Malaysia Airlines poised to enter growth phase, but yield concerns persist. Where to with alliances?

Malaysia Airlines (MAS) is entering a rapid fleet and network growth phase, emboldened by fresh funding support under a well-supported rights issue and a return to profitability (albeit slight) in 4Q2009. Investors liked the result, sending MAS’s shares up over 5% yesterday. But a 30% year-on-year yield collapse in the fourth quarter, resulting in a 25% slump in revenue is a major concern as the carrier embarks on an aggressive growth phase. Will the wheels just spin faster with little to show on the bottom line over the next few years? And where is MAS at with its alliances strategy?

Fourth quarter ”improvement”: Discounting creates volume

Malaysia Airlines returned to profitability in the fourth quarter ended 31-Dec-2009, posting a net profit of RM610 million (USD179 million), rebounding from a MYR300 million net loss in 3Q2009 and an improvement over its RM46 million net profit in 4Q2008.

Malaysia Airlines operating profit margin and net profit margin: 1Q09 to 4Q09

But the net result was almost entirely due to a MYR582 million derivative gain on its fuel hedging programme. Without this gain, net profits would have fallen and Group operating profits actually slipped from MYR66 million in 4Q2008 to just MYR4 million (USD1.2 million). It was an improvement in the sense that MAS had accumulated operating losses of MYR632 million in the previous three quarters.

Malaysia Airlines’ operating and net profits: 1Q2008 to 4Q2009

On an annual basis, MAS reported a net profit of MYR490 million for FY2009 compared to MYR244 million net profit a year earlier. This was primarily attributed to derivative mark-to-market gains on its fuel hedging programme of MYR1.15 billion. The operating margin in 2009 was -5.4%.

Malaysia Airlines operating profit margin (left) and net profit margin (right): 2006 to 2009

MAS stated its balance sheet “remains healthy”, with cash and negotiable deposits of some RM2.95 billion as at 31-Dec-2009. This article is an abstract available to CAPA Members, as well as subscribers to Asia Pacific Airline Daily. The full report also contains the sections, data and analysis:

  • MAS: Yields of an LCC, costs of a network carrier
    • Chart: Malaysia Airlines passenger numbers growth by domestic and international: Jan-08 to Dec-09
    • Chart: Malaysia Airlines revenue growth and operating costs growth: 2005 to 2009
    • Chart: Malaysia Airlines operating profit margin by business activities in 2009
  • "Earned the licence to grow" again in 2010
  • Outlook: “Exciting times ahead” for MAS, but will the profits flow? And what about alliances?

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