MAS Suffers RM532.59 Million Pre-Tax Loss In Q2

[Sri Ramani K. 0]

KUALA LUMPUR, Aug 16 (Bernama) -- National carrier, Malaysia Airlines (MAS), suffered RM532.59 million pre-tax loss for the second quarter ended June 30, 2010 compared with a pre-tax profit of RM896.14 million in the same period last year.

 

Revenue rose to RM3.212 billion versus RM2.546 billion, MAS said in a statement Monday.

 

For the full year ending Dec 31, 2010, MAS said the group's operating profit target is between RM100 million and RM325 million.

 

-- BERNAMA

 

http://www.bernama.com.my/bernama/v5/newsindex.php?id=521587

 

[Sri Ramani K. 0]

Addition to the above..

 

* Q2 net loss 534.7 mln rgt vs profit of 875 mln yr-ago

 

* Sees FY10 op profit of 100-325 mln rgt

 

* Shares up 6.5 pct before results

 

(adds details, quotes)

 

By Neha Singh and Fong Min Hun

 

KUALA LUMPUR, Aug 16 (Reuters) - Malaysia's national carrier Malaysian Airline System Bhd (MASM.KL) swung to a loss in the second quarter as earnings were hurt by higher fuel spending and fuel hedging losses.

 

A 44 percent rise in fuel expenditure as a result of higher fuel price and consumption due to additional capacity added 1.1 billion ringgit to costs ($347.4 million), an increase of 338 million compared to the year-ago period, the company said in a statement.

 

"The volatility of the fuel price remains a key challenge for the industry," Chief Executive Officer Azmil Zahruddin said in a statement.

 

As of June 30, 2010, Malaysia Airlines has hedged 60 percent of its fuel requirement at $100 per barrel for the rest of 2010, and 40 percent at $100 per barrel for 2011.

 

The state-owned airline posted April-June net loss of 534.7 million ringgit compared with a year-ago profit of 875 million ringgit. The second quarter results included a derivatives loss of 217.2 million ringgit.

 

The airline's April-June load factor, or the percentage of seats filled, rose 8.2 percentage points to 74 percent from 65.8 percent a year-ago, and yield grew 2 percent to 23.9 Malaysian cents.

 

For full year 2010, the company forecast an operating profit of 100 to 325 million ringgit.

 

"Given that passenger load factor has recovered to the pre-crisis level, the focus for second half of 2010 shifts to strengthening yield and intensifying fuel cost mitigating initiatives," the company said.

 

Airlines are growing more confident as economic recovery takes hold, with financial performance at pre-crisis levels and expectations of future profitability rising, global airlines body IATA said. [iD:nLDE66J0UT]

 

The average forecast of seventeen analysts tracked by Thomson Reuters I/B/E/S put Malaysia Airlines' full-year net profit at 118 million ringgit before the results were announced.

 

Analysts generally do not provide quarterly earnings forecasts for Malaysian companies.

 

Four out of 17 analysts tracked by Thomson Reuters I/B/E/S have a "strong buy" rating on Malaysia Airlines, two call it a "buy", four a "hold", five rating it an "underperform" and two others a "sell".

 

Shares of Malaysia Airlines are down 3.3 percent so far this year, lagging the 6.9 percent gain in the broader market index .KLSE and much worse than the 14.5 percent gain in budget carrier AirAsia (AIRA.KL). ($1=3.166 Malaysian Ringgit) (Editing by David Chance)

 

http://uk.reuters.com/article/idUKSGE67C01L20100816

[suadrif 0]

After various cost-cutting measure, still in red.. hmmm

[Andi C 0]

... because Datuk I.J. no longer in charge ...

[Mohd Azizul Ramli 2]

It is very clear that the loss is caused by the fuel cost despite revenues, load factor, yield, cargo et. al. all showing upward trends. Taking the expenses in Q2 2010 into microscope:

 

 

MH made a saving in inflight cost (of course, in line with our bashings all these while), advertising and aircraft leasing. However, all the other costs showed otherwise.

