The national flagship carrier’s operating model will need to be ‘tweaked’ again
pic by TMR FILE
MALAYSIA Airlines is back in the news and, not surprisingly, for the wrong reasons.
The national carrier remains loss-making and Prime Minister (PM) Tun Dr Mahathir Mohamad said the government is considering various options including proposals from interested parties to take charge of the company that has been under the sole ownership of Khazanah Nasional Bhd since 2014.
The RM6 billion spent to restructure the troubled carrier fell short of its target to return to profit by the end of 2017, including a relisting on Bursa Malaysia by this year.
Despite all the negative headlines surrounding the national flag carrier, there is no lack of interest from private parties.
News reports suggested four proposals from various local business parties have been submitted to the PM to turn around the ailing company, which has spent over RM24 billion to restore the airline to its former glory.
The names mentioned in the various reports have little or no real experience managing a large commercial carrier like Malaysia Airlines.
The aviation market in Malaysia has changed significantly over the last 25 years. But interestingly, the global aviation sector has undergone a massive rebalancing.
Carriers like Malaysia Airlines can gloat about its glorious past, but the dynamics have changed so much since. Carriers from the Middle East are dominating the sky, creating hubs in their origin country, flying to every nook and cranny on earth.
Then, you have the frill-free airlines, which do not cost an arm and a leg and make flying a full-fledged airline feels like a waste of good money.
Those are the parts of the economics. Yet to be factored in are the fluctuating ringgit and roller coaster global oil prices. Volatility in either one or both could easily send the airlines’ books into the reds.
There is very little change and no new carrier rising to become the next AirAsia Bhd. The market is more mature. Although demand for air travel is growing, but the industry is facing excess capacity. Competition is more fierce than football fans’ rivalries.
Hence, any decision by the government and Khazanah on Malaysia Airlines Bhd (MAB) must be commercially driven and very likely be a politically difficult decision to make.
Any parties interested in taking over or getting their hands on a substantial stake in MAB must have the financial muscle and commercial experience of running a profitable airline in a competitive market.
MAB’s operating model will need to be “tweaked” again as its full-service operating model still has gaping flaws.
The carrier will need a fresh capital injection not only to pay for its skyrocketing expenses, but to purchase the planes needed to compete for market share.
The one thing that MAB still has in its small warchest — an established and highly regarded brand, despite the misfortunes of flights MH370 and MH17.
Its turnaround could not be too far away, with some changes in the offing, considering the carrier had already undergone a major overhaul.
The money-draining supply contracts have been redrawn or cancelled. Its loss-making long-haul flights have been cut with only the London-Kuala Lumpur route remaining.
But its medium-haul route strategies to destinations in Asia and Australasia face direct competition from other full-service and low-cost carriers alike. Its domestic flights are also still a drain to its finances, an issue that the bidder must confront.
MAB, from an investor’s perspective, offers both opportunities and risks. It is a choice between a rock and a hard place for the government.
Any parties who are interested in taking over MAB must not just be “selling” a glorious fairy tale turnaround story. They must be backed by a strong financial assurance and a willingness to take risks in the event of a failure.
Malaysians generally still love the national carrier, but it is turning out to be an expensive RM25 billion love affair that the country cannot afford.
Bhupinder Singh is the corporate desk editor of The Malaysian Reserve.