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Tragedies push Malaysia Airlines to the brink

By AFP - Jul 27,2014 - Last updated at Jul 27,2014

KUALA LUMPUR — Any airline would struggle with the devastating impact of losing one jet full of passengers, especially if it had already been bleeding money for years.

But losing another just months later is pushing crisis-hit Malaysia Airlines to the brink of financial collapse, airline experts said, spotlighting whether it can steer its way out of extended turmoil as once-troubled carriers such as Korean Air and Garuda Indonesia did before.

The flag carrier needs an immediate intervention from the Malaysian government investment fund that controls its purse strings, and likely deep restructuring, to survive the twin tragedies of flights MH370 and MH17, analysts added.

Malaysia Airlines (MAS) was already struggling with years of declining bookings and mounting financial losses when MH370’s mysterious disappearance in March with 239 people aboard sent the carrier into free-fall.

The July 17 downing of flight MH17 over Ukraine, which killed all 298 people on board, deeply compounds those woes.

“The harrowing reality for Malaysia Airlines after MH17 is that if the government doesn’t have an immediate game plan, every day that passes will contribute to its self-destruction and eventual demise,” Shukor Yusof, an analyst with Malaysia-based aviation consultancy Endau Analytics, told AFP.

Shukor indicated that MAS was losing “$1-$2 million a day”, and has “the bandwidth to stay afloat for about six more months based on my estimates of its cash reserves”.

 

Image is everything 

      

While the MH17 disaster was beyond the airline’s control — pro-Russia separatists in Ukraine stand accused of shooting it down with a missile — bookings are expected to take a further significant hit, as they did in MH370’s wake.

“I’m not considering going to Malaysia in the next few years. Not unless Malaysia Airlines acts or does something in the future that will allow people to feel more relaxed about travelling there,” said Zhang Bing, a Chinese national in Beijing. 

Jonathan Galaviz, a partner at the US-based travel and tourism consultancy Global Market Advisors, said “perception is key in the airline industry”.

“Unfortunately for Malaysia Airlines, potential international customers are now going to link the brand to tragedy,” he added.

The airline already has announced refunds for ticket cancellations following MH17, which Galaviz noted would cost millions of dollars.

Speculation is rife that state investment vehicle Khazanah Nasional, which owns 69 per cent of the airline, will delist its shares and take it private, which could set the stage for painful cost cutting measures and other reforms. 

Analysts have long blamed poor management, government interference, a bloated workforce, and powerful, reform-resistant employee unions for preventing the airline from remaining competitive.

MAS lost a combined 4.1 billion ringgit ($1.3 billion) from 2011-13. It bled a further 443 million ringgit in the first quarter of this year, blaming MH370’s “dramatic impact” on bookings.

Khazanah declined to comment on future plans for the airline.

But writing in Britain’s Sunday Telegraph on Sunday, Hugh Dunleavy, Malaysia Airlines’ commercial director, stated that the carrier “will eventually overcome this tragedy and emerge stronger”.

The Malaysian government had begun to speed up its review of the airline’s future — started after the disappearance of MH370 — following the second tragedy, Dunleavy wrote.

“There are several options on the table but all involve creating an airline fit for purpose in what is a new era for us, and other airlines,” he indicated. “With the unwavering support we have received from the Malaysian government, we are confident of our recovery, whatever the shape of the airline in future.” 

 

Rising from the ashes 

      

Other airlines have risen from the ashes, lessons that could be instructive for MAS, experts said.

Indonesia’s state-owned Garuda Indonesia was plagued by a series of problems in the 1990s and early 2000s, including heavy debts and the murder of a prominent human rights campaigner mid-air in 2004. 

Safety problems also blighted its image, including a 1997 crash on Sumatra Island that killed all 234 aboard and remains Indonesia’s deadliest air disaster.

Former banker Emirsyah Satar was appointed in 2005 to turn around the airline, and he undertook a massive exercise to nurse it back to health. In 2010, it was named the world’s most improved airline by London-based consultancy Skytrax.

Korean Air was in trouble after a period during the 1980s and 1990s when several accidents left more than 700 people dead.

