Malaysia has yet to find its missing plane, and so far neither the national government or the company itself has been able to provide any answers or concrete information. While the missing and presumably dead passengers and crew of the fateful flight are certainly the most tragic casualties of the event, they might not ultimately be the only ones. Malaysia Airlines (MAS) is now at risk of suffering a fatal blow itself.
Malaysia Airlines is one of South East Asia’s biggest aircarriers. While the company is traded on the Kuala Lumpur Stock Exchange, the company is majority owned by the Malaysian government. Up until now, the company enjoyed a near perfect safety record, having not suffered a major incident since 1977 when 93 passengers and 7 crew members were killed during a hijacking.
Malaysia Airlines flies some 37,000 people daily on 250 different routes. While the company is one of the region’s most respective brands and has enjoyed an excellent safety record up until this tragedy, the loss of the airplane will prove costly.
Aircraft accidents are always a tragedy. Survival rates are often very low and passengers aboard can essentially do nothing but pray and hope. For airline companies, aircraft accidents can also have a huge impact on the bottom line.
For one, the company’s brand can take a major hit. Many people are nervous about flying and safety is a huge priority. Many fliers might now favor other airlines over MAS due to the perceived safety of their jets. Also, the direct costs of helping to fund the search party, paying for legal and insurance costs, and the potential burden of lawsuits could become a major problem for the company.
Malaysia Airlines struggling to produce profits
Even before this tragedy, Malaysia Airlines was struggling to keep its head afloat in a cut throat industry. Besieged by low-cost rivals and more efficient competitors, Malaysia Airlines has been bleeding cash over the last few years. Now, the financial costs, potential lawsuits, and blow to the company’s reputation may prove to be too much to overcome.
Malaysia Airlines lost over RM1.2 billion dollars last year. As the airline is a government linked company, that means taxpayers were on the hook to pay for the short-comings. While Malaysia Airlines has seen growing revenues following air fare cuts and aggressive marketing campaigns, it still remains deep within the red.
To be certain, the airline industry is one of the most cutthroat and competitive in the world. Still, Malaysia Airline’s losses may arguably have more to do with the setup of the company than the industry itself. People inside and outside of the company claim that the government has forced the company into onerous relationships with its supplies that simply cannot be afforded.
Corrupt government to blame for losses?
More or less, the Malaysian government has relied on a complex patronage system to shore up support among the countries rich and powerful. Government procurement contracts are one of the most lucrative types of kickbacks, with firms providing the government with goods and services often able to charge exorbitant markups.
With Malaysia Airlines struggling within an already hyper-competitive mark up, the political pressure to buy from well-connected individuals and the often absurd markups for supplier services simply cannot be tolerated any longer. Still, Malaysia’s patronage network is well-ossified and efforts to curb corruption and cronyism have by-and-large failed to produce results.
Company was turning the corner, now future uncertain
While Malaysia Airlines has continued to bleed cash, its recent losses actually mark an improvement from earlier losses. In 2011 the company bled a record RM2.52 billion dollars. Since then, the company has used a variety of cost cutting measures to close the gap, even managing to produce small operating profits in 2012.
At best, the loss of the airplane will only set the company’s turn around back a few years. At worse, the tragic accident could prove to be a fatal blow, sending the already struggling company into a tailspin. While priorities should remain focused on the tragic accident and the needs of the families involved, the struggles for the company are likely just beginning.