PETALING JAYA: Malaysia Airlines (MAS) group chief operating officer Ahmad Jauhari Yahya, in dismissing reports that the loss-making national carrier is placing orders for 100 new planes, does not expect an operating loss in the coming quarters.
Ahmad Jauhari said that the negative earnings before interest, taxes, depreciation and amortisation (EBITDA) that the airline registered in the fourth quarter of last year was because of a one-off item to write off engineering inventory.
“If not for the write-down on spare parts for planes that we have retired, MAS would have registered a positive EBITDA in the last quarter,” said Ahmad Jauhari in response to concerns by analysts that MAS would continue to bleed operationally until 2016.
Speaking at a briefing to editors, he said that based on January numbers, the revenue was the same as in last year and assuming the airline continued with it cost-cutting measures, the EBITDA should be positive.
MAS announced its fourth consecutive quarterly loss for the financial year ended December 2013 on Tuesday. The national carrier registered a loss of RM343mil on the back of a turnover of RM3.9bil while its EBITDA was negative RM56mil.
If MAS continues to incur a negative EBITDA, it would cause a deterioration of the cash balances of the national carrier that stood at RM3.9bil as at the end of last year.
Ahmad Jauhari also denied a foreign wire report that the national carrier planned to place orders for 100 new aircraft.
He said MAS was only looking at replacements for its Boeing-777 planes that would be gradually retired by 2018. Towards this end, he said that they would only start looking at the replacements in the second half of the year and it was a matter that even the board has not deliberated on.
The existing fleet of narrow and wide body planes under the stable of the national carrier are largely new and fuel-efficient.
Ahmad Jauhari attributed the poor results to the declining yields because of higher capacity, losses due to the depreciation of the ringgit and finance cost incurred by the airline because of it taking delivery of new planes.
“The new planes are fuel efficient and able to accommodate more passengers. The average utilisation is also higher resulting in more seats being sold.
“The efficiency gain from replacing the old planes is about 15%,” said Ahmad Jauhari.
However the higher number of seats, described as load active strategy, resulted in lower yields MAS.
For the whole of 2013, MAS revenue per available seat kilometre (RASK), which is a measure of income per seat, is 23.5 sen while its cost per available seat kilometre (CASK) is 24.7 sen.
The airline becomes operationally profitable when the RASK is higher than the CASK.
Meanwhile, analysts downgraded MAS after it announced its worst annual loss since 2011 while the stock shed 2 sen to close at 29 sen yesterday.
This was MAS’ largest core loss in 10 quarters, according to CIMB Research, as the promised benefits of a new fleet were more than offset by depressed yields and fare dumping by local airlines.
The brokerage expects the “theatre of war” in the local aviation scene, sparked by incumbents MAS, AIRASIA and AIRASIA X, as well as newcomer hybrid carrier Malindo Air, to spillover from the domestic front into the international arena this year.
“If passenger yields are to improve at all in 2014, MAS, AirAsia, AirAsia X, and/or Malindo will have to blink and reduce capacity deployment, but we do not see any evidence of this happening based on the published capacity schedules up to July 2014.
“However, airline behaviour is dynamic and can change. We are prepared to revisit our bearish outlook if evidence emerges of greater rationality in the future,” CIMB Research said in a note to clients, maintaining its “reduce” rating.
“The weak set of 2013 results showcases MAS’ inability to manoeuvre itself in a tough operating environment.
“Yields have declined 14.3% year-on-year in 2013, much more severe than the industry decline of only 4%-7%,” explained Maybank IB Research.
“This is despite MAS having upgraded its fleet with brand new aircraft and enhanced its product offering and service quality.”
According to the research house, MAS expects an equally difficult year in 2014, as it sticks to its strategy of filling seats at the expense of yields.
“We are uncomfortable with management’s approach to continue with a strategy that hasn’t yielded positive results thus far,” Maybank IB Research said, downgrading the stock to “sell” from “hold”.
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