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Plane mishap piles more pressure on MAS
RELATIVES and friends of passengers on MH370 awaiting its arrival in Beijing Airport must have heaved a sigh of exasperation when a sign flashed that the Malaysia Airlines (MAS) flight had been "delayed." But the exasperation must have changed to genuine concern when the sign changed to "Cancelled."
How and why the ill-fated flight got "cancelled" are the issues confronting the Malaysian aviation authorities and, more specifically, MAS.
The loss of MH370 with its 12-man crew and 227 passengers from 12 countries was the last thing that the beleaguered airline needed.
MAS shares were already trading at historic lows: on Friday, its shares closed at RM0.25 apiece.
The weekend's events might bring the shares under more selling pressure although some analysts may argue that MAS shares are already too oversold to fall in any significant manner.
Most will agree, however, that it's a storm MAS is ill-equipped to ride out.
For an airline battling costs, the financial nuts and bolts of the investigation and recovery process could prove hideously expensive.
Things will quickly add up. Quite apart from providing accommodation for relatives of passengers in both Kuala Lumpur and Beijing, MAS has also promised to fly at least four relatives of each victim to the exact crash site once located.
The airline has also hired a US disaster recovery firm whose fees are undoubtedly costly - at a time when the loss-making airline is trying to pare costs down to the bone. It isn't clear, however, how much of all this will be borne by the insurance companies, but that will inflict a price down the road too.
More worrying is the reputational loss inflicted on the airline. The incident has grabbed global headlines and although many international commentators generally lauded the airline's safety record, there would be some degree of brand damage.
MAS's handling of the incident will also be subject to scrutiny.
For the financial year ended Dec 31, 2013, the airline's loss more than doubled to RM1.15 billion (S$447.9 million), from RM424.8 million in the same period last year. While revenue rose more than 9 per cent to RM15.12 billion, the airline's costs kept pace.
MAS's continued losses are a recurrent nightmare for state sovereign wealth fund Khazanah Nasional, which owns 63 per cent of the airline. The state agency has ruled out selling the carrier but could be mulling different options.
Some analysts have even suggested that, like Japan Airlines, the airline file for bankruptcy and start from scratch without its historical baggage - more than 20 unions, too many staff and lop-sided procurement deals.
Restructuring has not worked. Indeed, despite numerous restructurings and route cuts, MAS has stubbornly remained mired in the red.
To counter intensifying competition from both within (AirAsia and Malindo) and without (Singapore Airlines, Thai Airways, Lion Air and others), the national carrier resorted to increasing loads through slashing prices. But the strategy affected yields badly while MAS failed to cut its costs.
The airline's management hopes that a turnaround will happen this year but analysts remain sceptical. In a recent report pessimistically headlined "Escape while you can", Hong Leong Investment Bank said as much.
"We remain sceptical on MAS's turnaround plan, mainly on stiff competition not only from other Malaysian airlines but its international peers," said the bank.
"Management concurs that yields will remain depressed in FY14 and they hope the company can cut costs significantly enough to match the worrying yield trend."
Hong Leong also predicted that MAS would continue to post losses in 2014 (an estimated RM891 million) and 2015 (an estimated RM490 million)
And that was before MH370.