 

Maintenance cost is MYR 446 million for a period of 3 months (Apr - Jun 2010), which proved keeping an old fleet of aircrafts is not going to fare well in the P&L. Hope things will take a 180 degrees turn once the new B738s, A333s and A380s start arriving.

 

I am not quite understand, why does MH has to incur so much Sales Incentive and Commission cost after cutting the incentive for travel agents and promoted its website as the main selling channel? This cost even increased by MYR 32 million from the same period last year.

 

There is also 'Other Cost' which contributed MYR 479 million to the P&L. According to the correspondence slides, this cost includes swing in forex, provision for land rentals and related costs inline with increase in traffic. But I have a hunch that all the other overheads for being a flag carrier is dumped inside this cost as well.

.

.

.

Ok so it's fuel cost which caused this quarterly lost. One might ask, why didn't the airline imposed fuel surcharge? Isn't it an airline business 101 that if fuel cost rises, charge fuel surcharges to the passengers to distribute the cost.

 

Well, MH allocated 2 slides to explain that they did imposed fuel surcharges and even increased fares since January 2010.

 

 

 

But I guess their yield management initiatives are not effective enough (probably because they are quite slow responsive to changing market as opposed to their red team competitor. Being slow is understandable as MH is a GLC but it is not an excuse) as otherwise they won't incur MYR 500+ million lost during a period of 3 months.

.

.

.

So in aggregate, for FY 2010 up until June 2010:

 

 

MH is in deficit of MYR 225 million. Hope the airline can swing the figure back to positive in the 2 remaining quarters.

 

Something to cheer on, the airline recorded a MYR 4 million operating profit from January - June 2010.

[flee 5]

.pdf"]QUARTERLY REPORT ON THE SECOND QUARTER ENDED 30 JUNE 2010 [PDF file]

[Josh T 0]

I wonder how AirAsia fared in Q2 with the rise in fuel costs...

[flee 5]

Malaysia Airlines (MAS) has ordered up to 55 B737-800s and 25 A330-300s, with a total of three B737-800s to be received in 2010, comprising one each in October, November and December.

 

"We have also completed our discussions with Airbus and will be taking the six A380s. The first will be delivered in April 2012," he said.

 

Tengku Azmil said MASkargo will also increase its fleet size from five to seven by September to cope with the surge in air freight demand.

 

The additional aircraft will allow MASkargo to offer new twice weekly services into New York via Amsterdam beginning the second week of September, he said.

 

To support MASkargo's expansion plans, the first two A330-200F will be received in September and November 2011.

 

"Discussions are also underway to get the other two freighters delivered by the first half of 2012," he said, adding that MASkargo had earlier placed a firm order for two A380-200F with option for another two.

 

As for Firefly, Tengku Azmil said: "We are ordering three additional ATRs. Currently, FIrefly has seven ATRs. The three ATRs will be delivered by end of this year."

 

On compensation for the delayed A380s, he said: "I would still prefer to get the aircraft rather than the compensation. The cost of delay is higher than the compensation."

 

Malaysia Airlines has chosen four financial institutions to finance its 14 B737-800 aircraft which will be received from 2010 to 2011.

 

Tengku Azmil said the airline was currently in final discussion with few potential lenders for its A330 aircraft which will be delivered from 2011 to 2012.

 

The airline expects between RM60 million and RM100 million in annual revenue contribution from the move to make the Kota Kinabalu International Airport a second hub.

 

Its managing director and chief executive officer Tengku Datuk Azmil Zahruddin said the geographical location of Kota Kinabalu made it a natural gateway to Borneo for traffic from China, Taiwan, North Asia, Indonesia and Autralia.

 

"There is room for growth. The airport is capable of handling 12 million passengers annually," he told reporters announcing the airline''s second-quarter financial results here today.

