|"Please fasten your safety belts...we are encountering financial turbulence."|
blog solely dedicated to finding management solutions [!] for this airline such as full privatization. Like many Western national carriers that have been hurt by the introduction of low-cost carriers--Southwest Airlines in the US as well as (Greece's) EasyJet and (Ireland's) Ryanair in Europe--Malaysia Airlines has been taking it on the chin with the arrival of Kuala Lumpur-based AirAsia in 2001. There was actually an arrangement struck a few years ago for the successful budget carrier to help streamline Malaysia Airlines. However, special interests--namely, its bloated payroll--complained loudly and effectively scuttled the deal. To read more from the labor's perspective, refer to yet another blog run by "Malaysia Airlines Families."
So special interests with considerable leverage on the government kept the airline in public hands when disaster struck. With industry conditions being unpromising with the exception of, say, Middle Eastern carriers, Malaysia Airlines may be headed for another bailout. It has lost money more often than not during recent years. First, the challenging operational situation.
In the fiscal year through December 2013, it posted a net loss of 1.17 billion ringgit ($356 million), although passenger numbers increased by almost 30% and sales grew by around 10% from the previous year. According to a source close to the airline, the loss is largely attributable to discount marketing that did not take costs into account. With its operating cash flow in the red for three straight years, the company has little chance of earning a profit from its mainline airline operation...Next, we move to "legacy" costs such as overstaffing for vote-winning reasons added to the aforementioned rise of AirAsia that is providing stiff competition, especially over domestic routes:
The airline has recorded losses since the Asian currency crisis in 1997, and the company has been trying to restructure its operations for the last 15 years through a continuous pumping in of government money in the form of capital injection and low-interest loans. CEO Ahmad Jauhari Yahya previously said that the company aimed to generate a profit by fiscal 2014, but the market is largely of the opinion that the disappearance of Flight 370 has erased this hope.
There are two underlying factors squeezing the company: increasingly tough competition with budget carriers and the difficulty of streamlining a state-owned company. Malaysia-based AirAsia was founded in 2001 and has almost doubled its sales in the last five years. Its success is down to its ability to offer ultracheap fares, about half what Malaysia Airlines charges. AirAsia has also lured domestic passengers from its state-run rival by increasing the number of flights between local cities.The current stalemate suggests that if operating conditions do not improve, Malaysia will have to again bail out the airline like it did in 2001 when it was renationalized the carrier. I guess some things never change since state managers were too chicken to rationalize labor force size even then.
As for cost-consciousness, the national airline has not streamlined its payroll in recent years, retaining around 20,000 employees. Its largest shareholder is Khazanah Nasional, a government investment fund. Employees of state-owned enterprises are valuable voters for the ruling party, which is increasingly losing support. The government must also listen to the voice of labor unions.
Malaysia Airlines received a capital injection from AirAsia in the summer of 2011 and tried to apply its rival's low-cost know-how to its own operations. However, it had to scrap the capital alliance due to protests from labor unions in May 2012. In 2013, Mahathir bin Mohamad, former Malaysian prime minister, suggested that the company reduce costs through privatization, but labor unions opposed the suggestion, forcing current Prime Minister Najib Razak to reject the proposal.
UPDATE: The WSJ has a similar feature which came later on Malaysia Air's plight.