Malaysia Airlines Registers a Positive EBITDA of RM52.4 Million, but RM375 Million Loss in Q3 2013

18-Nov-2013

National carrier Malaysia Airlines today announced a Net Loss of RM375 million for the three months ended September 2013 attributed to increased competition impacting yields, higher expenses affected by the weakening of the Ringgit against the US Dollar, increased charges at overseas airports, including higher overflying charges, an intensive advertising programme to build the Malaysia Airlines brand, and increased finance costs.

Despite the increase in operating expenditure, the Group's Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) remains positive at RM52.4 million.

For the nine months ended September 2013, Malaysia Airlines group registered a Net Loss of RM830 million, and a positive cash flow from operations of RM555 million.

Speaking on the quarterly performance, Malaysia Airlines Group Chief Executive Officer elaborated, "Over the months of July, August and September, we saw traffic increase 37%, far exceeding the 20% increase in capacity. This contributed to a 13% increase in operating revenue to RM3.8 billion. However intensifying competition and new competitors with additional capacity in the market has put pressure on pricing, which affected yield."

"Whilst we have made much progress to manage our costs and improve productivity, Group Operating Expenditure was higher by 16% compared to the same quarter last year. This is 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 Malaysian Ringgit against the US Dollar", said Ahmad Jauhari.

While the average price of jet fuel fell from USD131 per barrel in Q3 2012 to USD127 per barrel for corresponding period in 2013, Malaysia Airlines' fuel bill increased 16% in Q3 2013 due to higher volumes used with the increased capacity and traffic, as well as being affected by the weakening of the Ringgit against the US dollar.

The increase in operating expenditure is also attributed to a one-off cost incurred for redelivery of aircraft in line with its on-going fleet renewal programme. In addition, the Group intensified its advertising and promotional activities amid intense competition as part of a long-term strategy to continuously strengthen its presence in key markets.

"We are extremely disappointed with these results which emphasize 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 aspect of the business operations. Malaysia Airlines is committed to delivering an exceptional quality product and service, that is priced to be competitive in the market", said Ahmad Jauhari.

"The airline business environment is 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%, one of the highest in any quarter in the history of the carrier and in the industry, as well as an improvement of 10% compared to 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", added Ahmad Jauhari.

For the nine months ended September 2013, Malaysia Airlines group carried 12.5 million passengers, up 29% from the previous year.

A major objective of the national airline in 2013 was to drive improved presence and recognition of Malaysia Airlines as the value-based choice for the air traveler. This objective has been met. Malaysia Airlines is now flying an additional average of 10,000 passengers daily compared to the same period last year. This clearly demonstrates that the consumer recognizes the quality and value of Malaysia Airlines' products and services.

Corporate contracted business continues to improve year-over-year with the support ofoneworld and increased penetration of both domestic and international business. Changes in corporate purchasing behavior, such as the lowest logical fares, change in Business Class eligibility by many corporate clients from 2 to 4 hours, are placing additional stress on yields.

Increased pressure from international carriers with aggressive pricing from Malaysia is also impacting the market environment. Like all markets globally, Malaysia is seeing intense capacity growth and pricing pressure.

"The airline sector has always been extremely competitive and the ASEAN region is no exception, with many airlines investing heavily in new aircraft and new products and services. This has resulted in a significant increase in capacity and many airlines are competing aggressively for market share."

"The expansion of Malaysia Airlines capacity over the last 12 months was driven through improved utilization of the fleet; not from the addition of new aircraft - signifying increased productivity", said Ahmad Jauhari.

In addition to offering an enhanced guest experience and improved fuel efficiency over time, the fleet renewal will enable Malaysia Airlines to better match aircraft types to growth sectors and market demand, adding to the overall improvement in fleet efficiency.

The new aircraft will see Malaysia Airlines' average age of fleet reduce to 6.7 years by the end of 2013, comparable to notable regional players.

Its group fleet of 147 aircraft, including 6 A380s, has seen the arrival of 16 new aircraft to-date in 2013, including delivery of one new B738 each month in 2013. The new aircraft are part of an on-going fleet renewal programme to replace aging aircraft. The A380s have replaced the B747s, new A330-323 are replacing the old A330-300 and A330-200 series, whilst the B738s are replacing the B734s. This fleet renewal is essential to remaining competitive in the fast growing Asia-Pacific aviation market.

"We are closely monitoring market conditions to ensure the competitive position of Malaysia Airlines. Optimization of all our aircraft and other assets and driving business efficiency is central to our business model", he added.

Malaysia Airlines became a member of oneworld in February 2013, and have seen a positive contribution to its revenue which will grow over the long-term. oneworld's reach recently increased to 880 destinations worldwide with the addition of new member Qatar Airways.

On its own, Malaysia Airlines widened its network footprint and thickened its reach with the addition of Dubai, Kochi and Darwin as new destinations. It has also been aggressive in increasing frequencies to key destinations regionally and to Australia, as well as resuming international linkages from Kota Kinabalu to Perth and Tokyo.

After accounting for depreciation and amortisation of RM228.6 million (Q3 2012: RM149.6 million), unrealised foreign exchange loss of RM86.1 million (Q3 2012: RM93.8 million gain), finance costs of RM121.2 million (Q3 2012: RM49.9 million) and fair value change of derivative of RM4.7 million gain (Q3 2012: RM7.3 million gain), the Group ended the quarter of 30 September 2013 with a loss after tax of RM375.4 million as compared to RM37.1 million profit after tax in the same quarter last year.

Despite the loss in the third quarter of 2013, the Group's cash position remains strong at RM5.4 billion.

The Group's total asset stands at RM22.8 billion, whilst net gearing remains at 1.5 times at the end of September 2013.

Refer to full documentation in attachments box, located at the top left, below the headline.