MAS- Higher Fuel Costs overtake passenger revenue and yields as AirAsia ups revenue

Posted by- Neelam Mathews

Aug 23, 2011

Malaysia Airlines’ Group has announced a net loss of RM527 million for the second quarter 2011 (2Q2011), impacted by higher fuel costs that offset yield and Revenue Available Seat Kilometer (RASK), higher than the same quarter for 2010 (2Q2010).

Fuel costs, however, continued to have the greatest impact on the group’s operations, increasing by 41% . Yet, despite a stormy environment of volatile fuel prices, rising costs and global economic uncertainty, the AirAsia Group achieved an increase in revenue (up by a substantial 15% y-o-y), higher passenger loads (up 4 ppt y-o-y), Profit before Tax of RM 145 million (up 0.6% y-o-y) and rising revenues from ancillary income. 

“The second quarter is traditionally one of our weaker quarters. But despite the challenging environment in the industry, the team has come through again. Costs have gone up, but much less than among others in the industry. We’ve grown revenues, our cash balance is a healthy RM 1.9 billion, and our gearing level has been reduced to 1.48 times as compared to 2.27 times a year ago.

“We’re well on track in terms of achieving our goals for the year, building on our already strong foundation to enhance growth in the coming months and years. Also great progress has been made in monetizing our ancillary investment like CAE and Expedia which will allow myself and the management to focus more on the operations,” said Group CEO Tony Fernandes. 

On ancillary income, Fernandes said: “Ancillary has been a tremendous revenue stream for us. It’s up in all three of our operations: MAA at RM 50 per pax (up 15% from RM 43 y-o-y); AirAsia Thailand at THB 405 per pax (up 30% from THB 312 y-o-y); and AirAsia Indonesia at IDR 139,680 per pax (up 10% from IDR 126,798).”

Working with the new Executive Committee formed two weeks ago, recovery initiatives of MAS will be implemented to turn the company’s fortunes around. Immediate initiatives will include, amongst others, better capacity management; the implementation of dynamic pricing to improve yields and revenues; a review of products and brand positioning; and a review of Firefly’s business to focus on its turbo-prop operations out of Subang and to realign the Firefly jet business to focus on providing regional premium services.

As a result of the Collaboration Agreement signed by Malaysian Airline System Berhad and AirAsia and AirAsia X. A Joint Collaboration Committee was formed on  August 9 to look into key areas for collaboration to realise synergies and cost efforts. The JCC shall deliver more detailed terms of the collaboration, manifested in separate detailed agreements, whilst ensuring full compliance with anti-trust regulations. This will also contribute to shape the medium and long term direction of the company.

MAS says it will continue with its re-fleeting exercise. The multi-year fleet renewal program has commenced with the delivery of five new B737-800 aircraft and five new A330-300 aircraft as on mid August 2011. The first new A330 freighter will be delivered in September 2011. There will be six more aircraft deliveries in 2011 (two B737-800, two A330 Freighters and two ATR72). Beyond 2011, MAS has a firm order of thirty eight B737-800s, ten A330s, six A380s and two A330 Freighters. MAS is currently executing the return of two B747-200 freighters, one B747-400 and three B737-400s by end September 2011.