Malaysia Airlines set for major restructuring

Najib Razak, the PM, announced the widely expected news on Friday (August 8) that Malaysia Airlines is to be taken into state hands. It is the carrier’s last bid for survival, as it faces down two devastating episodes this year.

Still reeling from the MH370 and MH17 tragedies, which saw a total of 537 lives lost, the Malaysian sovereign fund Khazanah announced that it would step in. On Friday of last week, it issued a buyout of all minority shareholders.

Tragedy, competition and costs

Giving the fund overall control of the airline, it will then restructure the operation which has existed since British colonial rule.

The issue with the firm is not just the devastating losses it has felt however. Domestically, it was already facing tough competition from budget airlines. The subsequent tragedies have been even more devastating as a result.

There are also significant staffing issues. The airline presently employs 19,500 staff, operating a fleet of 108 aircraft. Conversely, its biggest rival has 14,240 staff for 103 planes.

In their most recent end of year financials, Malaysia Airlines posted $240,000 (approximately £143,000) in revenue per employee. Rival Singapore Airlines meanwhile generated $699,500 (approximately £416,700) per employee.

With operating costs up by 5% and revenues down by 2%, the $1.1bn loss Malaysia Airlines has experienced in the last nine years becomes easier to understand. This compares to Singapore Airline’s profit of $7.1bn in the same time frame; all without experiencing one year of loss.

Options

There are options for the Malaysian carrier to get back on its feet though, according to analysts.

The firm could make more use of its own low-cost airline Firefly for example. A greater exploitation of the hub capacity for the airline at Kuala Lumpur international airport has also been suggested.

Cutting more unprofitable routes is also necessary, while one unnamed executive is reported in the Financial Times as urging the firm to cut long-haul flights too. The same executive is also said to call for greater use of the Oneworld network it recently became a member of.

It will not be easy to turn around the firm though. The airline will face significant protests from its workforce over efforts to reduce it for example.

How hungry the political appetite is for the work will also be an important factor, with the upcoming general election in the country likely to detract from the task in hand.