Malaysia Airlines Suffers Heavy Losses In 2011 On Higher Fuel Cost & Provisions
4th Quarter 2011 ended 31 December 2011
Group Revenue: RM3.68 billion
Group Expenditure: RM4.99 billion
Net Loss: RM1.28 billion
Capacity (ASK) up 1%; Traffic (RPK) down 6%; Seat Factor down to 72.5%
Financial Year 2011 ended 31 December 2011
Group Revenue: RM13.90 billion
Group Expenditure: RM16.20 billion
Net Loss: RM2.52 billion
Capacity (ASK) up 7%; Traffic (RPK) up 5%; Seat Factor down to 75%
Subang, Wednesday, 29 February 2012: Malaysia Airlines today reported an unaudited net loss of RM1.28 billion for the fourth quarter ended 31 December 2011, bringing the Group’s full year results to a net loss of RM2.52 billion for the financial year ended 31 December 2011 on the back of a marginal increase in Group revenue (up 2% to RM13.90 billion) and carrying 1.3 million more passengers (totalling 17 million) compared to the previous year.
“The bottom-line Group losses for 2011 underscore the imperative need for Malaysia Airlines to immediately adopt strong measures to stop the bleeding. These include staff redeployment, increasing productivity and efficiency, relentless cost control and making further route reviews. We are also implementing an aggressive sales & marketing strategy”, said Ahmad Jauhari Yahya, Malaysia Airlines Group Chief Executive Officer.
“The accounts for the year under review recognise provisions and escalating operational costs which although painful, gives us a holistic snapshot of the organisation. With full knowledge of our actual position, we will be better prepared to move forward,” added Ahmad Jauhari.
The Group’s full year performance was severely impacted by a 21% increase in expenditure over the previous year (2011: RM16.20 billion versus 2010: RM13.41 billion) attributed to a 33% year-on-year increase in fuel cost (2011: RM5.85 billion versus 2010: RM4.38 billion) and a 15% increase in non-fuel expenses (2011: RM10.43 billion versus 2010: RM9.03 billion).
The increase in non-fuel expenses were mainly due to provisions totalling RM1.09 billion made in the fourth quarter for stock obsolescence, redelivery of aircraft and impairment of freighter aircraft.
For the full year, Malaysia Airlines saw capacity (Available Seat per Kilometre) increase by 7%, passenger traffic up 5% but a lower seat factor to 75%. Revenue per ASK (RASK) rose 2% to 18.5 sen per km whilst yield improved 4% to 24.7 sen compared to the previous year.
Revenue and average fares across all classes showed improvement throughout the year, particularly in the front-end cabins. However, there was an overall drop in seat factor as the airline strived for better yields. On a regional performance basis, the domestic and short-haul, intra-Asean services continued to be key markets for the Company, with these segments reporting positive growth on a quarterly as well as on a year to-date basis.
The cargo division suffered in line with an overall slowdown of the industry globally. Revenue dropped 14%, capacity decreased 9% whilst yield increased 2%. MASkargo recorded a loss before tax of RM19 million in 2011 compared to a profit of RM141million in the previous year due to higher fuel costs and impairment of its A330 freighter fleet.
For the year under review, several major provisions were made. Malaysia Airlines’ plan to return 58 aircraft to lessors is expected to cost the Company approximately RM1.03 billion. It has so far provided RM431 million, thereby necessitating an additional provision of RM602 million. The other provisions included RM179 million for additional provision for engineering stock obsolescence and RM314 million for aircraft impairment relating to its cargo fleet.
Earlier in 2008 and 2010, Malaysia Airlines had placed firm orders for a total of 50 aircraft plus options for an additional 30 aircraft to be delivered from 2010 to 2017. In 2011, MAS had exercised 10 of those options. The Company has a current fleet of 91 aircraft with an average fleet age of 12.2 years and in 2012, Malaysia Airlines will be taking delivery of another 23 new aircraft.
According to Ahmad Jauhari, “The recent rationalised network plan that we will operate has resulted in a surplus fleet. An additional provision of RM602 million has been made for aircraft redelivery to enable Malaysia Airlines to retire and return 58 aircraft from now up to 2014. The bulk of these will take place in 2012 comprising the older uneconomical 18-19 year old aircraft. By the end of 2012, our fleet size will be 80 aircraft with an average fleet age of 7.7 years.”
With the incoming fleet, a thorough review had been carried out on spares resulting in an additional provision for impairment and obsolescence of aircraft spares amounting to RM179 million.
The Group’s cargo business was also impacted by the current weakness in the global air freight business. This year MASkargo will be having a fleet of 6 dedicated wide-body freighters including 4 new A330-200F. As a result of the new A330 Freighters, our freighter tonnage lifting capacity will increase by 5%. In view of the losses at MASkargo and the recent announcement by Airbus to develop the A330 Passenger-to-Freighter (P2F) conversion programme which will depress the value of new freighters, Malaysia Airlines has decided to make a provision of RM314 million for impairment of freighter aircraft value.
With stubbornly high fuel prices and with weak global demand for cargo, the Group continues to explore options including joint ventures and/or strategic alliances for MASkargo.
The outlook for 2012 remains challenging for the global aviation sector with both passenger and cargo segments expected to remain weak coupled with rising fuel costs. The International Air Transport Association (IATA) expects continued cautious business sentiment globally.
Given its financial performance in 2011, Malaysia Airlines is currently finalising a plan to strengthen its Balance Sheet to increase its cash reserves and funding capacity. The plan includes, but not limited to, debt and/or equity market options. Khazanah Nasional and Tune Air, the two largest shareholders, are supportive of these initiatives. The Company will make further announcements once the funding plan is finalized.
With the funding plan in place, the Group will further progress the implementation of initiatives outlined in its Business Plan announced in December 2011. The Company is confident in meeting the challenges above.
In summing up, the Chairman of Malaysia Airlines, Tan Sri Md Nor Md Yusof said: “The Results make for unpleasant reading. The Company is in crisis. The Board and I remain confident that we now have a team and Business Plan in place that will bring the necessary sacrifices to ensure a turnaround and recovery. And lastly, I am grateful to note the unwavering support of our major shareholders, Khazanah and Tune Air, for our steps moving forward.”
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