Summary
The Malaysia Airline System (MAS) reported a loss of over RM1.3 billion for the Financial Year 2005. It was unacceptable to many parties such as the stakeholders and the government especially the announcement was made at the same time as some of MAS regional competitors reported strong profits in the same year.
The airlines was expected to cut up to 5,000 jobs and spend a maximum of 850 million ringgit (US$236 million; euro198 million) in compensation packages as part its plan to return to profitability, making it one of the country's biggest corporate retrenchment exercise.
The retrenchement was a measure to reduce cost due to crippling fuel prices and lower load factors. The carrier was also battling a cash shortage, overstaffing and an
inefficient and unprofitable route network. According to the Managing Director, Datuk Seri Idris Jala 60% of MAS routes were unprofitable. For instance, the pricing of the KL -Manchester route was so dysfunctional that it had to be 140% full just to break even.
Thus, the three-year turnaround plan calls for extensive cost-cutting and axing
of unprofitable routes aimed at achieving profits of 500 million ringgit in
2008, which would be an all-time record for the carrier.
the FINANCIAL crisis
In the year 2005, Malaysia Airlines reported a loss of RM1.3 billion. Revenue for the financial period was up by 10.3% or RM826.9 million, compared to the same period for 2004, driven by a 10.2% growth in passenger traffic. International passenger revenue increased by RM457.6 million or 8.4%, to RM5.9 billion, while cargo revenue decreased by RM64.1 million or 4.2%, to RM1.5 billion. Costs increased by 28.8% or RM2.3 billion, amounting to a total of RM 10.3 billion, primarily due to escalating fuel prices. Other cost increases included staff costs, handling and landing fees, aircraft maintenance and overhaul charges, Widespread Assets Unbundling (WAU) charges and leases. (Malaysia Airlines ,wikipedia)
On 1 December 2005 the Malaysian Government appointed Datuk Seri Idris Jala as the new CEO to execute changes in operations and corporate culture. Idris was the former managing director of Shell (MDS) Malaysia Sdn. Bhd. and on a three year contract with MAS.
Several weaknesses in airline operations were identified as the causes of the RM1.3 billion loss. These included esclating fuel prices, increased maintenance and repair costs, staff costs, low yield per available seat kilometer ("ASK") via poor yield management and an inefficient route network.
"In early 2000 Air Canada along with entire airline industry faced huge loss due to the high global economic downturn. With slow travel outstanding to the downturn and September 2011 incident the airline industry was hit extremely hard. Air Canada consequently posted net losses of $1.32 billion in 2001 and $828 million in 2002. Furthermore, with the spread for SARS disease Air Canada’s Asian route got effected
After September 11th, 2001, the airline industry experienced a significant drop in travel. The reasons for the airline industry downfalls also included a weak U.S and global economy, a tremendous increase in fuel costs, fears of terrorist's attacks, and a decrease in both business and vacation travel.
Despite the growth in the market, Qantas International’s market share has been falling over the past 10years, from 34% in FY02 to 16% in FY13. The entry of Virgin Australia in 2000 in part explains this, however Virgin’s growth also coincided with the demise of Ansett in 2001 “… Virgin Blue will initially increase capacity on existing routes while evaluating what c...
According to the International Air Transport Association, 2001 was only the second year in the history of civil aviation in which international traffic declined. Overall, it is believed that the IATA membership of airlines collectively lost more than US$12 billion during this time (Dixon, 2002).
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
The purpose of this report is to show how Qantas was affected by global financial crisis. Qantas is the second oldest airlines in the world. It is one of the tough competitors for other airlines. But Qantas was affected badly during the crisis, the tickets prices went up because the fuel prices went up. I have suggested few recommendations for Qantas to bounce back , what can be done without laying of the employees and have also spoke about cost cutting.
Maintenance cost- Maintaining the old aircrafts is the biggest weakness for the airlines as they have to spend a huge amount on their maintenance by which their additional overhead cost raises.
Intangible costs are always hard to be estimated and known, since they are hidden. Delta Airlines has a huge chunk of the intangible costs those related to their reputation. Delta Airlines spend millions every year on their marketing and advertising and with these system failures they are demolishing what they have been building. The brand value is can be very sensitive nowadays with the spread and the easy access of social media, since peoples’ voice is easily reachable now. In addition to have been said about the intangible costs, is that Delta does not count what their costumers also lose regarding the cancellation or the delay of their flights.
But as for operating expenses a 30 percent increase resulted due to a high increase in aircraft and ground rentals for 1988. Also a 45 percent increase depreciation and amortization occurred which put an impact on 1988 operating expenses. Eventhough sales where high, total operating cost increases substantially enough to provide a net loss of $84,183. This loss decreased 25 percent compared to the operating losses of $113,293 in 1987. Pan Am was able to recover some net losses in 1988 due to the sale of Airbus A320 positions and insurance proceeds over the book value of the aircrafts.
Jaspal, S. (2012, March 14). Risk Management Failures in Kingfisher Airlines. In Risk Board. Retrieved March 26, 2014, from
These job losses are part of major restructuring of the airline, including the appointment of a new chief executive. The state announced plans to take full ownership of its 77-year-old flag carrier after trading in the airline's shares was suspended, when it was valued at less than 15 percent of its 2012 peak. Currently Malaysia's sovereign wealth fund, Khazanah Nasional, is the 69 percent majority owner, and plans to buy out other shareholders at a premium. Therefore, the rate of unemployment in Malaysia has increased after cutting
Macroeconomic environment: The airline industry has proven particularly sensitive to phenomena such as terrorist attacks, wars, outbreaks (SARS), drastic currency fluctuations, and the like. These phenomena tend to have a significant impact on the cost of fuel, overall demand for air transportation, tourism, etc.
This concept was challenged by Southwest Airlines by marketing itself as a cost leader. Their entire growth curve in the industry has been attributed to its cost effective strategies which has made it more efficient and successful than traditional airlines.
The Singapore Airlines needs to thoroughly understand the plans being pursued by the British Airways, Cathay Pacific, and Virign Atlantic in improving the comfort and quality of service it provides to its customers. The Singapore Airlines needs to continue differentiate itself by examining the strengths/weaknesses, and key points of these and other competitive airlines.
To buttress the implication of the model, Porter explained why the airline industry is the least profitable amongst industries owing to the high threat of the competitive forces. The airline industry players compete heavily on price. Most custom...