08-19-2010, 12:16 AM
Wrong bets, slow yield growth hurting MAS
By Lee Wei Lian
August 17, 2010
By Lee Wei Lian
August 17, 2010
KUALA LUMPUR, Aug 17 — Malaysia Airlines’ fuel hedging gamble is coming back to haunt the national carrier which reported a surprisingly large RM535 million second-quarter net loss yesterday even as its regional rivals returned to profitability.
For the quarter ended June 30, Singapore Airlines posted a net profit of S$253 million (RM590 million) while Cathay Pacific reported a net profit of HK$6.84 billion (RM2.78 billion) for the six months ending June 30.
MAS had hedged 60 per cent of its 2010 and 40 per cent of its 2011 fuel requirement at US$100 per barrel. Oil prices however have hovered in the US$70-80 range for much of the year so far, resulting in the airline booking a derivative loss of RM217 million in the second quarter.
The airline also saw yield grow by only 2 per cent versus 18 per cent at Cathay Pacific and 15 per cent at SIA. Unlike the other two carriers, MAS does not operate from a global corporate hub which tends to see a lot of high-margin, business-class traffic.
“Singapore Airlines is big in the business-class segment as Singapore is a business hub,” said one local research analyst. “You don’t see that in Malaysia and that’s why Malaysia Airlines cannot increase their yield as much.”
The MAS management has acknowledged that its yields are relatively low and said it is taking steps to address it. Among initiatives it has planned to increase yields are to increase fares and fuel surcharges.
It said that fuel surcharges have been progressively implemented since January 2010 and fares have been increased by as much as a whopping 50 per cent. At the operating level, however, MAS did show some improvement with operating losses narrowing to RM286 million in the second quarter from RM426 million during the same period last year. Passenger traffic also jumped 18 per cent while passenger revenue increased 22 per cent to RM2.3 billion.
For the quarter ended June 30, Singapore Airlines posted a net profit of S$253 million (RM590 million) while Cathay Pacific reported a net profit of HK$6.84 billion (RM2.78 billion) for the six months ending June 30.
MAS had hedged 60 per cent of its 2010 and 40 per cent of its 2011 fuel requirement at US$100 per barrel. Oil prices however have hovered in the US$70-80 range for much of the year so far, resulting in the airline booking a derivative loss of RM217 million in the second quarter.
The airline also saw yield grow by only 2 per cent versus 18 per cent at Cathay Pacific and 15 per cent at SIA. Unlike the other two carriers, MAS does not operate from a global corporate hub which tends to see a lot of high-margin, business-class traffic.
“Singapore Airlines is big in the business-class segment as Singapore is a business hub,” said one local research analyst. “You don’t see that in Malaysia and that’s why Malaysia Airlines cannot increase their yield as much.”
The MAS management has acknowledged that its yields are relatively low and said it is taking steps to address it. Among initiatives it has planned to increase yields are to increase fares and fuel surcharges.
It said that fuel surcharges have been progressively implemented since January 2010 and fares have been increased by as much as a whopping 50 per cent. At the operating level, however, MAS did show some improvement with operating losses narrowing to RM286 million in the second quarter from RM426 million during the same period last year. Passenger traffic also jumped 18 per cent while passenger revenue increased 22 per cent to RM2.3 billion.
