• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

MAS Needs to Put Lid on Overheads (HL)

Posted on: Wednesday, 24 August 2005, 00:00 CDT

MALAYSIA Airlines (MAS) should keep a lid on overhead costs, grow revenue

further and probably raise fuel surcharges as it seeks to turn around its

business, analysts said.

The national carrier on Monday unveiled heavy first-quarter losses,

which dragged its share price to a two-year low yesterday, and prompted

most analysts to change their full-year forecasts to a loss from profits

before.

Analysts said costlier jet fuel should not be blamed as the sole reason

for MAS first-quarter losses, as some major airlines like Singapore

Airlines (SIA) and Cathay Pacific managed to remain profitable despite

soaring prices.

"All airlines in the world are having difficulties with increasing fuel

prices. However, what kept airlines such as SIA and Cathay Pacific in the

black were their operational efficiencies," Avenue Securities research

head Noor Azwa Mohd Noor told Business Times.

The surge in crude oil prices translates into higher jet fuel costs

that erode airlines' earnings worldwide. Major airlines like SIA and Hong

Kong's Cathay Pacific have posted lower net profits as a result.

ECM Libra Securities analyst Bryan Lim said MAS simply incurred too

much overhead and operating expenses to operate profitably.

Lim added that the current fuel surcharge imposed by MAS is

insufficient to cushion the impact of rising jet fuel prices.

MAS currently charges a surcharge of some US$28 (US$1 = RM3.77) per

trip for a long-haul flight, which is about half of what other major

airlines charge, he said.

MAS should also focus on ways to improve revenue as its growth is

slower compared with SIA and Cathay Pacific.

"I think, compared with SIA and Cathay, MAS is still weak on the first

class and business class segments, the main revenue earners. Yes, there

are some initiatives taken to improve this segment, however, I think it

may take awhile before we can see results," he said.

Both Lim and Noor Azwa have changed their projections and expect MAS to

make a net loss for the full-year to December 31 2005. The current fiscal

year will only comprise nine months as it is changing its year- end to

December 31 from March 31 previously.

Noor Azwa expects a net loss of RM195.5 million for 2005, compared with

an earlier projected net profit of RM263.5 million. He also downgraded

MAS shares to underperform.

Lim has revised his projection to a RM360 million loss from RM192

million profit previously.

MAS shares fell 6 sen, or 1.8 per cent, to close at RM3.32 yesterday,

its lowest close since May 2003.

Source: Business Times; Kuala Lumpur

More News in this Category