Challenging times ahead for Asian aviation giants
August 13 2014 11:50 PM
 Malaysia Airlines: preparing to undergo a major surgery
Malaysia Airlines: preparing to undergo a major surgery

By Updesh Kapur/Doha

It’s been a busy and somewhat turbulent few days for two of Asia’s aviation industry giants. Both have, for decades, had the fortunes of carrying millions of passengers from around the world to and from their dynamic hub airports. In the process, their respective national tourism sectors have thrived with booming inbound visitor numbers.
Yet survival is the name of the game in today’s highly charged competitive industry that aviation is.
Competition is fierce, operating costs are crippling and market conditions are ever changing.
Corporate strategies have to be flexible to adapt quickly to new business environments and company finances have to be robust to remain on the same level playing field, if not a par above.
Two airlines, two Southeast Asian neighbours, two quality brands are now being forced to revamp and restructure in a bid to stay afloat.
Malaysia Airlines and Thai Airways International, the national airlines of Malaysia and Thailand respectively, are today counting the cost of under performance.
The surge in seat capacity from Gulf carriers - namely Emirates, Qatar Airways and Etihad Airways - into the dynamic Asian capital cities of Kuala Lumpur and Bangkok have not helped their cause.
The advent of low-cost carriers has seen an erosion of domestic and international market share putting more commercial pressure on these national institutions that have for years been proudly flying the national flag of their countries to all corners of the world.
Both have been thrust into the global spotlight for reasons out of their control. And reasons which have fuelled the need to restructure sooner rather than later.
Malaysia Airlines has suffered the trauma of losing two passenger aircraft and 537 passengers and crew within the space of four months in what can only be described as two extremely unprecedented and chilling incidents.
The shooting down of flight MH017 by a surface-to-air missile on the Ukraine/Russia border on July 17 occurred just four months after the mysterious disappearance of flight MH370 on a journey from the airline’s Kuala Lumpur hub to Beijing. No trace has been found of the China-bound aircraft and the airline has been widely criticised for its handling of the incident.
The crisis has crushed the Malaysia Airlines brand name and the dual air disasters have caused its cash cow passenger loads to and from the key source market of China to plummet, leaving planes flying empty. The airline’s share price has taken a beating.
Thai Airways International has suffered from a downturn in business largely due to Asian regional and Gulf competitors, aswell as the impact of pro-government and anti-state violent protests on the streets of Bangkok and across Thailand in recent years which have badly hit the tourism industry.
Both airlines are now on the verge of major surgery.
Malaysia Airlines is to be taken over by the country’s sovereign wealth fund Khazanah Nasional, which already held a majority 70% stake. Under the $430mn rescue package, Khazanah intends to buy all the remaining shares, delist the airline from the stock market and take the carrier private before undergoing a complete overhaul within 12 months. Share trading in the airline has already been suspended on the Kuala Lumpur Stock Exchange.
The fund acted after the double tragedies of flights MH370 and MH017 pushed Malaysia Airlines, which had already been losing money for years, to the brink of financial collapse.
But with Khazanah at the helm for so many years with no track record of reversing deficit financial figures, a full takeover is said to unlikely lead to the aggressive action needed to resuscitate the carrier.
For survival, an overhaul will be needed across the board, including drafting in a fresh management team, reducing the near 20,000 workforce and scrapping unprofitable routes.
There’s talk of downsizing the company to a domestic and Asian regional-only operation while abandoning long-haul international services completely. The carrier lost $360mn last year, three times its deficit in 2011. In May, it reported a first quarter net loss of US$137mn, marking a fifth consecutive quarterly deficit.
There’s also talk of a brand revamp, escalated by the recent incidents. But will a makeover - potentially a new name and new-look livery - really make a difference? Can people forget incidents that have rocked the aviation world and can Malaysia Airlines ever shrug off the image of ‘that airline’ which lost two jets in whichever makeover it adopts?
Last week, the Thai Airways board approved a restructuring plan aimed at cutting costs to help return the loss-making airline to profit by the middle of 2015.
Thailand’s new military rulers have singled out the country’s troubled national carrier as the first state enterprise to undergo reform after seizing power in May from a government accused of corruption.
Thai Airways, which employs 25,000 people, has racked up four quarters of losses partly due to high operating costs. Earlier this week, the airline announced executive transport allowance perks will be slashed by up to 30% in a bid to improve performance.
The carrier is planning early retirement of hundreds of employees and aims to cut overtime shifts in a restructuring plan to reduce operating costs by 4bn Baht. ($120mn)
Under the revival plan, Thai flights to some European cities are expected to be shelved while capacity increased to Asian destinations such as China and Japan.
The state-run carrier also recently announced plans to join forces with low-cost sister airline THAI Smile and its budget rival Nok Air to boost domestic market share by selling tickets through convenience stores.
Furthermore, THAI Smile will shift operations from the current main international airport at Suvarnabhumi to Bangkok’s old airport Don Mueang which is dominated by powerful low-cost carriers, particularly the dominant player Thai AirAsia. This will ensure less reliance on Thai Airways for connections and therefore operate more independently from its parent.
It will leave Thai Airways to concentrate on medium- and long-haul operations. In recent years, Thai Airways has cut flights to some destinations in Europe and the US following a drop in passenger numbers. Part of the revival plan is to decommission older aircraft to reduce the average age from 8.6 to 8 years and bring in more fuel-efficient planes such as the Boeing 787 Dreamliner, of which it took its first delivery last month.
With dramatic change ahead for two of Asia’s once vibrant airlines, a business overhaul is a sharp contrast to the fortunes once enjoyed.
And change will mirror what industry peers across Europe and North America have gone through over the years in order to stay in business.
There is light at the end of the tunnel. But there are indeed challenging times ahead.

- Updesh Kapur is an aviation and travel specialist who can be followed on twitter @updeshkapur

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