The missing MH370 flight has cast serious doubts on Malaysian Airlines (MAS) and its potential to survive the crisis. Even before the airplane went missing, the airline company had been struggling with high labor costs and a highly competitive industry.
Malaysian Airlines was effectively bleeding out cash even before the tragic accident. Now, a rash of cancellations and customers shunning the company may be the nail in the coffin for MAS. Malaysia Airline’s CEO believes that there is still time to turn the airline company around before needing to ask for a government bailout, or to seek bankruptcy protection.
Many outside analysts, however, are skeptical that the airline company can be turned around.
Malaysia government Officials Abandoning MAS
The Prime Minister acknowledged that it might be too late to save Malaysian Airlines, at least in its current form. The Prime Minister might be hinting at a future bankruptcy for the airline company. Najib has generally been supportive of government-linked companies while also acknowledging that they need to compete within the market place.
The Prime Minister’s opinions were expressed in a rather blunt interview with the Wall Street Journal. This opinion reflects Transport Minister Datuk Seri Hishammuddin Hussein’s views. The Transportation Minister recently said that MAS would not receive any government bailout and would have to fend for itself.
The government has been coming under increasing pressure for supporting GLCs. Many Malaysians now view under-performing GLC’s as money pits and believe that they are a source of corruption and cronyism. Still, the government has traditionally been unwilling to let GLC’s fail and has instead resorted to propping them up.
Those days may be over, however, as an increasingly strong opposition movement is demanding change. Government companies and projects have been coming under increasing fire and MAS may find itself one of the first casualties of these changing societal views.
MAS has been in a tailspin
Even before the tragic MH370 disappearance, MAS airlines has struggled to turn a profit. While the airline is one of South East Asia’s largest and generally enjoyed decent passenger levels, the company has long suffered under mismanagement and high costs.
MAS was created at the behest of former Prime Minister Mahathir who used Malaysia’s oil wealth to create several government-linked companies including MAS, Proton Automobiles, Petronas, and several others. Many of these companies, including MAS, have struggled to compete within the market place.
In the first quarter, MAS’s losses expanded to RM443.4 million, up from RM278.8 million during the same period last year. MAS has seen the number of Chinese passengers flying its airlines drop by 60%. Given that most of those lost on the MH370 airline were Chinese and the poor handling of the situation, this should come as no surprise.
High labor costs crippling company
Malaysian Airlines has had to contend with numerous issues, including high labor costs. Unions have kept wages high and refused to budge even amid intense competition from low cost carriers and other regional airlines.
Even with MAS facing a potential bankruptcy, it appears that the company’s employee union is not looking to negotiate. Union chief Alias Aziz has stated that he believes the government should simply bail out Malaysian Airlines. According to Mr. Aziz, since Malaysian Airlines is a government-linked company, the national government should provide the resources necessary to turn the airline around.
With dwindling oil revenues and a desperate need to cut government deficits, however, the national government appears to have no appetitive for a massive bailout. Further, the brand damage to Malaysian Airlines may simply be too extensive for the company to be bailed out. Potential customers will likely remember the missing aircraft for years to come, even if the Malaysian government provides a financial bailout.