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FOCUS - Malaysia Airlines urged to rely less on govt, compete commercially

5-Jan-2006

KUALA LUMPUR (XFNews) - Malaysia Airlines is facing a critical year in 2006 and must restructure, cut costs and boost revenue to survive the pressures of increasing regional competition, analysts said.

The national carrier has to catch up with restructuring efforts already being rolled out by rivals such as Singapore Airlines in the face of a liberalizing market, and the rise of the budget airline phenomenon, they said.

"It has not kept pace with its competitors in its rate of adaptation to the new environment," said the Center for Asia Pacific Aviation executive chairman Peter Harbison.

"It needs to become a profitable and effective airline -- and to do this will require a major act of commitment and focus, recognizing that all of its competitors are moving ahead of it in this process of adaptation," he told Agence France-Presse.

The national carrier ended 2005 in a troubled state after posting two consecutive quarters of losses and facing calls for costs to be slashed and better contingency plans made for rising fuel prices.

Capping the year, its chairman Munir Majid resorted to threatening legal action against critics after he was rapped for alleged extravagant spending including on artwork and consultants.

Harbison called 2006 a "watershed year" for the airline, and said the Malaysian government's patience is running out.

"The airline world is a much more competitive place, where reliance on government for support can no longer be taken for granted," he said.

Analysts' prescriptions for change include rationalizing routes by cutting out international and domestic loss-making services despite its obligations as a national carrier, so that it can become a commercially competitive airline.

Drastically reducing costs and inefficiencies, including those associated with staffing, and raising revenue by forging better partnerships with other airlines to share flights and resources also figure strongly.

"It needs to find some strong partners, and quickly," said Sydney-based Harbison.

Analysts are now on the lookout for signs of real change in a detailed restructuring plan that the airline's new managing director, Idris Jala, is expected to announce early in the new year.

ECM Libra Securities aviation analyst Eu Jin Song said that Idris, who took up the post on December 1, recently told analysts that MAS is looking at costs and revenue measures, including raising fares.

"He seems to have a good idea of where the problem lies," said Song.

"The first step they did was centralize all expenditure. Previously all divisions had the authority to make spending, and this was removed from when Idris came in."

In the first indication of a grasp-the-nettle approach, Idris last month reportedly suggested the carrier sell its Kuala Lumpur headquarters to raise needed revenue for restructuring, although there was strong opposition.

But with the national carrier's image closely tied to Malaysia's sense of nationhood, debate over changes at MAS inevitably incites strong feelings, and observers said this could prove a stumbling block to change.

"MAS is operating a very fragile business model. There has to be a more sustainable plan. Frankly I don't see a comprehensive one being announced any time soon because the situation has turned too political," one fund manager was quoted as telling the Star daily over the weekend.

Song said analysts will be on the lookout for whether Idris can effectively execute his plans and bring in more of a corporate mind-set to the company.

"He is talking about cultural changes amongst the employees at MAS, so it's not an easy task," he said.

In the meantime, Song said the short term will see more red ink on Malaysia Airlines' balance sheets.

"The changes he has indicated he will make... will take some time, it is not going to be an overnight process," Song said.


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