A season on from MH370, how is Malaysia Airlines doing?

Malaysia Airlines is still in business, but is rethinking its business model. ailing_/Flickr, CC BY-NC-ND

Malaysia Airlines flight 370 disappeared on March 8, 2014, almost three months ago. Despite comprehensive, almost unprecedented search operations involving dozens of states, the aircraft, or what remains of the aircraft, has not been found. It is still not known how or why it disappeared.

Malaysia Airlines’ financial viability has taken a significant blow, but it is ploughing on. The disappearance has also raised issues regarding airspace security and air travel safety, matters that can ultimately affect the performance of all airlines.

Malaysia Airlines takes a financial hit

Last week Malaysia Airlines said the “dramatic impact” of MH370 resulted in its worst quarterly earnings in more than two years. Passenger traffic “fell sharply”. The disappearance of MH370 caused “high numbers” of cancellations and a decline in long-haul travel.

Bookings from China declined by 50-60% (the majority of passengers on MH370 were Chinese). Chinese travel agents boycotted Malaysia Airlines.

Post-MH370, Malaysia Airlines stock has declined as much as 20%, and this month plunged the most since 1998 on concerns the Malaysian government might let the company fail. In the past year its stock has dropped 60% - as against an increase of almost 7% in the FTSE Bursa Malaysia KLCI Index.

And over the last five years its market value has fallen about 80%, against a rise in the general Malaysian stock market.

MH stock is the worst performer on the BI Global Airlines - Principal business index, which has 63 members.

It has been said that looking for additional private investment and reducing the role of the state investor, Khazanah, could help improve Malaysia Airlines’ competitiveness, and that the carrier’s operating costs are so high that it needs to reconsider its business model.

But unlike before, there will be no government bailout. Some have claimed the airline may be heading toward bankruptcy.

Optimism nonetheless?

There are signs MH is urgently re-examining its business plan (if not its model). Two days ago MH rose to its highest level in 11 days in trading in Kuala Lumpur after it stated it wouldn’t seek bankruptcy protection. MH’s director of commercial operations indicated the airline was taking “a close, hard look” at all aspects of its business model to “find out those that are core to us, [to] enhance those, [to] make them as efficient as possible”.

Malaysia Airlines’ Group CEO, Ahmad Jauhari Yahya, clearly recognises these problems and that they have been exacerbated by MH370. He says the “whole market” has reacted to MH370 by slowing down demand (it should be noted that the costs associated with MH370, including passenger compensation claims, will be covered by insurance).

He says that, months after the disappearance of MH370, Malaysia Airlines:

needs to accelerate efforts to improve its revenue stream and better manage [its] … high costs, which have increased in line with greater capacity. This need has become even more urgent for Malaysia Airlines’ future survival … in a market that is not showing any signs of letting up on competition.

Nonetheless, as Ang Kok, chief investment officer at Phillip Capital in Kuala Lumpur, has stated, whatever restructuring Malaysia Airlines goes through, it “will have to overcome union opposition, which is very difficult to do”.

Concerns about airspace security heightened

The disappearance of MH370 has also led to questions about airspace security, another very expensive cost for airlines, especially international ones.

Various reports suggest that countries (including Israel) have tightened airspace security as the ability of states to effectively monitor their airspace and maritime borders has been questioned following the diversion of MH370 from its flight path. Time Magazine has suggested that one of the lessons to be learnt from MH370 is that “nobody is watching Malaysian airspace”.

Air travel remains the safest form of travel

A passenger recently posted an account – “Two Weeks Ago I Almost Died in the Deadliest Plane Crash Ever” – of an episode aboard a United Airlines flight. That account read, in part, that

Plane crashes hold a unique place in our fears: the fiery violence, the lack of control — they have a scale and spectacle that makes them loom larger than their actual threat. Similarly, more Americans are killed by vending machines than sharks every year, but more people fear sharks than vending machines.

James Fallows, aviation correspondent for The Atlantic and author of Free Flight: Inventing the Future of Travel, when asked last week in response to this account whether we should be afraid to fly, responded:

People who think: first MH370, now this??? should think again. Several million commercial airline flights have taken off and landed safely worldwide since that Malaysian flight disappeared … Life is full of danger, including aboard aircraft. But if other aspects of life had even half the safety-consciousness of today’s commercial air travel system, we’d live in a remarkably less perilous society.