Malaysia Airlines restructuring: cost cuts must be deep to improve short-haul competitiveness

Malaysia Airlines (MAS) parent Khazanah is banking on a difficult to achieve combination of cost cuts and yield improvements as part of a recovery plan aimed at restoring profitability by the end of 2017. The new plan calls for MAS to focus primarily on its regional operation within Asia-Pacific, where there are better prospects for growth and sustainability but also extremely fierce competition.

Khazanah, which is in the process of raising its stake in MAS from 69% to 100%, has set an ambitious target of improving unit revenues by 10% to 15%. At the same time it aims to narrow the cost gap between the MAS short-haul operation and LCC competitors from 42% to about 15%.

Raising yields in a competitive marketplace dominated by price sensitive short-haul passengers will not be easy. Costs should be reduced to more competitive levels as MAS cuts 6,000 jobs - but that only solves one of the multiple challenges facing the ailing flag carrier.

At a higher level, Khazanah's contrast between subsidising the national "flag carrier" and supplying water and electricity to 200,000 homes will echo widely around a region where change in aviation market conditions has occurred much faster than some of its airlines have been able to adapt.