the first quarter, the company said Thursday, pushing it to a wider loss likely to fuel calls for a shake-up of the struggling carrier.

The state-controlled airline said it posted a net loss of 443 million ringgit ($137 million) for the three months ending March 31, compared to a 279 million ringgit loss in the same period a year earlier.

MH370 "had a dramatic impact on the traditionally weak first quarter performance", it said in a statement to Malaysia's stock exchange.

The March 8 disappearance of the Boeing 777 "triggered a major short-term reaction in consumer behaviour, with the airline observing high cancellation of existing bookings and reduction in long haul bookings in favour of short haul bookings," it said.

Read:Australia commits up to $84 million to MH370 search

"Sales from China fell some 60 percent in March, soon after the disappearance of the aircraft."

Two-thirds of those on board were Chinese and the crisis has triggered fierce criticism in China of the airline. The quarterly loss was the fifth straight one for the airline, and the worst since the fourth quarter of 2011, when MAS recorded a net loss of 1.28 billion ringgit.

Even before MH370, MAS had lost a combined $1.3 billion over the past three calendar years, foundering amid intense competition from more nimble rivals like fast-growing Malaysia-based budget carrier AirAsia.

Analysts said the outlook remained grim, particularly in MH370's wake, and have stepped up calls for a shake-up involving a stake sale, asset divestments or other aggressive reforms.

"The picture is not good. I believe a (shake-up) is required," said Mohshin Aziz, aviation analyst with Maybank Investment Bank.

"The MH370 incident has put a big challenge in an already challenging environment."

Analysts blame poor management, a bloated work force, powerful unions, and industry competition for MAS's problems. Reform has been resisted by powerful employee unions, who fear layoffs, and other vested interests.

Malaysia pulls plug on funds

Chief Executive Ahmad Jauhari Yahya said in a statement the airline must find ways to boost revenue to ensure its "future survival and sustainability", but offered no specifics.

A series of turnaround plans over the years have failed to stanch the red ink.

Critics say the carrier has survived only due to infusions of taxpayer money by Malaysia's long-ruling government. The amounts have not been disclosed. The airline is 69 percent owned by government investment company Khazanah Nasional.

On Thursday, Transport Minister Hishammuddin Hussein said the government would provide no further financial help.

Aviation analysts said MH370 could give Prime Minister Najib Razak's government the ammunition it needs to push through reform. "If the government is going to undertake restructuring, this is the time to bite the bullet," said Adrian Ng, an aviation analyst with Kenanga Research.

But some analysts were skeptical.

"I don't expect to see any changes. The political will to change is not there. I am sure the airline will look for excuses to explain their loses," said Shukor Yusof, an aviation analyst with Malaysia-based Endau Analytics.

MH370 vanished en route from Kuala Lumpur to Beijing with 239 people aboard. An extensive search in the Indian Ocean has found no trace of the plane and the cause of the disappearance remains a mystery.

The incident has ravaged the worldwide image of the carrier and Malaysia's corruption-plagued government, both of which have been accused of a lack of transparency.

MAS had previously boasted a solid safety record, but MH370 has been followed by a series of other safety scares on the carrier's planes.

Shares of the company have dropped 14 percent since MH370 went missing.

The airline's China routes are an important and growing source of earnings, accounting for 10 percent of its revenue.

But Malaysian officials have said tens of thousands of Chinese had cancelled plans to visit Malaysia in MH370's wake. Analysts said recommended options include selling a major stake in the carrier to independent Malaysian investors who would likely want to undertake deep reform.

Malaysian media have reported the carrier was considering selling its engineering unit.

"The people who have control over Malaysia Airlines are bereft of new ideas. Khazanah has proven it can't do the job," said Shukor. But necessary reform will be "an excruciatingly painful process that requires political and financial will".

A Khazanah spokesman declined comment.

An earlier plan to link up with Malaysia-based budget-travel leader AirAsia was scuppered in 2012 amid resistance from MAS unions.