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3Q 2013 Financial Results for MH, AK and D7

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KUALA LUMPUR: Flag carrier Malaysia Airlines said Monday it recorded its third straight quarterly loss in the three months to September due to high fuel costs and a weak ringgit.


The airline reported a net loss of 375 million ringgit (118 million dollars) in the third quarter.



http://www.brecorder.com/business-a-finance/industries-a-sectors/144916-malaysia-airlines-posts-third-quarter-loss-on-high-fuel-costs.html


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Ticket price is just too low to bring in proper yield with that kind of cost their having even if passenger loads are increasing.

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At least 20% increase in fares will be required to go back to black. Look at Emirates, 25 years consecutive profit but never dumped prices

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KUALA LUMPUR, Nov 18 (Bernama) -- Malaysian Airline System Bhd posted a significant rise in revenue to RM3.906 billion for the third quarter ended Sept 30, 2013, from RM3.474 billion registered in the corresponding quarter last year.


However, the company incurred a net loss of RM375.44 million in the period under review against a net profit of RM37.08 million previously.


This was attributed to increased competition which impacted yields, higher expenses due to the weakening of the ringgit against the US dollar, increased charges at overseas airports including higher overflying charges, intensive advertising programme to build the Malaysia Airlines brand and increased finance costs.


The group's operating revenue improved by 13 per cent to RM3.8 billion as compared with the same quarter last year, due to an increase in seat factor by 10.3 percentage points to 84.8 per cent on the back of a 20 per cent rise in capacity.


Passenger yield continued to be under pressure as competition for market share intensified regionally and globally, the group said in a filing to Bursa Malaysia.


Group operating expenditure (opex) rose 16 per cent from the same quarter in 2012.


In a statement, Group Chief Executive Officer Ahmad Jauhari Yahya said this was principally due to higher fuel and non-fuel variable costs, which rose in line with capacity increase and the weakening of the ringgit against the US dollar.


"Both fuel and non-fuel cost for airline increased by 16 per cent. The increase in opex was also attributed to a one-off cost incurred for redelivery of aircraft.


"In addition, the group intensified its advertising and promotional activities amid intense competition as part of its long-term strategy to continuously strengthen its presence in key markets.


"Despite the increase in opex, the group's earnings before interest, tax, depreciation and amortisation (Ebitda) remains positive at RM52.4 million compared with RM153.6 million in the same quarter last year.


"Ebitda margins have decreased year-on-year due to intensified competition, causing a reduction in passenger yields," he said.


For the first nine months ended Sept 30, 2013, Malaysia Airlines suffered a net loss of RM830 million but recorded a positive cash flow from operations of RM555 million.


Ahmad Jauhari added:"We are extremely disappointed with these results which emphasise the need to maintain our focus on cost control and drive improved efficiency and performance across all divisions.


"Our cost reduction exercise will be intensified and accelerated to remain competitive, covering all aspects of the business operations."


Going forward, while airlines focus on growth opportunities presented by the year-end holiday season, the business environment remains very challenging.


Jet fuel prices are still high, exchange rates are uncertain, competition is increasing and continued pressure on yield is impacting all sectors, Malaysia Airlines said.


The airline is looking to sustain strong growth in both passenger traffic and seats for the remainder of the year.


"Competition, on both the domestic and international fronts, has intensified over the year," it added.


With average fares falling across the board, the group continues to monitor market demand and focus on driving business efficiency.


The arrival of more new aircraft will further improve its product offering while simultaneously reducing the average age of the fleet.


The additional capacity will be used to increase frequencies to meet passenger demand, and fly to new destinations.


Aggressive marketing and promotions, better capacity management, optimising asset utilisation and driving productivity continues to be central to the airline's business model.


The group is also closely monitoring the impact on operational costs by the weakening of the ringgit against the US dollar, and seeking ways to manage expenditure increases in line with the growth in capacity and revenue generation.