It embarked on a major reform push, bringing in retired Delta Air Lines Vice President David Greenberg in 2000, who subsequently revolutionised its safety and operational practices.

Korean Air is now widely respected worldwide.

Shukor said Malaysia’s government and Khazanah face a “mammoth task” but that the airline could learn much from carriers that have faced similar challenges. 

“Its name is now synonymous with disaster, mismanagement, lack of discipline and many negative elements,” he added.

With most of the passengers on MH370 Chinese, tourist arrivals from China — an increasingly important travel-industry market on which Malaysia has pinned much of its hopes for visitor growth — dropped in the aftermath.

According to observers, Malaysia could be associated with calamity in the eyes of travellers,  putting the tropical destination’s vital tourism sector at risk.

“Malaysia’s competency and governance are not under the spotlight to the same degree as in MH370,” Bridget Welsh, a Malaysia researcher at National Taiwan University, told AFP.

“This said, Malaysia Airlines and travel to Malaysia will be affected outside of Malaysia. The effects will not be as serious as MH370 but overall negative,” she said.

In some Asian societies such as China, deeply held superstitions cause people to shun anything associated with death, and Beijing resident Quan Yi summed up a commonly held Chinese view towards Malaysia.

“I’m definitely not considering travelling to Malaysia,” he said. “I had a few friends who went there for their honeymoon. People who wanted to go there are reconsidering because Malaysia is too dangerous to go now.”

Some in the tourism sector, however, say any impact may be short-lived as Malaysia’s pristine rainforests and beaches, vibrant multi-culturalism and food scene and an overall safe and visitor-friendly environment continue to draw discerning travellers.

Malaysia drew 25 million visitors in 2013 and 65 billion ringgit ($20 billion) in tourism receipts, according to official data.

Hopes were high for 2014, which the government declared “Visit Malaysia Year” with plans to ramp up international promotional efforts centring on its years-long “Malaysia: Truly Asia” campaign familiar across the region.

Goals of 28 million visitors and 76 billion ringgit in receipts were set.

Most visitors are day-trippers from neighbouring Singapore but Malaysia is targeting bigger-spending arrivals from the Middle East, Europe and particularly China.

 

MH370 anger 

hits China arrivals 

      

Chinese arrivals have soared, hitting nearly 2 million last year — seven per cent of the total.

But Chinese anger over MH370 caused arrivals to drop 20 per cent in April, according to the latest Malaysian figures.

The China Business News reported this month that concern over travelling on Malaysia Airlines, a major feeder of visitors to the country, has crimped arrivals by more than 40 per cent since MH370, citing figures collected from Chinese travel agencies.

“The crash of the Malaysia Airlines flight [MH17]... has deepened consumers’ concerns over the carrier,” the report cited an official with China Environment International Travel Service as saying.

The official added that MH17 had led to a “large number” of new Malaysia travel cancellations “because a lot of tourists no longer trust Malaysia Airlines’ safety”.

Malaysia’s tourism ministry said it is “monitoring the market situation closely”.

“International tourists are definitely going to be thinking twice, thrice about flying on Malaysia Airlines,” said Jonathan Galaviz, a partner with the US-based travel and tourism consultancy Global Market Advisors. 

Malaysia’s image has not been helped by a wave of kidnappings and other deadly violence on the coast of Malaysian Borneo, normally popular for scuba-diving and nature enthusiasts. Bandits from the nearby Philippines are blamed. 

While the country’s flag carrier has taken a beating, Tan Kok Liang, vice president of the Malaysian Association of Tour and Travel Agents, said agencies are hoping tourists will continue to visit the country on different airlines.

“Our outlook is that the average tourist will still want to come to Malaysia. The latest incident has got nothing to do with the safety of Malaysia and there is no reason why people will stay away,” he added.  

That seems to bear out with many foreign travellers arriving at Kuala Lumpur International Airport after the latest incident, who mostly said they were unperturbed.

“Sadly there is a lot of scepticism about coming to Malaysia... This is my first time. I came because I am attracted to its multi-cultural society,” Alfred McDonnell, a 60-year-old American teacher, told AFP. 

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