MAS could slip into red this year
Filed Under (Business News) by Webmaster on 16-03-2009
Tagged Under : Mas, red
Malaysia Airlines (MAS) (3786) may suffer the same fate as Hong Kong flagship carrier Cathay Pacific Airways, which reported last week its first annual loss in a decade on fuel hedging losses and weak demand because of the economic crisis. MAS’ top official said it could slip into the red this year owing to factors outside its control.
The national carrier has managed to hold up so far, although it saw net profit drop 71 per cent in financial year 2008, hurt by fuel hedging losses and slowing demand for travel and cargo.
The last time MAS made a net loss was in the three-month period ended June 30 2006, of RM177.1 million.
Idris, who took the helm in late 2005, turned MAS around in less than a year and has kept it profitable for 10 consecutive quarters.
Idris pointed out that MAS has the right strategy and people to keep it resilient in a challenging environment that has forced more than 30 airlines globally to fold.
Its ongoing cost-saving initiatives since 2006, amounting to RM2.3 billion, has helped the airline remain profitable despite reducing its fares.
Idris said that MAS still has more cost-savings to achieve as his team weeds out the “bad costs” squeezing the airline.
MAS remained profitable in its fiscal year ended December 31 2008, posting net profit of RM244 million on revenue of RM15.5 billion.
However, the outlook for the industry this year is bleak, with many airlines having their fuel bill partly locked through hedging into higher prices.
MAS is no different as it has hedged 64 per cent of its fuel requirements this year at US$100 (RM370) a barrel. Jet fuel currently hovers at half the price.
On top of potential hedging losses, MAS has to contend with weakening passenger traffic.
Last week, airport operator Malaysia Airports Holdings Bhd said it expected the 39 airports in the country to post flat passenger growth this year.
To cope with weakening demand, MAS may suspend some routes that are no longer commercially viable, as it has done for its service to Macau.
To a question, Idris said that MAS would only remove the fuel surcharge for its international routes if the majority of airlines did so.
“It is a real possibility that we can lose money, especially if 60 per cent (of events) does not work in our favour. But I can tell you this, we will do our very best to weather the storm,” said MAS managing director Datuk Seri Idris Jala, who is bent on beating the Centre for Asia Pacific Aviation’s prediction that all Asian airlines will report a loss this year.
“Our cost has significantly gone down and that is why we have managed to remain profitable.
“The problem faced by many (full-service) airlines now is that they are drop-ping fares but their cost structure is very high, so they end up losing money,” he told Business Times in an interview.
“It will be surprising to me, though, to see other airlines paying for fuel at US$100 per barrel, like MAS, abolish it. But, of course, there will be one or two airlines that will decide to do it for reasons known only to themselves,” he said.