 

He said that new routes will be added from the Kota Kinabalu International Airport in order to match capacity and demand for better economics.

 

Tengku Azmil said there will be more opportunities to increase yield as Malaysia Airlines started to receive new planes.

 

-- Bernama

 

I wonder how AirAsia fared in Q2 with the rise in fuel costs...

Their Q2 results will be released on Wednesday.

 

Tony Fernandes' Tweet:

 

efreshed and ready for our results presentation on wednesday. Airasia going great. Thank you Prime minister for noticing we are true malaysian company

[leon t 0]

no surprises for MH losses as altho it "put the blame" on oil prices, but fuel prices actually have come down significantly from the heady years - and if it blames it still on fuel prices - then how can one explains that Cathay Pacific had a quantum jump in quarterly profits and SQ too shows a strong profit? The so-called profits by MH from lasy year and before were due mainly to selling its assets - and as almost all its core assets have been sold and incl aircrafts, now that it have no assets to sell - it shows a loss - and it still shows that MH operating costs are still very high even compared to other asian legacy carriers.

 

it will be worse and more losses when the A380s comes into service

[Ruiz Razy 1]

... because Datuk I.J. no longer in charge ...

 

Wonder is it good or bad?

 

Fuel Cost were said to be the main reason. If someone responsible were to have hv the newer birds with greater fuel efficiency and better amenities say 6 months to a year ago in OPS for MH. These loses may have been further reduced and perhaps a modest profit could have achieved! In fact, Yields and Pax numbers could have been much higher if equipments and amenities were upgraded.

 

In the end, it's not just cutting costs and corners , it is to spend wisely and timely for some smart investment to hit the "$$$$$$$$ Jackpot" at the right time. A person that can do such would only be considered a good Business Leader.

Edited August 17, 2010 by Ruiz Razy

[jani 0]

The losses were from hedges made a long time ago, at $100/barrel. So basically the current MH management had no control over that.

 

I hope someone can look into the books (if it was released to public), and divulge whether most of the losses were really from fuel-hedging or not.

[KK Lee 5]

After fuel, staff costs is the largest. Wonder what is the management going to do about it?

 

Inflight cost of RM109m is only 2.5% of non-fuel expenditure. Trimming cost from here is insignificant to opex but will effect long term yield and load. A classic example of penny wise pound foolish.

 

The losses were from hedges made a long time ago, at $100/barrel. So basically the current MH management had no control over that.

 

I hope someone can look into the books (if it was released to public), and divulge whether most of the losses were really from fuel-hedging or not.

 

After removed derivative loss of RM161m, the current management is still responsible for RM67m loss.

 

[BC Tam 2]

Wrong bets, slow yield growth hurting MAS

By Lee Wei Lian

August 17, 2010

 

KUALA LUMPUR, Aug 17 — Malaysia Airlines’ fuel hedging gamble is coming back to haunt the national carrier which reported a surprisingly large RM535 million second-quarter net loss yesterday even as its regional rivals returned to profitability.

 

For the quarter ended June 30, Singapore Airlines posted a net profit of S$253 million (RM590 million) while Cathay Pacific reported a net profit of HK$6.84 billion (RM2.78 billion) for the six months ending June 30.

 

MAS had hedged 60 per cent of its 2010 and 40 per cent of its 2011 fuel requirement at US$100 per barrel. Oil prices however have hovered in the US$70-80 range for much of the year so far, resulting in the airline booking a derivative loss of RM217 million in the second quarter.

 

The airline also saw yield grow by only 2 per cent versus 18 per cent at Cathay Pacific and 15 per cent at SIA.

 

Unlike the other two carriers, MAS does not operate from a global corporate hub which tends to see a lot of high-margin, business-class traffic.

 

“Singapore Airlines is big in the business-class segment as Singapore is a business hub,” said one local research analyst. “You don’t see that in Malaysia and that’s why Malaysia Airlines cannot increase their yield as much.”

