Malaysia Airlines announces First Quarter 2003 Results

Malaysia Airlines recorded an operating loss of RM225.5 million for the first quarter ended 30 June 2003. Of significance is the fact that in the immediately preceding quarter, January to March 2003, the airline posted a profit of RM103.8 million.

SARS provided the main cause for the deep plunge in the airline’s earnings which was reflected across the air travel industry worldwide.

Total passengers carried by Malaysia Airlines shrunk 22% to 3.12 million passengers during the quarter from 3.99 million carried in the same quarter last year. International passengers saw the largest drop of 33% to 1.26 million from 1.87 million as the fear of worldwide spread of SARS necessitated the World Health Organisation to issue travel advisories and designating specific destinations as SARS affected areas. In tandem with concerns for health and safety, domestic travel also saw a drop in passenger numbers falling to 1.86 million from 2.12 million, for the same period last year.

Total distance traveled by passengers was also lesser as reflected by the RPK (revenue passenger kilometers) recorded during the quarter at 7372 million RPK compared to 8975 million RPK last year – a drop of 17.9%.

During the peak of the SARS-generated uncertainties, the airline took emergency measures responding to daily travel cancellations by adjusting schedules and withdrawing capacity from the system. Despite these measures, the airline could only maintain a seat factor of 54.7% for international operations – which was insufficient to break even.

The airline’s cargo operations provided some backstop to the performance slide in the quarter. Net reduction of cargo space resulting from industry-wide capacity cuts had generated tight demand during the period. For the first quarter Maskargo increased its tonnage handling by 23% recording 540 million LTKM versus 439 million LTKM for the same quarter last year. Revenue contribution from cargo was RM 395.1 million, an increase of 26% over the comparative quarter.

During the first quarter the airline completed the sale of a B747 Combi generating a net gain of RM 67.5 million. This sale and share of profits from associated companies had reduced the loss for the quarter to RM 162.3 million. The company’s financial position remains intact at the end of the First Quarter with its balance sheet relatively un-geared and liquidity holding in excess of RM 913 million.

Prospects

The spectre of SARS appears to have receded and confidence in air travel is showing clear signs of recovery. Passenger load factor on most routes operated by the company is observed to be climbing back to percentages of high 60s and low 70s in late June and looking sustainable into July and early August. The airline is restoring most of its suspended services and is even considering increasing flights on several well performing routes. Recently the airline added Balikpapan to its network and commencing 14th August Malaysia Airlines will connect Kota Kinabalu to Manado in Indonesia, thereby increasing coverage of the BIMP-EAGA growth region. Also in view of the industry returning to normalcy Malaysia Airlines is examining fresh opportunities following the recently concluded reviews of Air Services Agreements between Malaysia and several countries.

Prospects for cargo continue to be positive. The regional economies are projecting positive growth while China is expected to resume its lead engine role after the recent interruptions by SARS. Reinstatement of passenger services to destinations in Asia will provide additional belly space capacity, while presenting a challenge to optimising yield.

Malaysia Airlines’ Managing Director, Dato’ Md Nor Yusof said, “The effect of SARS was dramatic on operational and financial performance. We were hurt but managed to control the damage and at the same time found impetus to identify new sources of opportunity to moderate the impact. We are pleasantly surprised at the quick return of passenger numbers. Certainly, there is good reason to expect a sharp spurt of growth over the next few months, but we must exercise caution as we get back on track with the plan we had at the beginning of the year. Prudence remains our watchword, governing strategy and business direction. Our focus continues to be on long-term viability, and our commitment to delivering the best and expanding into areas of growth potential is unchanged.”