Asia-Pacific News

Malaysia Airlines: One year after MH370

Remembering MH370

One year after the disappearance of flight MH370, doubts remain if Malaysia Airlines (MAS) can recover from the financial and reputational damage brought on by the tragic incident.

A commercial plane operated by Malaysia's flagship carrier vanished during a routine flight from Kuala Lumpur to Beijing on March 8 2014; debris has yet to be found.

On Sunday, a new interim safety report suggested that the battery on one of MH370's data recorder beacons may have expired—more than a year before the plane actually went missing. However, the exact causes behind the plane's disappearance remain shrouded in mystery, and persists as the aviation world's biggest mystery to date.

Accusations were initially leveled at MAS for its mismanagement of the search effort and dealings with families of the 239 passengers on board flight MH370. The public backlash worsened in July 2014 when Malaysia Airlines flight MH17 was shot down by a missile in Ukrainian airspace during a territorial conflict between Russia and Ukraine.

The twin tragedies hit the airline's balance sheet. In its last earnings report before being privatized by Malaysian sovereign fund Khazanah Nasional in December, the carrier posted a net loss of 576 million ringgit ($160 million) for the July-September period. That brings losses for the first nine months of 2014 to 1.32 billion ringgit ($362 million).

Staying afloat

Safety-related fears still concern passengers like Singaporean Paige Kwok, who say they cannot shake off the coincidence of an airline experiencing two accidents within months. "I tend to avoid Malaysia Airlines after those accidents last year," the 28-year old said.

MAS was unable to provide ticket sales data, but general demand appears to be holding up. The carrier operates eleven daily flights from Singapore, and roughly three-quarters of every plane is full, said a MAS employee at Changi Airport. In fact, the airline said it was working at full capacity during the Lunar New Year holiday last month as customers took advantage of attractive promotional fares.

Chan Brothers, one of Singapore's largest travel agencies, told CNBC that customers were mostly interested in short-haul flights with Malaysia Airlines: "The few inquiries we do receive are mostly for flights to China since MAS is one of the cheapest airlines flying there."

Mohd Rasfan | AFP | Getty Images

Indeed, focusing on regional and domestic routes is exactly what the airline is trying to accomplish as it undergoes a $1.6 billion restructuring by Khazanah. This week, the state fund provided its first update on MAS, announcing a 10 percent reduction in global seat capacity as part of a 12-point turnaround program. Slashing 6,000 jobs and re-evaluating international routes to the Middle East and Europe are also on the agenda, Khazanah said.

The hope is that these drastic measures will restore the airline to profitability by 2017 and see it re-list on the Kuala Lumpur stock exchange by 2020.

But MAS has also been slow to implement its new business plan, warned Brendan Sobie, chief analyst at the Centre for Asia Pacific Aviation (CAPA). He noted that while the plan was unveiled last August, the airline continues to operate the same routes.

A little help from oil?

Some believe oil's recent slide will be a saving grace for the embattled company: "If oil prices remain where they are currently, then MAS may even be able to turn profitable this year," said Mohsin Aziz, aviation analyst at Maybank Investment Bank.

Brent crude fell below $100 per barrel in September to a six-year low below $50 in January. Prices are currently around $60.

However, that level of optimism is rare among aviation experts.

"Malaysia Airlines faces more structural problems. Lower fuel prices will improve their numbers but don't get fooled by oil prices in the long-term," said CAPA's Sobie. Indeed, the airline's troubles precede 2014's twin tragedies; MAS has racked up annual losses every year since 2011 due to high operating costs and competition from domestic competitors like low-cost carrier AirAsia.

"It's not going to be an easy turnaround, so the sooner they start implementing changes, the better," Sobie added.

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