 

The MAS management has acknowledged that its yields are relatively low and said it is taking steps to address it.

 

Among initiatives it has planned to increase yields are to increase fares and fuel surcharges.

 

It said that fuel surcharges have been progressively implemented since January 2010 and fares have been increased by as much as a whopping 50 per cent.

 

At the operating level, however, MAS did show some improvement with operating losses narrowing to RM286 million in the second quarter from RM426 million during the same period last year.

 

Passenger traffic also jumped 18 per cent while passenger revenue increased 22 per cent to RM2.3 billion.

 

from here

 

Well Jani, looks like fuel hedge losses is 217M of 535M, less than 50%

[flee 5]

I hope someone can look into the books (if it was released to public), and divulge whether most of the losses were really from fuel-hedging or not.

Look at the PDF (link above) of the quarterly results above and details of the fuel hedging are contract profits/losses for 2009 and 2010 are there.

[jani 0]

Ah thanks, didn't realize that.

[leon t 0]

really MH losses only bec of fuel hedging and prices??? - just look at AK as a budget carrier and is making a much better profit than expected - perceivably money is still being "leaked" or "disappeared" over in MH :

 

 

AirAsia Q2 net profit 43% up on higher passenger load

PETALING JAYA: AirAsia Bhd’s net profit jumped 43% to RM198.9mil for the second quarter ended June 30, from RM139.2mil a year ago, on the back of strong growth in passenger volumes, ancillary income and higher average fares.

 

Its revenue for the quarter was 26% higher at RM940.6mil from RM747.9mil a year ago. It reported earnings per share of 7.2 sen versus 5.9 sen a year ago.

 

For the six months ended June 30, AirAsia posted a net profit of RM423mil on revenue of RM1.82bil.

 

While AirAsia posted a record quarter, Malaysia Airlines posted a net loss of RM535mil due mainly to derivative losses from its fuel hedges. MAS’ revenue stood at RM3.2bil for the quarter ended June 30.

 

really MH losses only bec of fuel hedging and prices??? - just look at AK as a budget carrier and is making a much better profit than expected - perceivably money is still being "leaked" or "disappeared" over in MH :

 

 

AirAsia Q2 net profit 43% up on higher passenger load

PETALING JAYA: AirAsia Bhd’s net profit jumped 43% to RM198.9mil for the second quarter ended June 30, from RM139.2mil a year ago, on the back of strong growth in passenger volumes, ancillary income and higher average fares.

 

Its revenue for the quarter was 26% higher at RM940.6mil from RM747.9mil a year ago. It reported earnings per share of 7.2 sen versus 5.9 sen a year ago.

 

For the six months ended June 30, AirAsia posted a net profit of RM423mil on revenue of RM1.82bil.

 

While AirAsia posted a record quarter, Malaysia Airlines posted a net loss of RM535mil due mainly to derivative losses from its fuel hedges. MAS’ revenue stood at RM3.2bil for the quarter ended June 30.

[Josh T 0]

I do feel sorry for MH and the position they're in. They are trying to compete with SQ and CX but they don't have the same high-end business clientelle that these 2 carriers have. These are the high-yielding passengers and these are the passengers that are going to make you a lot of money! QF also has a high proportion of high-yielding passengers. The management of MH really need to sit down and work out a strategy to attract more business class passengers. MH already has a pretty good reputation for service but they need to support it with good and convenient connections at KL and a frequent flyer programme that really makes it hard not to stay loyal. SQ, CX and QF all capitalise on the high-yielding passengers travelling between Australia and Europe. QF has a very good frequent flyer programme that makes it hard not to go with them on long-haul flights.

MH's frequent flyer programme is pretty good and, now that I'm about to become one of their high-yielding passengers, the benefits that I get from travelling business class with them makes it hard for me to go with anyone else. The problem is that not many people know about how good the MH frequent flyer programme can potentially be, especially when you fly business class with them regularly (or frequently enough anyway).