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KUALA LUMPUR, Nov 18 (Bernama) -- Malaysian Airline System Bhd posted a significant rise in revenue to RM3.906 billion for the third quarter ended Sept 30, 2013, from RM3.474 billion registered in the corresponding quarter last year.
However, the company incurred a net loss of RM375.44 million in the period under review against a net profit of RM37.08 million previously.
This was attributed to increased competition which impacted yields, higher expenses due to the weakening of the ringgit against the US dollar, increased charges at overseas airports including higher overflying charges, intensive advertising programme to build the Malaysia Airlines brand and increased finance costs.
The group's operating revenue improved by 13 per cent to RM3.8 billion as compared with the same quarter last year, due to an increase in seat factor by 10.3 percentage points to 84.8 per cent on the back of a 20 per cent rise in capacity.
Passenger yield continued to be under pressure as competition for market share intensified regionally and globally, the group said in a filing to Bursa Malaysia.
Group operating expenditure (opex) rose 16 per cent from the same quarter in 2012.
In a statement, Group Chief Executive Officer Ahmad Jauhari Yahya said this was principally due to higher fuel and non-fuel variable costs, which rose in line with capacity increase and the weakening of the ringgit against the US dollar.
"Both fuel and non-fuel cost for airline increased by 16 per cent. The increase in opex was also attributed to a one-off cost incurred for redelivery of aircraft.
"In addition, the group intensified its advertising and promotional activities amid intense competition as part of its long-term strategy to continuously strengthen its presence in key markets.
"Despite the increase in opex, the group's earnings before interest, tax, depreciation and amortisation (Ebitda) remains positive at RM52.4 million compared with RM153.6 million in the same quarter last year.
"Ebitda margins have decreased year-on-year due to intensified competition, causing a reduction in passenger yields," he said.
For the first nine months ended Sept 30, 2013, Malaysia Airlines suffered a net loss of RM830 million but recorded a positive cash flow from operations of RM555 million.
Ahmad Jauhari added:"We are extremely disappointed with these results which emphasise the need to maintain our focus on cost control and drive improved efficiency and performance across all divisions.
"Our cost reduction exercise will be intensified and accelerated to remain competitive, covering all aspects of the business operations."
Going forward, while airlines focus on growth opportunities presented by the year-end holiday season, the business environment remains very challenging.
Jet fuel prices are still high, exchange rates are uncertain, competition is increasing and continued pressure on yield is impacting all sectors, Malaysia Airlines said.
The airline is looking to sustain strong growth in both passenger traffic and seats for the remainder of the year.
"Competition, on both the domestic and international fronts, has intensified over the year," it added.
With average fares falling across the board, the group continues to monitor market demand and focus on driving business efficiency.
The arrival of more new aircraft will further improve its product offering while simultaneously reducing the average age of the fleet.
The additional capacity will be used to increase frequencies to meet passenger demand, and fly to new destinations.
Aggressive marketing and promotions, better capacity management, optimising asset utilisation and driving productivity continues to be central to the airline's business model.
The group is also closely monitoring the impact on operational costs by the weakening of the ringgit against the US dollar, and seeking ways to manage expenditure increases in line with the growth in capacity and revenue generation.

 

Given MH frequency, products offering and competition, MH is unlikely able to improve yield. The real McCoy with MH is opex increased faster than revenue.

Edited by KK Lee

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RM1 billion here we come!

 

So, more A380-800 for MAS perhaps ? Last i heard CDG is enjoying high load factor too :D

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haiii... revenue naik but rugi duit lagi, apalah nasib. Orang lain report buat untung, kita punya asyik rugi duit. Malu entah nak letak muka mana! Besok tengok Uncle T punya result dapat selamatkan air muka kita tak!

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From TheSunDaily:

 

 

