Malaysian Airlines turns profit, plans fleet revamp and cost cuts


Sepang, Malaysia – Emerging from the 2005 financial downturn with a record profit of 610 million ringgit in the first nine months of last year, Malaysian Airlines (MAS) hopes to boost its profit to between two billion and three billion ringgit by 2012.

Chief executive Idris Jala announced the bold profit targets on Thursday as the airline launched a five-year business plan that builds on a revamp that ensured the airline’s financial survival in 2006.

The Business Transformation Plan is geared toward turning the government-controlled airline into a ”five star value carrier” (FSVC), offering affordable premium products and services.

The national carrier is on track to achieve higher profits this year of 400-500 million ringgit with a top range of 651 million to one billion ringgit in an outstanding environment.

MAS lost 1.7 billion ringgit in 2005 due to high oil prices and an industry downturn, but managed to significantly narrow the loss to 136 million in 2006.

The restructuring plan includes the sale of some assets.

”We believe that if we aim for the best and stretch our limits, we will achieve an annual profit 1.5 billion ringgit by 2012 even after factoring in the industry’s challenges, Mr Idris said.

”Should the magnitude of overcapacity and liberalisation (of air service agreements) be less than what we anticipate, we can achieve between two and three billion ringgit (in profit) per year.”

He warned that aircraft overcapacity, with 800 new airplanes set to roll into the Asia Pacific region in 2007-08, the proliferation of low-cost carrier and the liberalisation of Asean skies (officially starting in January 2009), would put downward pressure on prices and margins for airlines.

Against that backdrop, MAS needs to become more competitive, through the FSVC plan, he said.

”What this means to consumers is that they can continue to enjoy five-star products and services, which we will continuously improve, and at the same time, they can expect lower fares as we progressively reduce our costs,” said the Malaysian Airlines chief executive.

MAS is looking at cutting costs by up to one billion ringgit within the next 12-18 months. ”Our cost challenge is to reduce our system-wide unit costs by 20% from the current 17.5 cents per available seat kilometre (ASK) to 14 cents which will enable us to achieve a break even load factor of 60-65%,” he said.

”Only with a break-even load factor of 60-65%, can Malaysia Airlines grow its network.”

With spiking jet fuel prices and other challenges, the world’s airline industry has lost over US$50 billion since 2001. Mr Idris emphasised the need for MAS to transform or fail.

Executives said MAS would concentrate on its core networks in China, South Asia and Asean. It will also increase its fleet size and reduce aircraft types, raising the density in economic class in order to reduce cost per seat.

Mr Idris said the carrier planned to announce its decision on fleet expansion by the end of this quarter. It reportedly plans to acquire about 110 new aircraft as part of a long-term overhaul. The plan includes 55 wide-bodied long-range aircraft and 55 narrow-bodied medium-range planes _ estimated to cost up to $14.3 billion.

The decision would include the possible the purchase of six A380 superjumbos whose delivery has been delayed due to production problems at the European plane maker Airbus.

”We are talking [with Airbus] and we are definitely asking for compensation [for the delivery delay],” said MAS chief financial officer Azmil Zahruddin Raja Abdul Aziz.