Tragedies of MH370, MH17 deal severe blow to MAS results


  • Corporate News
  • Thursday, 28 Aug 2014

-EPA

KUALA LUMPUR: Malaysia Airlines (MAS) sunk deeper into the red in the second quarter ended June 30, 2014 (Q2, 2014) with net losses of RM307.04mil compared with net losses of RM175.98mil a year ago as it was impacted by the tragedies involving flights MH370 and MH17.

The disappearance of Malaysia Airlines flight MH370 in March 2014 continued to impact the airline's Q2, 2014 financial results with MAS reporting a net loss of RM307mil due to lower yield and seat factor.

Adding to the earlier loss of RM443mil in Q1, 2014 the national carrier's first half 2014 results stood at a loss of RM750mil, 65% more than the previous corresponding period in 2013, it said on Thursday.

Group chief executive officer, Ahmad Jauhari Yahya said: "We expected the impact of MH370 on the performance in Q2, 2014. Given that, our team put in much hard work and effort to regain market confidence and rebuild sales.

"Tragically, just as we were beginning to see signs of recovery in all regions, we were dealt the blow of MH17.

"We operate in a harsh business environment of stiff competition from regional and global carriers and high operational costs. Coupled with the impact of the two tragedies which have damaged our brand, the need to restructure the company was accelerated.

"The full financial impact of the double tragedies of MH370 and MH17 is expected to hit MAS in the second half of the year," said Ahmad Jauhari.

In Q2 2014, revenue fell 5% to RM3.59bil from RM3.78bil a year ago as a result of lower yield and seat factor following the MH370 tragedy. Loss per share was 1.84 sen compared with 1.30 sen a year ago.

MAS explained the lower revenue coupled with a marginal 2% increase in cost, mainly due to fuel cost, resulted in a net loss after tax of RM307mil after taking into consideration depreciation (RM223mil), finance costs (RM119mil) and unrealised forex gains (RM52mil).

Having lost substantial potential revenue from the popular MATTA Fair in early March and the decision by MAS to impose a deliberate advertising black-out in March and April due to the tragedy of MH370, more aggressive marketing activities picked up in May and June.

MAS said the market responded positively to the Malaysia Airlines Travel Fair (MATF) held in May which saw sales increase 29% and higher than average daily sales compared to previous fairs that ran earlier in the year. MATTA Sabah, MATF Penang plus a greater push in all markets around the world further helped sales and restored confidence in MAS.

It said seat factor which fell 9.5 percentage points in May to 68.9% was seen to pick up in June to return to above the 80% levels again.

Elaborating on the Q2 performance, it said capacity rose 9% on-year based on improved aircraft utilisation; however traffic remained the same year-on-year.

"Consequently, the airline's seat factor recorded a fall of 6.7 percentage points for the quarter to 73.7% compared to 80.4% in the previous year. Malaysia Airlines carried 4.2 million passengers in the months of April to June 2014," it said.

MAS was also impacted by higher fuel costs and a weakening ringgit against the US dollar. Fuel expenditure in Q2 rose 10% to RM1.53bil compared with a year ago due to a rise in fuel price and a weak ringgit.

Elaborating on the results for the six months ended June 30, 2014, it posted wider net losses of RM750.43mil compared with losses of RM454.81mil in the previous corresponding period. Its revenue fell 1.7% to RM7.19bil from RM7.318bil a year ago.

Fuel costs, representing 43% of total expenditure, was 12% higher.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) stood at negative RM134mil for the first half of 2014 against a positive RM258mil a year ago. Its depreciation charges (RM460mil) and finance costs (RM241mil) continued to remain high.

MAS said despite increases in capacity and revenue as well as cost saving measures and productivity improvements, the carrier continued to report weak financial performance.

"Our company has had to undergo a thorough re-examination and re-evaluation in order to reposition ourselves as a stronger and more sustainable Malaysia Airlines for the future", said Ahmad Jauhari. 

On Aug 6, MAS' major shareholder, Khazanah Nasional Bhd, announced plans to take full ownership of MAS and delist it from Bursa Malaysia.

MAS said it the proposals are approved, they will put into action a plan to restructure the airline group towards returning it to profitability.

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