A tough road for MAS

It is only expected to become profit generating in 2015 as the business environment gets tougher due to industry-wide overcapacity, increased competition and continued high jet fuel prices.

International headwinds will continue to weigh down on the achievement of MAS business turnaround plan despite its membership into the oneworld alliance (in February 2013) and ongoing fleet renewal plan.

In the domestic market, MAS also faces intensifying competition from accelerated capacity expansion by AirAsia and the launch of Malindo Air.

Regional full service carriers (FSCs) such as MAS are pursuing the strategy of sacrificing yield in return for a higher load factor thus under immense international competition and yield pressure. MAS’s fare yield dropped by 4.7% year-on-year to 24.2 sen in the first quarter of 2013 despite a leap in passenger load factor by 3.6% to 76.6%.

It was also reported that SIA had embraced aggressive promotional activities and still suffered a yield contraction of 4.3% year-on-year in recent quarters.

Due to eroding market share to the low cost carriers and Middle Eastern carriers, regional FSCs have reacted by expanding international capacity during the first quarter of 2013. SIA and Thai Air increased their capacity by 2.4% year-on-year and 5.5% year-on-year respectively, while the capacity of MAS grew by 11.2% year-on-year.

All these lead us to believe that in the short term, the FSC fare yield will unlikely to rebound to mean level.

Although MAS has replaced its entire fleet of Boeing 747s and a large portion of its 737-400s with the newly acquired Airbus A380 and 737-800 models respectively, it still has 17 777-200ERs with an average age of 13.6 years. MAS is considering either the A350 or 787 Dreamliners to replace the long-haul aircraft.

Due to the worsening market yields and sticky high operating expenses, it is improbable for MAS to be able to turn around its business by FY13-14 as had earlier expected.

Investors are advices to remain on the sideline as MAS business turnaround is taking longer than expected amid continued challenging market environment.