PETALING JAYA (Nov 19, 2013): Malaysian Airline System Bhd (MAS) widened its net loss in the third quarter ended Sept 30, 2013 (Q3FY13) to RM375.44 million from RM175.98 million in the second quarter, due to higher depreciation and amortisation costs of RM228.6 million, unrealised foreign exchange loss of RM86.1 million and finance cost of RM121.2 million.
The national carrier swung to a net loss in the three months period from a net profit of RM37.08 million in the year ago period.
In a statement yesterday, MAS also attributed the increase in Q3FY13 net loss to increased competition impacting yields, increased charges at overseas airports including higher overflying charges and an intensive advertising programme to build the MAS brand.
This was despite a 12% rise in revenue for Q3FY13 to RM3.91 billion from RM3.47 billion a year ago, mainly due to an increase in seat factor by 10.3 percentage points to 84.8% on the back of a 20% increase in capacity.
Airline revenue increased by 14% while cargo revenue was comparable to Q3FY12.
"Over the months of July, August and September 2013, we saw traffic increase 37%, far exceeding the 20% increase in capacity. However, intensifying competition and new competitors with additional capacity in the market has put pressure on pricing, which affected yield," MAS group CEO Ahmad Jauhari Yahya said.
"While we have made much progress to manage our costs and improve productivity, group operating expenditure (opex) was higher by 16% from Q3FY12, principally due to higher fuel and non-fuel variable costs which rose in line with the capacity increase, higher airports and overflying charges, and the weakening of the ringgit against the US dollar," he added.
While the average price of jet fuel fell to to US$127 per barrel from US$131 per barrel in Q3FY12, MAS' fuel bill increased 16% in Q3FY13 due to higher volumes used with the increased capacity and traffic.
MAS also attributed the increase in opex to one-off cost incurred for redelivery of aircraft.
"In addition, the group has intensified its advertising and promotional activities amid intense competition as part of its long term strategy to continuously strengthen presence in key markets," it said in a filing with Bursa Malaysia yesterday.
Despite the increase in opex, the group's earnings before interest, tax, depreciation, and amortisation (ebitda) remains positive at RM52.4 million from RM153.6 million a year ago. Ebitda margins have decreased year-on-year due to intensified competition causing a reduction in passenger yields.
Describing the Q3FY13 results as "extremely disappointing", Jauhari acknowledged the need for MAS to maintain its focus on cost control and drive improved efficiency and performance across all divisions.
"Our cost reduction exercise will be intensified and accelerated to remain competitive, covering all aspect of the business operations. MAS is committed to delivering an exceptional quality product and service, that is priced to be competitive in the market," he added.
Jauhari noted that the airline business environment remains tough.
Still, we are pleased with how the market has reacted to our newest products, increased capacity, new destinations and increased frequencies. Our seat load factor is at a high 85%, an improvement of 10% compared with a year ago.
"Using essentially the same fleet count as in 2012, the airline generated an incremental RM362 million in passenger revenue this quarter compared to the same quarter in 2012," he added.
For the nine months period (9MFY13), MAS' net loss also widened to RM830.25 million from RM483.96 million a year ago, while revenue rose 13% to RM11.22 billion from RM9.89 billion a year ago.
The airline carried 12.5 million passengers, up 29% from the previous year.
As at Sept 30, 2013, MAS' cash position stood at RM5.32 billion. Its total asset was RM22.8 billion, while net gearing remained at 1.5 times.

 

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From The Star:

 

AirAsia results likely to be modest

 

PETALING JAYA: AirAsia Bhd’s third-quarter results, expected to be announced tomorrow, are likely to be modest while long-haul arm AirAsia X Bhd is expected to turn in a small profit, said analysts.

