Khazanah insists that Malaysia Airlines remains a viable entity
Does twilight beckon for Malaysia Airlines?

Does Malaysia need a national airline?

Does the airline really bring a multiplier effect to the economy via the tourism revenue?

Khazanah is doing Malaysians a grave injustice by persistently providing public funds to a loss-making entity

by
Shukor Yusof

For an airline that struggles to differentiate between boar and bovine, Malaysia Airlines Bhd (MAB) is, pardon the expression, facing a boar of a problem in this, coincidentally, Chinese Year of the Boar.

Last month MAB became embroiled in a controversy over an alleged photograph of a slice of pork (Muslims are forbidden from consuming it) in its in-flight magazine Going Places. The offending meat, it turned out, was actually wagyu beef.

In any case MAB felt obliged to apologise, perhaps also for its inability to distinguish between what's kosher and what's not.

It all started, as many problems these days do, with a comment on social media. A dimwit traveller voiced unhappiness over an image of what appeared to be pork and proceeded to lambast the carrier.

Without hesitation (or double-checking), MAB quickly responded by expressing regret and sought understanding from its readers and passengers.

A case of one man's meat is another's poison but from MAB's perspective, better to be safe than sorry.

Despite having a dismal track record in the past 15 years (it is estimated the carrier has lost at least RM20 bil during this period), the national airline appears to be well-loved by its sole shareholder, Khazanah Nasional Bhd, the sovereign wealth fund (SWF).

Losses year after year

In its financial year (FY) 2015, the year after the airline was delisted and the start of its restructuring, MAB registered a loss of RM1.13 bil. In FY2016 the losses were narrowed, to RM439 mil but in FY2017 they soared to RM812 mil.

From 2015 to 2017, Malaysia's flag carrier chalked up over RM2.3 bil in losses. In interviews with the local media at the end of 2018, the airline's chief executive voiced optimism that the losses would be lowered.

He did not say when (or if) MAB could make money at all in the near future.

To many Malaysians, who draw a median monthly salary (according to the Department of Statistics) of just RM2,160, such astronomical figures are beyond comprehension.

But the managing director of Khazanah Datuk Shahril Ridza Ridzuan seeks our understanding; he wants us to have faith in the national carrier.

He calls on Malaysians to not just focus solely on MAB's losses, however massive and monstrous they may be.

Malaysians, he suggests, must look beyond all that negativity and see the bigger picture in the national economic context.

According to Shahril, MAB is more than a perennially loss-making airline.

The value of MAB, he maintains, is the "multiplier effect to the economy from the tourist or traveller dollar that Malaysia Airlines can bring into the country."

And this, says the Khazanah chief, is about "8 to 10 times in terms of spend to the country."

Is that really the case?

AirAsia has bigger

market share

According to Malaysia Airports Holdings Bhd's (MAHB) 2017 annual report, Malaysia Airlines had a 20.6% market share of international passenger movements at the KLIA.

By comparison, airlines under the AirAsia Group - AirAsia, AirAsia X, Indonesia AirAsia, Indonesia AirAsia X and Thai AirAsia - collectively hold a 45% share at Sepang.

What this means is that AirAsia and its subsidiaries are responsible for bringing in the bulk of international tourists into Malaysia. Not MAB.

And it makes sense given that AirAsia in 2017 had 723 weekly international flights while AirAsia X had 178. MAB, meanwhile, had 539 weekly international flights out of KLIA.

Like it or not, AirAsia has become the de facto flag carrier of Malaysia. Not MAB.

It is therefore somewhat misleading for Khazanah to base its argument (in continuing to financially prop MAB) on the "multiplier effect."

How many tourists did the national airline actually carry? And what is the actual amount of direct contribution from these tourists to the Malaysian economy?

Here are more figures to chew on: Tourism Malaysia reports that in 2017 Malaysia received close to 26 million international tourists, contributing RM82 bil to the country's revenue.

The largest group of international visitors was from Singapore (12.4 mil), followed by Indonesia (2.8 mil) and China (2.3 mil).

Since almost half of the international tourists came from Singapore, it is quite obvious that most Singaporeans did not fly into Malaysia. Rather the majority travelled mostly by road (private cars, coaches, motorbikes) and by train.

It is also patently clear that AirAsia was the airline of choice for Indonesians and Chinese visitors who toured Malaysia in 2017 if the figures by MAHB are to be believed (and there's no reason to doubt the validity of it).

Why then should we believe Khazanah when it implores Malaysians to look beyond the national carrier's bottom line?

It is incumbent upon our SWF to provide concrete proof that MAB is beneficial to Malaysia and that each taxpayer ringgit used to finance its operations and pay its staff is justified.

A380 an added woe?

Khazanah must also explain to Malaysians why it thinks the recent launch of Amal, an offshoot of MAB as a special pilgrim charter service using Airbus A380 aircraft, "appears promising from a strategy perspective" as well as an "innovation."

Just last week Airbus announced the termination of the A380 programme, sounding the death knell for many airlines that are unable to profit from flying the superjumbo.

How then can Amal make money by flying aircraft whose residual value is now non-existent? Who will write off the US$1.2 bil (RM4.9 bil) paid for the six A380s? How is all this seen as an "innovation"?

As Malaysia's SWF, Khazanah has a fiduciary duty to safeguard the country's monies and resources.

The SWF is doing Malaysians a grave injustice by persistently providing public funds to a loss-making entity.

MAB and its sympathisers often blame foreign exchange, jet fuel prices and even labour costs for its failure.

The reality is very different.

Many airlines fail due to poor management, including appointing the wrong managers, misjudging and misunderstanding market trends, adopting wrong strategies, overpaying and underpaying employees, lack of communication between management and staff, and failure to plan for contingencies.

Does Khazanah think Malaysia truly needs a national airline - at any cost?

A decade ago Giovanni Bisignani, the former head of the International Air Transport Association (IATA), accused governments that shield their flag carriers as "killing" the aviation industry.

Indeed, in today's aviation marketplace there's absolutely no justification for carriers to receive handouts from their governments.

If Khazanah were to pull the plug on MAB tomorrow, lost capacity (seats) would be immediately replaced by other airlines.

The failure of flag carriers in Belgium, Greece and Hungary in recent years has categorically proved no damage to tourism whatsoever in those countries.

For MAB, whose network and fleet have shrunk significantly since 2014, the problem is further compounded by a massive brain drain (top talent from MAB now hold major posts in Gulf carriers) and intense competition from discount airlines, especially AirAsia.

Additionally, the airline faces an enormous financial challenge in the near term (a RM5 bil bond payment is due in 2022), one that the government will have to address sooner or later. FocusM

Shukor Yusof is the founder of aviation and economics research outfit Endau Analytics. He blogs at endauanalytics.wordpress.com