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Traditionally Weak Q1 Performance Underpins
Tough Business Environment
Thursday, 15 May 2014, Subang – Commendable traffic growth and cost savings efforts overshadowed by pressure on yields, under-performing non-core activities and negative sentiment on the airline, led national carrier Malaysia Airlines to report a Net Loss of RM443 million for the three months ended 31 March 2014 compared to a loss of RM279 million a year ago.
Core airline revenue increased by 8% year-on-year on the back of 19% increase in Capacity but overall group performance was dragged down by weak cargo and other revenues resulting in a marginal 2% growth. Total revenue for Q1 2014 stood at RM3.60 billion.
Indicative of the tough operating conditions faced by the airline was that despite 18% growth in Traffic measured as Revenue Passenger Kilometre (RPK), severe yield pressure due to excess industry capacity and a disadvantageous cost structure caused Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) to fall to negative RM101 million compared to positive RM30 million this time last year.
Airline yield dropped 9% from 24.8 sen in Q1 2013 to 22.5 sen in Q1 2014. Revenue per ASK fell 9% to 17.2 sen in this quarter.
With the 11% increase in jet fuel volume uplifted, there was a corresponding increase in expenditure. Further efforts need to be made to manage fuel costs which increased 14% despite a decrease in jet fuel price. The weakened Ringgit to US Dollar exchange rate also contributed to the increase. Average jet fuel price for 2014 was USD128 per barrel compared to USD134 per barrel year-on-year.
Cost per Available Seat Kilometre (CASK) this quarter was the lowest the Group has recorded since 1Q 2011 due to significant savings in lease costs generated from the fleet renewal programme and on maintenance costs. Management is confident there is room to trim costs further.
“Traditionally, the first half is always weaker compared to the second half following the heavy travel period of the previous year-end holidays. The Net Loss this first quarter is not unexpected. However, the results were made worse with the impact on air travel in general following the disappearance of MH370. The whole market has reacted by slowing down demand”, said Malaysia Airlines Group Chief Executive Officer, Ahmad Jauhari Yahya.
“While the search for MH370 continues today more than two months since it disappeared, our Group needs to accelerate efforts to improve its revenue stream and better manage our high costs which have increased in line with greater capacity. This need has become even more urgent for Malaysia Airlines’ future survival and sustainability in a market that is not showing any signs of letting up on competition”, added Ahmad Jauhari.
Much of the costs associated by MH370 will be covered by insurance. Irrespective of that, the more urgent need is for the Group to ramp up efforts system-wide to regain lost momentum and grow its share of wallet. Operations were slowed for several weeks since early March when MH370 disappeared. Marketing activities were halted out of respect for the families of those on board the Beijing-bound Boeing 777 aircraft.
Ahmad Jauhari’s focus is to drive his team forward in order to remain a relevant player in the market. “We have gone through two years of pushing for improvements in operations. We still have much work ahead of us to deal with the reality of the business and competition as a dynamic and nimble operation”, commented Ahmad Jauhari.
Malaysia Airlines’ strategy includes driving revenue with increases in capacity and complemented by a greater branding and marketing push. Productivity has improved and aircraft utilization increased. There has also been better management of costs with vendors and suppliers, and a major corporate exercise to raise new capital.
The results of these efforts saw the Group achieve record highs in Seat Load Factor in 2013, even outpacing peer airlines. Financially, the Group has been able to maintain a comfortable cash balance position.
Malaysia Airlines currently has 151 aircraft in its fleet with an average age of just 4.35 years by the end of 2014. This includes Malaysia Airlines’ popular Airbus 380s and A330-300s for long-haul routes, the narrow-body Boeing 737-800s for domestic and regional routes, as well as the ATR72-600 series turbo-props for Firefly and MASwings.
“We maintain our commitment to remain competitive, to deliver an exceptional quality product and service with safety as our utmost priority, and to provide returns to our shareholders in the long-term”, said Ahmad Jauhari.
“MH370 has brought out the best of our Malaysia Airlines team to stand united to face the crisis. We will be leveraging on this team spirit to fight for our future”, added Ahmad Jauhari.