Malaysia Airlines shares were down as much as 20% on Monday, following the disappearance of an MA flight over the Gulf of Thailand over the weekend. Speculations are ripe that the plane might have crashed in the waters off Vietnam, says a report from the Wall Street Journal.
News not good for the stock
Many questions over the disappearance of the Malaysia Airlines still remain. Questions regarding the cause of the incident, fate of the crew and passengers, and above all what happened to the jet, remain to be answered. Some of the fragments of the plane were reportedly located on Sunday night.
Analysts are concerned that the incident may negatively impact for the flagship carrier’s prospects. Hong Leong Investment Bank analyst Daniel Wong, who lowered his price target on Malaysia Airlines by 30%, believe the incident will “affect consumer sentiment,” and added “People will get very wary of Malaysia Airline’s branding and will likely go for other airlines.”
Analyst believes the incident would force the airline to opt for discounting or go for other promotions for the next year until operations and demand are back on track.
Disappearance adding to the woes for Malaysia Airlines
The recent crash is only adding to the current problems with the government-owned carrier, which for the past three years has been reporting annual losses. Malaysian Airline System Berhad (KLSE:MAS), the firm that operates Malaysia Airlines posted a loss of 1.17bn ringgit ($360m) in 2013, compared to loss of 432m ringgit, in 2012.
In the past twelve months, excluding the impact of the disappearance, the shares of the Malaysia Airlines have been down around 30%. The airline has been struggling to compete against the low cost rivals, and has been unable to add capacity to boost revenue.
According to experts, the primary cause for the struggle of the Malaysia Airlines is their legacy cost structure, long term contracts and problems with the unions. Also, the government ownership has made it difficult for the airline to implement cost control measures. In 2012, a share swap deal with the with budget airline Air Asia was called off owing to the opposition from Malaysia Airline’s unions.
In mid-morning trading, shares of the Malaysia Airlines were down 10% to MYR 0.23. After the incident, 10 out 12 analysts have a Sell rating on the stock while the remaining two have a Hold rating.