malaysia airlines disappear financial troubles

Malaysia Airlines in trouble long before MH370

Malaysia Airlines was in trouble long before the loss of flight MH370.

Financially, the airline has been suffering losses for years. In an industry as competitive as the airline industry where shareholders put pressure on and passengers are increasingly picky, Malaysia Airlines has slowly slipped down the rankings.

Low cost competitors have edged in such as Air Asia and a newer start up, Malindo Air. The more flexible low cost airlines have expanded at a more rapid pace than traditional airlines can keep up with, leaving the likes of Malaysia Airlines behind. Barriers such as state ownership and a powerful union hinder efforts to adapt, making the change of direction that is needed difficult to achieve.

Mismanagement is one of a number of factors that have led to their inability to compete effectively. Which does not bode well in an industry as brutal as the airline industry. Financial trouble was also exacerbated by vast expansion in an attempt to guard market share – 21 new planes were added to the fleet last year.

Restructuring began in 2002 which involved shifting the airline’s debt to the government. Three subsequent plans, including the latest in 2011, were aimed at stemming losses with steps such as axing unprofitable routes. However, last month, the airline reported its fourth straight quarterly loss. Globally, airlines averaged a 5 percent margin in 2013 and U.S. carriers returned 8 percent. Malaysia Airlines returned a negative 4 percent operating margin.

The company now faces global recognition after the loss of flight MH370 which will bring a new set of financial difficulties.

Shares plummeted after the plane disappeared, executives will now focus on damage control, spending much of their time on the case and neglecting the balance sheets and customers are likely to doubt the company after the tragedy.

One set of customers in particular may cause Malaysia Airlines difficulty. The loss of flight MH370 has caused a huge public relations rift with China with many of the passengers on board being Chinese. The enormous growth of Chinese tourism could spell trouble if they choose to go with another airline for international trips.

And so the pressure is on for Group CEO, Ahmad Jauhari who took the helm in September 2011 with the aim of returning Malaysia Airlines to profit.

What will the future hold for the airline in the aftermath of flight MH370’s disappearance?

[Picture: Aero Icarus on flickr]

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