It turns out that the missing MH 370 is not only MAS problem right now, Koon Yew Yin reveals more than meets the eyes, MAS a never ending mess, a difficult journey.
MAS has just reported a fourth consecutive quarter of losses with a net loss of RM343 million for this last quarter. For the full FY 2013, the net loss amounted to a whopping RM1.17 billion, compared with a net loss of RM433 in FY 12. The question is whether this eye-popping loss will be the straw that broke the camel’s back. In the past, there have been incorrigible cheerleaders for the airline who have been regularly touting that the company is in recovery mode and will soon be returning to profitability.
This time round, even the most optimistic experts have given up. One leading financial house analyst has estimated that there was a 7% Financial Year under-performance due to weaker-than-forecast domestic yields. As competition heats up in the international space, we can expect MAS to continue another year of losses in 2014.
Savvy market observers have seen the writing on the wall much earlier and bailed out on the share. During the past few months the airline share has been trying to stay above 29 sen, the lowest share price that the airline share has recorded during the past few years.
Without the support of government-linked funds and left to market forces alone, it is certain that the share price of MAS will drop even more. These government-linked funds must surely be hoping that for the next financial year, MAS will not try to ‘break the record’ loss of RM 1,262 million set in 2005 or that achieved in 2011 when the loss was RM 2,521 million.
Should the government continue to bail out MAS?
The most recent losses bring the total losses of MAS to at least over $3 or $4 billion. In any normal business, any company incurring large and sustained losses would have closed down or gone into bankruptcy. This has not happened to MAS yet but I think the time is long overdue for the government to withdraw the open cheque book extended to the airline company.
It is an open cheque book which comes with money from taxpayers and ordinary citizens who are being hit with price increases left, right and center while the government merrily pours money into MAS and other inefficient and loss incurring government enterprises.
When planning the future of MAS, it is important that the government avoids not only the past mistakes but also takes a rational approach based on economic fundamentals. One line of simplistic thinking is that there is a bright and profitable future for MAS since the number of air travelers continues to increase by about 5-7 percent per year. This familiar argument is also given prominence in the company’s report filed a few days ago with Bursa Malaysia.
But if you look at the history of airline industry profitability, this is not the case for airlines worldwide. The fact is the airline industry requires huge capital and produces poor returns on capital employed. Hence, year after year, many airlines produce poor profit margins or outright losses.
Why you might ask is it that an industry with year-on-year rises in sales cannot generate good returns to shareholders? Part of the reason comes down to the economic structure of the industry. One of the forces that limit profitability is the intensity of the rivalry between the leading airlines.
There is over-supply leading to pressure on prices. This is exacerbated by a high degree of freedom for new competitors to enter the industries. If, say, an airline route between two destinations is found to be reasonably profitable it is not long before new entrants move in or current airlines simply move their planes to this profitable route.
The Mismanagement and Corruption Factor
Although the airline industry is generally governed by the principle of “survival of the fittest”, it is important to note that airlines can not only be profitable – they can be highly profitable. The classic case is Singapore Airlines. Another classic case closer to home is Air Asia.
Why have these two airlines, SIA and Air Asia, succeeded whilst MAS has flopped? It does not require rocket science or a Harvard Ph.D. to explain this contrast in airline profitability.
It all boils down to the quality of management, productivity, operational efficiency and the ability to control costs. Control of costs is not simply tied to obvious items such as the cost of fuel prices or the salaries paid to pilots and crew. It also crucially has to do with the procurement policies and practices of the airlines.
Unfortunately the factor of mismanagement and leakages and corruption in MAS appears to be an off-limits subject in the mainstream media. However just because the mainstream media does not mention it does not mean that these factors are insignificant or are of little or no consequence.
A search of the listings in the internet when one googles the subject “corruption in Malaysia airlines” will turn up many allegations and charges of leakages and corrupt practices. None of these allegations have been responded to by the authorities. Apparently the authorities believe that if they turn their heads away from the problem of mismanagement and corruption, these problems will disappear.
If the problem of mismanagement, leakages and corruption cannot be resolved in MAS. I say let MAS crash without further delay. This is the only way forward in the national interest and to save tax payers’ money.
Note: After listening to Anwar’s recent speech about MAS vs SIA as link http://mediarakyat.net/2014/02/19/anwar-ibrahim-malaysia-airlines-vs-singapore-airlines/
I am encouraged to write this article.