Malaysia Airlines seeks more cost-cutting to survive crisis

Reuters

2014/06/02 | 556 words | AVIATION WORLD NEWS | AIR TRANSPORT
Malaysia Airlines seeks more cost-cutting to survive crisis © Reuters

Malaysia Airlines is stepping up efforts to cut costs to survive, following the mysterious disappearance of its flight MH370 which has resulted in the biggest crisis in its 40-year history, a senior executive said on Monday.

The Boeing 777-200, carrying 239 passengers and crew, vanished from radar screens on March 8 shortly after taking off from Kuala Lumpur bound for Beijing.

Before the disaster management had hoped to break even in 2014 after three years of losses but last month it posted a record quarterly loss of 443.4 million ringgit ($138 million) for the three months ended March 31.

The second quarter this year is “a challenge” but the management wants to implement measures that, if successful, could enable the airline to break even in 2015, Hugh Dunleavy, the carrier's director of commercial operations, told Reuters on the sidelines of the annual meeting of the International Air Transport Association (IATA) in Doha, Qatar.

“I don’t think there will be any sacred cows,” said Dunleavy. “Every part of the airline will have to be looked at very carefully.”

Dunleavy declined to comment on suggestions that MAS could be taken private or that it might sell off its engineering business, but he added that there were other things that the airline could do. These included cutting “legacy costs” that have been in place for “the last 10 to 20 years”, he said.

“The world has changed since those costs were implemented. In those days, the Middle Eastern carriers and low-cost carriers were non-existent. MH370 has given us the impetus to be far more vigorous in going after those costs,” he said.

The airline will retire the last of its older Boeing 737-400 aircraft by 15 June, replacing them with 737-800s that have higher fuel efficiency and lower maintenance costs.

The 737-800s are also being worked harder, their average utilization increasing from nine hours a day to around 12 hours, said Dunleavy.

Other operating costs are also being tackled, but Dunleavy declined to provide more details as these are being finalised.

Media reports in Malaysia have also suggested that the airline could re-negotiate its catering and ground-handling contracts.

Industry sources said that MAS could also cut jobs and freeze wages and bonus payments.

The cargo unit's business model is also being re-assessed, with the airline possibly selling some freighters if it can find a buyer.

MAS had planned to order new passenger aircraft, including Airbus A330s and A350s, before MH370 went missing. That plan has been put on hold, although the airline could acquire some A330s on lease to replace ageing Boeing 777-200s, the sources said.

The airline could also reconfigure the cabin to add more business class seats to increase revenue yields.

Revenues were hit after the MH370 disaster in part because the airline stopped all promotional and marketing activity. This resumed in the first week of May, and forward bookings have returned to pre-MH370 levels in most markets, said Dunleavy.

Average fare yields, however, remain under pressure due to competition from other full-service airlines in Asia and the Middle East, as well as low-cost carriers AirAsia and AirAsia X in Malaysia.

The airline continues to burn cash but Dunleavy said he remained confident that management can turn the business round.

"We have to look at the business model that will allow us to be sustainable over the next 40 years," he said.

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