Analysts tracking AirAsia have mixed views on how much the airline would turn in for the quarter ended Sept 30. They, however, concur that while its operating numbers are notably decent, yields are expected to be squeezed.
RHB Research said it was unlikely to be an exciting quarter for AirAsia, while Maybank Investment Bank Research expects its performance to be mixed, with the domestic operations under pressure due to intensified competition from Malaysia Airlines and Malindo Air.
“However, its Thai operations would be very strong, and its Indonesian operations would likely deliver its best third-quarter performance on record,” Maybank analyst Mohshin Aziz said in a report.
“Furthermore, its Japanese associate has been discontinued in the second quarter and would no longer burden the group.
“Overall, we think the group’s third-quarter core net profit would decrease by 3% year-on-year (y-o-y) to RM160.8mil. The stock is a ‘hold’, given its limited upside to our target price of RM2.90 per share,” he said.
Nevertheless, he said, AirAsia’s operating performance across the group was good, with a flattish y-o-y load factor in Malaysia, while Thailand, Indonesia and the Philippines had recorded strong growth.
He added that yields in Malaysia were “likely to be weak, given the intensified competition”. Both Thailand and Indonesia should record good yield growth due to strong demand.
Mohshin is confident AirAsia would emerge from the competitive aviation landscape unscathed. “However, its profit and profit margin would take a dip in the interim.”
Early this month, AirAsia announced that co-founder Datuk Kamarudin Meranun had been redesignated as executive chairman of AirAsia, and Tan Sri Tony Fernandes as group chief executive officer and non-independent executive director.
On the other hand, RHB expects AirAsia to report third-quarter revenue of RM1.28bil, earnings before interest, tax, depreciation and amortisation of RM373mil, and core earnings of RM129mil.
“As yields would continue to be under pressure, its nine-month earnings are expected to decline by 12% year-to-date, accounting for 58% of financial year 2013 (FY13) forecasts. Yields in the third quarter are expected to pick up quarter-on-quarter, but would drop 8% y-o-y on the challenging landscape,” RHB analyst Ahmad Maghfur Usman said.
He expects AirAsia’s FY14 would be better, as earnings from associates improve and the listing of Indonesia AirAsia crystallises valuations.
Meanwhile, Maybank expects AirAsia X to record a modest profit of RM3.5mil, which is admirable given that the third quarter is a seasonably weak period.
“AirAsia X is the least affected by the ongoing fare war because all its routes are international and we expect yields to hold up well. AirAsia X is our sole ‘buy’ for the sector, as we are optimistic on the company’s growth strategies and the strong market demand for long-haul, low-cost travel,” it said.
Maybank added that the airline was executing with great effect all the initiatives it had announced during its initial public offering roadshow.
It said AirAsia X was executing its growth plans well with new services to Busan and the Maldives. Its capacity grew 31.9% y-o-y on the back of five additional aircraft deliveries during the year, bringing the group’s total to 14.
Load factor, however, slipped a little by 1.1 percentage points to 82% due to the robust capacity increase, and also the two new routes to Busan and the Maldives during the quarter.
“New routes tend to underperform during their initial start-up period and, therefore, we view the third-quarter load factor of 82% as a positive performance,” Maybank said.
AirAsia X’s yields increased 15.4% y-o-y due to the termination of loss-making routes, namely, to Europe and India.

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Oh dear. Not a good result. They really need to start focusing on improving yields now because this is imperative for the long-term survival of this airline.

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AirAsia X’s yields increased 15.4% y-o-y due to the termination of loss-making routes, namely, to Europe and India.

 

Well, this should not be a solution for MAS. Whilst MC would fall, MR would too and become more elastic as travelers switch to alternative carriers.

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Well the weak RM is a big problem. Q2 results were similar - forex losses wipes out operating profits!

Sorry, i am a bit naive about this forex thing, but can companies like MH or AK do business in USD? Thinking perhaps they can minimise the losses. Sorry, bit naive though about this thing. :)

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Sorry, i am a bit naive about this forex thing, but can companies like MH or AK do business in USD? Thinking perhaps they can minimise the losses. Sorry, bit naive though about this thing. :)

The biggest cost elements in the airline business:

 

Aviation Fuel

Lease Payments

Loan Repayments

 

These are usually denominated in USD although companies may have smaller amounts denominated in Euros or Yen.

 

If USD = RM3, fuel at USD 100 will cost RM 300

 

But if the USD = RM3.20, the same fuel at the same USD 100 will cost RM 320. Multiply each USD by the million and you can see the effect! :)

 

D7 Press Release:

http://airasiax.listedcompany.com/newsroom/PressReleases_20130119.pdf

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Snippets of one of the analyst reports about MH's result:

 

