Wednesday, March 12, 2014

Global Impact: Missing MH370 Flight Could Impact Negatively on the Future of Malaysia Airlines

According to The Associated Press, Malaysia Airlines may soon discover that the airline's years of impoverishing shareholders, frustrating air passengers over the carrier's history of restructuring and absorbing financial losses, could well provide the impetus in MH's demise.

Now in its fifth day of not knowing what form of calamity confronted the 239 souls who took off early Saturday morning thinking that they would be disembarking in Beijing this air tragedy and the 239 souls that paid to fly the carrier, MH's future is indeed precarious.

Seemingly, there have been not even subtle intimations that any of the airline's 19,000 employees played any role that led to Flight 370's disappearance.

Yet, continuing questions that add to increasing list of "red-flags" suggest the jet's co-pilot allowed two female passengers to ride in the cockpit for the duration of a flight two years ago, places into questions flight crew adherence to written policies. 

AP reports that MH has built a reputation for high-standard service and safety since being founded in 1937, bagging an array of industry awards in recent years for its food, cabin crew and overall service. Its most recent fatal incident was nearly two decades ago, when one of its planes crashed near the Malaysian city of Tawau, killing 34. 

COMMENT: Despite the awards and accolades, Malaysia Airlines has not been able to suppress the successes of low-cost competitors. Consequently, under state ownership and a profit-consuming union, the air carrier has not been able to adapt and improvise and counter the efforts of more versatile start-ups. 

In many respects, the airline industry is one that can be ruthless to those who fail to adapt and come up with creative ways to be profitable (e.g., charging for checked luggage, meals, overweight bags, premium seats, etc.).

In the meantime, rather than profitably running the carrier, executives and employees' energies are being sucked up in looking for Boeing 777 with media pressure mounting as each day passes.

Malaysia Airlines lost contact with the Boeing 777 jet less than an hour into a six-hour flight that was scheduled to land in Beijing at 0630 hours on Saturday (March 8).

Following days of contradictory accounts and explanations, authorities acknowledged on Wednesday (March 12) that they really don't know which direction the plane was heading when it disappeared, vastly complicating political pressure, particularly China, who lost the majority of its citizens on the ill-fated flight.

To make matters worse, shares of Malaysian Airlines System, the carrier's holding company, plunged as much as 20% Monday (March 10). The share price has been on a downward cycle for well over a decade with the carrier now worth 1/10th of its value in 2004.

Even worse, with each mounting day the Flight 370 is not located, confidence in the carrier is plunging. 

The downsides don't end. CEO Ahmad Jauhari Yahya, who took the helm in September 2011, with the stated objective to return MH to profitability, has been unsuccessful in achieving his stated goal.

Including Ahmad Jauhari's efforts, MH management has attempted four major restructurings in the past twelve years, without success.

Last month, the airline reported its fourth straight quarterly loss.

From 2007 to 2010, the company's average operating profit margin was 0.1%, according to credit rating agency Moody's, meaning every $100 of revenue generated a tenth of a cent of profit. Not good.

For regional rivals, Singapore Airlines and Hong Kong's Cathay Pacific Airways, both carries achieved profitability of 8.3% and 7%, respectively.

Malaysia's former prime minister Mahathir bin Mohamad, now 88, who served as PM from 1981 until 2003, making him Malaysia's longest serving Prime Minister. The former PM has urged the MH to sell the carrier to private investors.

This report will be updated as new information becomes available.