Malaysian Airlines’ Losses Widened Due to Flight MH370 Tragedy

Malaysian Airlines’ Losses Widened Due to Flight MH370 Tragedy
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Malaysian Airlines System Berhad (KLSE:MAS) (OTCMKTS:MLYAF), the parent company of Malaysian Airline, reported that its losses widened in the second-quarter due to the impact of the Flight MH370 tragedy last March.

According to Ahmad Jauhari Yahya, the company anticipated the impact of the disappearance of the Malaysian Airlines Flight MH370, but it suffered another problem with the Malaysian Airlines Flight 17, which was shut down by a Buk ground-to-air missile in Eastern Ukraine that killed 295 people.

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“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 Flight 17,” said Mr. Jauhari.

Malaysian Airlines’ second-quarter financial results

Malaysian Airline System Berhad (KLSE:MAS) (OTCMKTS:MLYAF) posted a net loss of RM307 million for the second quarter, in addition to its RM750 million losses in the first quarter of this year. Its losses were 65% higher compared with the corresponding period in the same period last year.

According to Malaysian Airlines System Berhad, its revenue declined 5% to RM3.35 billion due to lower yield and seat factor after the Malaysian Airlines Flight MH370 tragedy. The company explained that its lower revenue along with a marginal 2% increase in cost primarily due to fuel cost for the second-quarter resulted to its losses.

During the quarter, the company’s seat factor dropped 9.5% to 68.9% in May, but it went up to its 80% level in June. Malaysian Airlines System Berhad said its capacity increased 9% year-over-year based on improved aircraft utilization, but its traffic remained the same. Malaysian Airlines carried 4.2 million passengers from April to June this year.

The company said its fuel expenditure for the quarter increased 10% to RM1.53 billion due to the rise of fuel price, and the weakening of the Ringgit against the U.S. Dollar. Malaysian Airlines System Berhad decided to retire its older Boeing 734 fleet as part of its initiative to reduce fuel costs and increase productivity. The company has a total of 127 aircrafts by mid-August. The group’s fleet has an average age of 5.28 years.

Acutely aware of the need to restructure operations

Malaysian Airline System Berhad (KLSE:MAS) (OTCMKTS:MLYAF) emphasized that the weak financial performance made its “acutely aware” of the need to restructure its operation even prior to the recent double tragedies of the Malaysian Airlines Flight MH370 and Flight MH17. The company said the tragedies worsened its financial situation.

Mr. Jauhari also emphasized, “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 Malaysia Airlines in the second half of the year.”

Furthermore, he said that the company underwent a thorough re-examination and re-evaluation to reposition itself as stronger and more sustainable Malaysian Airlines for the future.
Khazanah Nasional Berhad, the majority shareholder of the company, announced its intention to take full ownership of Malaysian Airlines on August 8 and decided to list the company from Bursa Malaysia subject to approval.

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