Malaysia Airlines boosted after sweeping reforms
KUALA LUMPUR: Not long ago, Malaysia Airlines was on life support, forced to sell off its headquarters and firing thousands of staff to avoid bankruptcy, but analysts are now bullish about its prospects.
The Malaysian flag carrier sank to its lowest ebb in 2005 when it racked up losses of 1.3 billion ringgit (386 million dollars) over nine months.
The dismal performance forced the introduction of sweeping reforms which saw the airline slash staff and unprofitable routes and sell non-core assets. Malaysia Airlines finally swung into the black in 2007.
Despite the global financial crisis that then hit, grounding many weak airlines, analysts are upbeat on the Malaysian carrier's fortunes, especially after it posted net profits of 490 million ringgit last year.
"We are optimistic," Hafriz Hezry Harihodin, an aviation analyst from AmResearch, told AFP, saying an extensive fleet renewal was expected to have a positive impact on yields from 2011.
The turnaround plan has been a success, "especially in terms of bringing down unit costs, improving efficiency and strengthening balance sheets," he said.
Under the revamp, the airline launched low-fare campaigns to fill up empty seats, imposed a recruitment freeze and embarked on efforts to boost passenger loads and expand its network more strategically.
It has ordered 35 medium-range B737-800s, with the first to be delivered this year, as well as six Airbus A380s and 25 fuel-efficient A330-300s -- giving Malaysia Airlines one of the youngest fleet of any Asian carrier.
It expects to make annual savings of 300 million ringgit after receiving the first 15 A330-300s wide-body aircraft, which are scheduled for delivery between 2011 and 2016.
"They will save quite a lot of money because of the low maintenance and low fuel consumption," said Angeline Chin, an aviation analyst from TA Securities.
"We believe Malaysia Airlines has already reached its trough and is on its recovery path despite the flat yield growth," she said.
Other analysts however warned there was still a risk of more hiccups in the carrier's journey to financial health.
"We believe the airline sector is poised for improvement prospects in 2010, in line with the recovery in the global economy, but not without some speed bumps along the way," Joshua Ng, from RHB Research, said in a report.
"A mild rebound in the global economy will not materially stimulate demand for air travel.
"Over the short term, new capacity will continue to hit the market, intensify competition and capping yields," he added.
Juliana Ramli, of Hwang DBS Vickers, said that despite a brighter long-term outlook for the carrier, 2010 will remain a challenging year for Malaysia Airlines.
"Although demand is likely to be on uptrend, yields also need to improve to pass on rising jet fuel prices," the aviation analyst said in a report.
"We do not expect dramatic improvement in yield this year considering that growth may be partly dampened by additional capacity coming into the market, which could further intensify price war."
AmResearch's Hafriz maintained a positive outlook for Malaysia Airlines, saying it would also ride on the Asia-Pacific's strong traffic recovery compared to other regions.
The International Air Transport Association (IATA) said last month that Asia-Pacific has overtaken North America as the world's largest air travel market with 647 million passengers in 2009.