It was Winston Churchill who said that one should never let a good crisis go to waste, but for Malaysia Airlines (MAS), dealing with two crises in one year will prove extremely challenging.
Prior to the MH17 tragedy, MAS was already reeling financially from the impact of MH370's disappearance on 8 March, with little light at the end of the tunnel. Although MH370 went missing towards the end of the quarter, the airline said it had a "dramatic impact" on its financials, resulting in a MYR439 million ($138 million) operating loss for its first quarter.
Following a briefing with MAS management in May, Alliance Research said in a research note that MAS's yields and load factors were likely to deteriorate following the MH370 incident, with the "negative impact potentially manifesting in 2Q and 3Q results".
At this stage, the impact of the MH17 disaster has been hard to judge. In a briefing note issued on 18 July, TA Securities said MH17 will have only a "moderate" impact on MAS, but maintained its sell rating on the company's stock.
"The MH17 incident would damage the MAS brand less than MH370 because MAS was not negligent in routing its flights over eastern Ukraine – a number of other airlines continued to do so right until the MH17 incident," says Dr Terence Fan, an assistant professor of strategic management at Singapore Management University.
The timing of the second disaster comes as MAS's 69.4% shareholder – state investment firm Khazanah Nasional – is looking at options to try and turn the struggling carrier around. To do so now appears imperative.
"After these two incidents, MAS could definitely use a 'reboot' of sorts, both in the eyes of customers as well as of their own staff," says Fan.
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That's not to say that the airline has been standing still. In recent years, MAS has cut back loss-making routes to the Americas and refocused its network on Asia, Australasia and Europe. It has also been taking delivery of new new Airbus A330s, A380s and Boeing 737-800s, helping to cut down its operating expenses. Joining the Oneworld alliance has also opened up new codeshare possibilities and increased its feed in some key markets.
What it failed to do, however, is to address the threat that the AirAsia group has posed. Plans to launch a lower-cost hybrid carrier, tentatively called Sapphire, were aborted prematurely after Khazanah and AirAsia agreed to a share swap in August 2011. That agreement would be unwound less than a year later.
MAS has also faced increasing pressure from Middle Eastern carriers such as Emirates, on key routes linking Australasia and Asia to Europe. While it has entered codeshares with Etihad Airways, the airline has done little else to address the threat posed by the ambitions of the Gulf's fast-growing airlines.
A number of voices have been calling for the Kuala Lumpur-listed airline to be taken private by Khazanah, in order to complete a restructuring away from the eyes of short-term investors. This could include spinning off its MRO arm, MAS Aerospace Engineering, and also MASkargo in order to give the airline's management more focus on the day-to-day running of the core airline business.
Another option being discussed could be to take the airline into bankruptcy, replacing it with a new structure, while possibly retaining the decades-old, albeit tarnished, MAS brand.
"Financially, a careful reboot could give the airline a chance to reorient itself in light of stiff competition from Middle Eastern carriers," says Fan. "If they could learn from US carriers in the past decade, they would realise that most major carriers had benefited from bankruptcy-protected cost reductions."
In the current circumstances however, it may be difficult to convince employees to make concessions to put MAS on a stronger footing.
"The staff at MAS are already potentially quite demoralised after these two incidents," says Fan. "Asking them to shoulder even more financially would have to be done very carefully so as not to demoralise them even more."
He adds that bankruptcy could help the airline's short-term cash balance, but there needs to be "a more comprehensive rethink of MAS's strategy going forward". Otherwise it would only be a short-term solution that doesn't address the structural issues that have hampered the airline for many years.
Without some major reforms, MAS's next crisis could very well be for its own survival.
Source: Cirium Dashboard
