Thursday, November 17, 2011

MAS taking longer than expected to unveil turnaround plan

View: Read the last paragraph... It is foolish and naive to think that having Air Asia X give up the routes to London and Paris that MAS will be able to reduce costs. Before asking the partnership to make sacrifices, please get your own fundamentals/matters in order.


PETALING JAYA: Investors and analysts are basically growing tired, having waited for nearly three months now for the new team at Malaysia Airlines (MAS) to announce some definitive execution plans to turn the ailing airline around.
In a report,
Maybank Investment Bank said: “The first impression we get is that the new management is busy learning the ropes and dealing with internal matters first before unveiling their grand plan.''
The house expects MAS to report a net loss of RM242mil for the third quarter. It said the fourth quarter, which is traditionally a good period for airlines, would be equally challenging for the national carrier. “It has been more than three months since the announcement of the MAS-AirAsia tie-up. Unfortunately, not much progress has been made in terms of operational matters.''

The research house said: “We have lowered our earnings forecast to adjust for higher fuel prices, lower yields and lower capacity deployment. We are optimistic on the tie-up as it brings forth exciting opportunities with synergy potential in the billions, but execution plans are iffy and very slow.''
“Against this backdrop, we have lowered our earnings forecast and downgraded MAS to a “hold” (from “buy”) with a target price of RM1.55 per share (from RM2.70) pegged to 5.6 times 2012-adjusted enterprise value/earnings before interest, taxes, depreciation and amortisation on par with global peers,'' it said.

Malaysian Airlines aircraft parked on a tarmac at Kuala Lumpur International Airport in Sepang outside Kuala Lumpur.(File picture) - EPA

It estimates that the third-quarter core net loss to be RM242mil after adjusting for FRS139 derivative mark-to-market, which is non-cash. The target is largely based on a 45% year-on-year rise in fuel price.
“We forecast the third quarter and the early part of 2012 to be loss-making after imputing for a higher jet fuel price of US$120 per barrel (from US$110 per barrel) and softer yield environment. MAS' cost structure is not nimble enough to deal with the current market environment. It should be in better shape in 2H12 when it removes most of its old aircraft from the fleet, ” according to the report.

It added that both airlines can save huge sums (RM200mil-RM300mil per year each) by eliminating irrational competition and reducing wastages. There is also potential yield enhancement stemming from better market supply demand relationship.
MAS has many routes in its network that are thin and have no potential to make profits (irregular non-daily flights, using big aircraft for small routes). Most of these routes were legacy in nature and served a different purpose in the yesteryears. Since the core focus was to revert back to profitability, MAS must be decisive and cull these routes immediately, the report said.

The report suggested that there were many areas where MAS and
AirAsia could work to save cost.
“We believe both airlines should be smart and combine powers against the common enemy. For example,
AirAsia X should stop its flights to Europe (London, Paris) and let MAS fight the battle alone against the Middle Eastern airlines (Emirates, Etihad, Qatar, Gulf) on these routes. Similarly, MAS should also get out from routes where there is no business travel or low yielding routes,'' it said.

Wednesday, November 9, 2011

MAS to axe unprofitable routes

View: How often does MAS rationalize the network? Seems that some routes have been causing the airline to bleed for a long time!


PETALING JAYA: Malaysia Airlines (MAS), which will be relocating its headquarters (HQ) from Subang to KL International Airport (KLIA) in February next year, will cut several routes including those to Dubai, Johannesburg, Buenos Aires and Cape Town, in a bid to reduce costs, sources said.
The sources added that MAS would no longer rely on Kota Kinabalu as a hub and would cut flights out of the Sabah capital to destinations such as Haneda, Seoul and Osaka.
In February, MAS would stop flying to Johannesburg, Cape Town and Buenos Aires, they said. As for the pullout from the Dubai sector, this will be done gradually, first with the reduction of weekly flights and those via Karachi and Damman.
“These are seen as critical routes that do not bring in the yields or are highly competitive, and the best way to bring down costs is to axe the unprofitable routes first,'' said a source.
The sources claimed that the airline might add Abu Dhabi as a destination in place of Dubai, a route served by Emirates several times weekly, but whether it was a wise move would remain to be seen as Abu Dhabi is an equally competitive route.
The sources added that choosing Kota Kinabalu as a hub was not a strategic move in the first place and now the airline had to reverse the decision. This is the second time that MAS has abandoned the idea of using Kota Kinabalu as a hub. The first attempt was in 2003.
MAS is currently conducting a review of its entire route network and sources claimed that there would be more route cuts. However, new destinations and frequencies will be added to those that bring in the yields.
“They should focus on areas that gives them good yields instead of trying to fly to destinations just for the sake of having linkages. Gone are the days when connectivity was a must, now the focus should be on making money rather than community service,'' said a source.
On the move to KLIA, which will be its second HQ shift in a decade, it is intended to consolidate its administrative operations in one location rather than maintain several. Currently, MAS operates from five places three at Subang and two at KLIA. The move will reduce the number of locations to three two in Subang and one in KLIA.
The new administration and headquarters will be located at the South Support Zone at KLIA. However, the Firefly turboprop operations, engineering and maintenance (E&M) as well as the Malaysia Airlines Academy will remain at Subang. The E&M division needs to stay at Subang because it has three hangars in that location and it would cost too much to relocate them.
“The move may be good for the airline as it wants to consolidate its operations and bring down costs, but it will be a costly affair for employees, whose travelling cost will rise along with their travelling time.
“The last shift was from Jalan Sultan Ismail to Subang. The question is, with the advent of technology, is there really a need to consolidate the operations to KLIA/LCCT... unless there is a plan to sell the land in Subang or even develop it?'' asked a source.
According to its annual report, MAS has 32 office and workshop buildings at Subang which covers 4.6 million sq feet and the net book value of the assets is RM233mil.