 

Comments, anyone?

[KK Lee 5]

I do feel sorry for MH and the position they're in. They are trying to compete with SQ and CX but they don't have the same high-end business clientelle that these 2 carriers have. These are the high-yielding passengers and these are the passengers that are going to make you a lot of money! QF also has a high proportion of high-yielding passengers. The management of MH really need to sit down and work out a strategy to attract more business class passengers. MH already has a pretty good reputation for service but they need to support it with good and convenient connections at KL and a frequent flyer programme that really makes it hard not to stay loyal. SQ, CX and QF all capitalise on the high-yielding passengers travelling between Australia and Europe. QF has a very good frequent flyer programme that makes it hard not to go with them on long-haul flights.

MH's frequent flyer programme is pretty good and, now that I'm about to become one of their high-yielding passengers, the benefits that I get from travelling business class with them makes it hard for me to go with anyone else. The problem is that not many people know about how good the MH frequent flyer programme can potentially be, especially when you fly business class with them regularly (or frequently enough anyway).

 

Comments, anyone?

 

When MH introduced current J-seats on 772 and 744 a few years ago, they tried to lure premium pax without making adjustment to their schedule and frequency. Needless to say, the campaign was a failure. Until MH can cater for business travelers need, doubt they can be the preferred business airline. For a start, MH fleet (current and ordered) is not geared for frequency.

 

Enrich FFP is attractive when MH is desperate for business. However, when MH find Enrich FFP is too costly or contented with their business, MH has the habit to make Enrich expensive or not worth to bother.

 

[Johan Z 0]

Maybe it's time to introduce Premium Economy, beef up FFP, join an alliance and scrap First Class.

[BC Tam 2]

I do feel sorry for MH and the position they're in. They are trying to compete with SQ and CX but they don't have the same high-end business clientelle that these 2 carriers have .....

Then don't compete with SQ and CX in that segment of the market !

Go find a niche where profit is available for the picking

Air Asia seem to have found their's

Perhaps MH can do so too - better late than never

 

 

(1) join an alliance and

(2) scrap First Class

(1) need to find willing partners first (probably not easy nowadays, not helped by bout of arrogance during formative days of airline alliances)

(2) easier said than done. But how the new A380's and A330's will be configured will give a good indication of future direction. There might be hope yet

[Josh T 0]

Maybe it's time to introduce Premium Economy, beef up FFP, join an alliance and scrap First Class.

Well, Premium Economy is coming when the A380 arrives.

MH really should look at seriously beefing up the FFP. QF's FFP is very good and it also makes them a lot of money.

As for First Class, they'are already scrapping it and it will only exist on the A380.

[leon t 0]

the main Problem for MH is whether it will have enough pax to fill its at least 500 pax A380 or not as even now with 2 daily 744 flights to LHR already its not at full load. Hence whether premium Ey on itsA380 or not - is not the issue - and other than SYD-KUL-LHR, there are no other citiesthatnMHcan fill its A380 - unless it offers really cheap EY and likely discounted J seats but then again its bottomline remainsthe same or even worse falls.

[Johan Z 0]

Well, Premium Economy is coming when the A380 arrives.

MH really should look at seriously beefing up the FFP. QF's FFP is very good and it also makes them a lot of money.

As for First Class, they'are already scrapping it and it will only exist on the A380.

If MH take their business seriously they need to look after their Enrich and for business class, many airlines nowadays don't operate First Class anymore. Business is the new First, if you ask me.

[flee 5]

WITH the aviation industry on a cyclical upturn, it is no surprise that some major airlines have shown good financial results.

 

But what continues to separate the strong performers from the laggards is the ability to tap the right market segments while managing costs efficiently.

 

In this regard, Malaysian Airline System Bhd (MAS) seems to be lagging its regional peers.

