MAS in discussions on salary cuts

KUALA LUMPUR: Malaysia Airlines (MAS), which posted disappointing results for its first quarter ended March 31, is looking at various areas to further reduce costs.

Executive director and chief financial officer Tengku Azmil Zahruddin said the company was currently talking to employees and exploring additional cost-reduction measures, including reduced work days and pay cuts across the board.

“No decisions have been made on this and, at this point in time, we are gathering comments and feedback from employees,” he told StarBiz.

Tengku Azmil pointed out that over the past three years, MAS had successfully implemented revenue-generating measures system-wide, including the introduction of Everyday Low Fares, Malaysia Airlines Travel Fairs, the MAS Stimulus Package and various other aggressive promotions, to drive sales.

“Tough cost-cutting measures, such as 7% budget cuts system-wide, freeze on hires, external training and all discretionary travelling, are already in place.

“The company is on track to save between RM700mil and RM1bil in cost-saving measures in 2009,” he said.

Most brokerages had under-estimated the “quadruple squeeze” effects and had not earlier expected the airline to mark-to-market its fuel hedges. Hence, their forecasts were wide off the mark.

OSK Research said the poor first-quarter results were due to the tough business environment and hedging losses.

MAS is once again experiencing a yield pressure from the removal of fuel surcharges and lowering of air fares, load pressure arising from lacklustre demand, and cost pressure from hedging losses.

“Despite the fact that MAS has cut capacity by 11.8% in the form of available seat kilometre, the load factor numbers were shocking as domestic load came in barely above 60% and international at 55.6%.

“Lower traffic, load and yield dragged MAS into its first operating loss of RM138.4mil since the third quarter of 2006.

“Including the derivative loss of RM557mil on early adoption of FRS 139 accounting standards, the reported net loss ballooned to RM695.4mil,” it said.

MAS decided to adopt the new Financial Reporting Standard (FRS) early although it will only be mandatory by Jan 1, 2010, to improve transparency in its financial statements.

MIDF Research, which has a “neutral” call on the stock, said MAS’ fuel derivatives would increase substantially in value although it had posted below-expectation results.

“As of the first quarter of the current calendar year, the hedge amounts are marked to market at US$49 per barrel (West Texas Intermediate crude oil) and we believe that fuel prices should be at US$85 to US$90 per barrel.

“Thus, MAS is forecast to recognise RM1.9bil in gains on fuel derivatives,” it said.

HwangDBS, which recognised a “fully valued” call on the stock, expects smaller losses from MAS in the next six months in anticipation of improving demand.

“We expect passenger load factor to remain flat year-on-year in the second half of this year after the double-digit decline in the first half of this year,’’ it said.

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