MAS intends to cut costs by 10% going forward by reviewing its procurement contracts, and other general measures.
Will we see they opening back of all the previously untouchable contracts like catering etc.
MAS experienced an 8% net revenue enhancement from joining the oneworld alliance, partially offset by the cancellation of codeshare relationships with some airlines that belong in different alliances.
Honestly that's pretty lame. Only 8%?
Yields are under pressure due to the increased competition, with domestic and ASEAN yields suffering the most. Other more distant route regions are not feeling that much heat. MAS does not expect any improvement in yields in 2014, Some route rationalisation will happen, as some routes that do not generate enough revenue to cover variable costs are cancelled.
Which routes will be on the fresh chopping block?
In an environment of significant competition from Malindo and AirAsia – both
with probably lower unit costs than MAS – we believe that MAS cannot win the
capacity war without burning a huge hole in shareholders’ pockets. Anecdotal
evidence suggests that MAS’s pricing is as cheap or perhaps only slightly more
expensive than AirAsia’s and/or Malindo’s pricing, which will likely cause MAS
to suffer large losses for the foreseeable future.
The architect of the current strategy is Dr. Hugh Dunleavy, Head of Commercial,
whose contract will end in January 2015. His presence at MAS will mean that
MAS’s pricing and competitive strategies will continue to burden the company
for the rest of 2014. If his contract is not renewed, a new incoming Head of
Commercial may or may not rethink the current strategy.
Having said that, none of the options open to MAS are palatable. If capacity is
reduced by virtue of reducing daily aircraft flying hours, fixed costs will be
spread over a smaller ASK denominator. Inclusive of depreciation, lease expense
and interest expense, about 35-40% of MAS’s total costs are fixed in nature.
Also, we believe that MAS’s competitors, in particular Malindo but also AirAsia,
will take advantage of any MAS capacity cutback to deploy more of their own
capacity, leaving the total industry capacity not much different than before but
with MAS having to settle for a much reduced market presence. This could
eventually deal a death blow to MAS’s market relevance, and move Malaysia
closer to the Philippines, where LCC capacity accounts for 87% of the total
domestic seat capacity against 57% in Malaysia today.
This is something that MAS will want to avoid at all costs, and its current
strategy of aggressive capacity injection and low fares is intended to protect it
from such an ignoble fate. Consumers will benefit, but shareholders of airlines
will suffer as the price war looks set to continue. After all, MAS had RM5.4bn of
cash as at end-September 2013, against just RM2bn as at end-December 2012,
courtesy of the RM3bn rights issue in June 2013. This is plenty of cash to burn,
and burn it will.
I bet Dunleavy's contract will not be renewed.

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Which routes will be on the fresh chopping block?

I disagree with this analysis. I can't think of any domestic or ASEAN routes that they'll cut back on partly because their ASEAN network to begin with is quite small for carriers in the region serving major cities that any carrier in the region ought to serve if not become irrelevant to the market. I think it would be unimaginable for them to sever SGN, HKT, RGN, HAN, etc. Perhaps BWN might see the chopping boards because of competition from BI where MAS will retain its presence through MASwings. (Then again, unlikely considering recent announcements to upgrade this to a B738 service). They might cut back IST because of TK, DXB (again), LAX (politically I don't think this will work) and FRA (in lieu of direct flights by LH) but really I don't think route rationalization will work this time round because the advent of 'irrational' routes has been wiped off in view of the last round of route rationalization. In fact, I think it may be better to expand their regional network. Work B738s longer, enjoy internal EOS and not to mention serve a gap in OW service to SEA?

Edited by filipeseda

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I just hope they do not cut any more cost in terms of in-flight offering. MH is already lacking behind others, such as no hot towel, drink service is limited to orange/apple juice and frequent "no hot beverage due to turbulence".

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.... frequent "no hot beverage due to turbulence".

 

Yes, agreed. Much too frequent for comfort and after turbulence is over, conveniently forgotten. Not that I must have it onboard, but definitely a downgrade of service. On a recent GA flight, hot drinks were offered once turbulence was over.

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The architect of the current strategy is Dr. Hugh Dunleavy, Head of Commercial,

whose contract will end in January 2015. His presence at MAS will mean that

MASs pricing and competitive strategies will continue to burden the company

for the rest of 2014. If his contract is not renewed, a new incoming Head of

Commercial may or may not rethink the current strategy.

 

 

Writing on the wall, Dr H. Dunleavy is the fall guy for the losses not opex, or opex was increased to oust him? Guess there will be a new head of commercial in the new year.

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