MAS mulls consolidation ahead of overcapacity

Thursday April 24, 2008 MYT 5:43:43 PM THESTAR

By FINTAN NG
KUALA LUMPUR: Malaysia Airline System Bhd (MAS) is keeping a lookout for possible consolidations with partner airlines, as there are indications of overcapacity in five years’ time coupled with a tougher operating environment due to high oil price.
MAS managing director and chief executive officer Datuk Seri Idris Jala said on Thursday the airline was only looking at possibilities now. "Its still early days and we haven't identified any airline," he said.

Idris said based on current airplane orders, there was an indication of overcapacity in five years with several airlines not being able to survive due to a tougher operating environment.
"As overcapacity kicks in, consolidation in the industry will become inevitable and it'll happen very quickly, just like in the oil and gas industry some years back," he said.
Idris said it was "possible" that MAS would acquire another airline in the five-year period or beyond but that would depend on such factors as synergy value and whether the airline in question could complement MAS' business model.
He said one way of looking at consolidation possibilities were the many tie-ups that MAS has with various airlines.

"There's no hurry because there's no overcapacity yet," Idris told reporters at a press conference Thursday after his address at the Airline Distribution 2008 forum.
He said to remain competitive and to leverage on Malaysia's multiethnic identity, collaboration with airlines from China, India and Indonesia were desirable over the next 10 to 15 years.
"We should leverage on these advantages since we've sections of the population with affinities to these countries," Idris said.

He said it was now tougher to reduce costs by another RM1bil this year due to the higher price of oil.
"We're on track to reduce costs in certain areas and we're not in others," Idris said, adding that the airline had hedged 43% of this year's fuel based on US$89 per barrel and 13% of next year's requirement based on US$95 per barrel.
He said the airline has no plans to revise the fuel surcharge and would only do so on a route-by-route basis.
Idris said the plans to acquire wide-bodied aircraft to replace the airline's 777 and 747 aircrafts would only be finalised before the end of the year. MAS had earlier finalised plans to acquire 35 narrow-bodied aircraft with options to acquire another 20.