 

One indicator is growth, or lack of it, of MAS’ yield. Yield is defined as average revenue per km per paying passenger, which essentially calculates the revenue airlines get from passengers for every kilometer they travel.

 

For its second quarter ended June 30, MAS’ yield only grew by 2% compared with the same quarter in the previous year.

 

But Singapore Airlines (SIA) grew its yield by 15% for the same period. Hong Kong-listed Cathay Pacific grew its yield by 17% for the six months ended June 30 compared with a year ago.

 

Cathay Pacific and SIA have attributed their yield growth to strong demand from the business and premium passenger market.

 

“The yield growth serves as a leading indicator that MAS is not tapping into the right market segment,” says an analyst.

 

“The full-service carrier seems to be more focused on competing against AirAsia – a low-cost carrier, which is a completely different animal. It’s a wrong strategy for a full-service carrier like MAS to compete against another that operates on a completely different business model,” he explains.

 

Another analyst points out that corporate travel is picking up due to the global economic recovery.

 

“We think MAS should invest more to create greater brand awareness in the international market... how else can you make yourself better known and become the preferred choice of air travel,” he says.

 

The analyst opines that the local carrier seems to be losing out in terms of brand awareness to other international airlines such as Emirates, SIA and Cathay Pacific.

 

MAS has slashed its advertising costs by 36.2% year-on-year (y-o-y) to RM37mil for the first half of this year.

 

The analyst questions this decision given that other airlines continue to invest heavily in advertising campaigns to stay on top of the competition.

 

“It’s not a coincidence why certain airlines are at the top in the world... they invest heavily in their brands,” says an analyst.

 

“There is huge potential for Asian airlines to tap... Some Asian brands are clearly rising as the preferred choice among the Western world, particularly since some Western airlines have been bogged down by the frequent cabin crew strikes,” he points out.

 

Besides aggressive marketing campaigns, aviation analysts also point out that regional airlines have beefed up their operational efficiency by using newer planes.

 

It’s been said that MAS’ ageing planes have been a financial burden to the company in terms of fuel efficiency and maintenance. Older planes tend to consume more fuel and require more maintenance.

 

MAS’ maintenance cost of RM446mil for the second quarter was an increase of 11.8% from the same period last year, and a staggering 42% quarter-on-quarter (q-o-q).

 

Fuel cost was also higher (44% y-o-y and 9.1% q-o-q) for the second quarter, due to oil price volatility, which had also hit other companies in the aviation industry.

 

To be fair, MAS is already addressing this issue by gradually phasing out its older planes. Analysts believe such effort will contribute even more to MAS’ improving operational efficiency.

 

However, MAS’ new planes will only come into operations in the next couple of years. The national carrier will take delivery of its first Airbus A380 plane only in April 2012 (MAS ordered six A380s in 2003, but deliveries had been delayed due to manufacturing problems.)

 

The second half is likely be a better period for MAS as demand for air travel accelerates. Analysts expect MAS to resolve its low yield growth, which is what management has committed to do.

 

The recovery in air travel demand is expected to continue benefiting low-cost carrier AirAsia Bhd. At present, forward bookings for August have already reached 54%, while that of September and October have hit 37% and 24%, respectively.

 

ECM Libra points out in a report that the recovery in air travel demand has increased AirAsia’s earnings visibility.

 

Many analysts regard AirAsia as the primary beneficiary of the rebound in air travel by virtue of its business model that can afford to offer competitively lower fares to the mass market.

 

The low-cost carrier also has the advantage because of the diverse routes it serves. The company saw its core operating profit for the quarter ended June 30 jump 31% y-o-y to RM168.5mil, while total revenue rose 26% y-o-y to RM940.6mil on strong growth in passenger volume, ancillary income and higher average fares. The company is expected to continue to outperform in the second half of the year.

 

Source: http://biz.thestar.com.my/news/story.asp?file=/2010/8/21/business/6895605&sec=business