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Bad decade: Malaysia Airlines has catalog of woes

Search Area Expanded For Missing Malaysian Airliner Carrying 239 Passengers
By KELVIN CHAN
AP Business Writer

HONG KONG (AP) -- Within an industry notorious for impoverishing shareholders and irking customers, Malaysia Airlines has stood out for its years of restructurings and losses. The company now has global recognition of a far more unfavorable kind after one of its jets disappeared four days ago with 239 people aboard.

There has been no suggestion that the unrelenting financial pressures faced by the airline and its 19,000 employees somehow played a role in the disappearance of flight MH370 en route from Kuala Lumpur to Beijing. But the revelation this week that the jet's co-pilot allowed two female passengers to ride in the cockpit for the duration of a flight two years ago has invited scrutiny of the professionalism of top-level staff.

Among Asian carriers, Malaysia Airlines 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.

Yet the accolades in the past decade have not been sufficient to halt the ebb of customers and revenue to low-cost competitors, mostly notably to AirAsia founded in 2001 by Malaysian businessman Tony Fernandes. The nimbler discount competitors have expanded rapidly, while Malaysia Airlines has been like a supertanker, slow to change direction. State ownership and a powerful union have impeded efforts to adapt.

Travelers are likely to "shun" the airline in reaction to "an incident of such proportion" as a jet vanishing, said Shukor Yusof, aviation analyst at S&P Capital IQ, a division of Standard & Poor's. "It's going to make things even worse," he said.

The company will also suffer as executives focus their attention on searching for the plane and dealing with the international media attention rather than running the business, he said.

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 about 6.30 a.m. on Saturday. After days of contradictory accounts, authorities acknowledged Wednesday they don't know which direction the plane was heading when it disappeared, vastly complicating efforts to find it.

Shares of Malaysian Airlines System, the carrier's holding company, plunged as much as 18 percent Monday. The share price has been on a downward run for a decade that mirrors its financial challenges and today is about a tenth of its value in March 2004.

For travelers such as 42-year old Malaysian Hoo Wee Sin, flights from Kuala Lumpur to Guangzhou, China with his wife will not be the same as previous trips.

"Frankly speaking, I feel worried about it," he said while checking in at Kuala Lumpur's international airport.

The apparent disaster is also a defining test for the carrier's chief executive, Ahmad Jauhari Yahya, who took the helm in September 2011 with the aim of returning Malaysia Airlines to profit.

Ahmad Jauhari, who became CEO with little airline experience having spent most of his career at Malaysian power companies, decided against grounding the carrier's other 777 jets. The Boeing 777 has an excellent safety record. Its first fatalities occurred last year, some 20 years since the 777 went into service, when an Asiana jet crash landed in San Francisco, possibly due to pilot error.

Including Ahmad Jauhari's overhaul, Malaysia Airlines management has tried four major restructurings in the past 12 years.

The financial woes are a combination of mismanagement, government interference and a shortage of professionals to run the airline, said Shukor. "The problem is its inability to compete effectively. They always had easy money coming their way."

The first restructuring, in 2002, shifted the airline's debt to the government. Three subsequent plans, including the latest launched in 2011, were aimed at stemming losses with steps such as axing unprofitable routes.

The recovery strategy in an updated business plan from June 2012 exhorts the company to both "win back customers" and have a "relentless cost focus."

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

From 2007 to 2010, the company's average operating profit margin was 0.1 percent, according to credit rating agency Moody's, meaning every $100 of revenue generated a tenth of a cent of profit. For regional rival Singapore Airlines the figure was 8.3 percent and 7 percent for Hong Kong's Cathay Pacific Airways.

Malaysia's former prime minister Mahathir Mohamad, has urged the government to sell the airline to private investors.

"If it's government money, nobody cares," he told Malaysia's state news agency last year.

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.

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jagcarfan March 12 2014 at 7:19 AM

I'm in the airline management with over 30 years of experience, and what I see here is the same thing that many airlines have, too many political appointees in positions that are not supposed to be in, creating ineffective costs due to their lack of knowledge.
I don't mean to say that young people are not intelligent, however, putting young inexperienced men coming out of universities with the MBA's, does not mean that they know what they are doing, and I live that experience every day,, and you have to back off of them for fear of losing jobs,, and in addition to this, there is also internal corruption, catering overcharges kickbacks, unreported excess baggage money, overcharges on aircraft maintenance or parts, the excessive operating fuel cost, which is a major fact, and the list goes on. Also not including in this the overcharges from landing fees by the airport authorities, immigration penalties, per passenger paying fees for the terminal use, and again the list goes on, so for those, that think that and airline business is easy, well is not only complex dealing with the expenses but also, as I’ve mentioned it before, inexperience young people in management believe that they have all the answers that a person with over 35 years of experience does not have.
I feel sorry for this carrier and any carrier, by people trying to put them down, just to use as an example, American Airlines had more questionable accidents and more bankruptcies than any other airline I know, however people still use them including myself.
Please don’t reply back the above is just my personal opinion.

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AOL ONLY on scr March 12 2014 at 8:28 AM

So sad.

Flag Reply +1 rate up
joeonc1 March 12 2014 at 7:31 AM

sounds like they have problems inside the store

Flag Reply +1 rate up
Velocity105 March 12 2014 at 7:42 AM

Makes you wonder about a lot of companies around the world if it takes this kind of scrutiny to bring the airline's issues to the public's eye.

Flag Reply +1 rate up
jayreda March 12 2014 at 7:48 AM

can an a passenger airplane as large as this one totally disappear in the water with out a trace can it sink so deep were the plane and cotenant be so deep in the ocean so they may never surface

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3 replies
scottee March 12 2014 at 8:07 AM

all airlines have woes.
all government create woes.
all people have woes.

Flag Reply +10 rate up
Wade March 12 2014 at 8:53 AM

This story does not offer even one shred of new evidence, other than conjecture.

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Walter March 12 2014 at 8:52 AM

In the backwash of any tragedy, it seems that all sorts of unfavorable disclosures from past histories of individuals and companies involved begin to surface in the media. In the case of the missing airplane, we're led to believe that the pilots were unprofessional by permitting two females to sit with them in the cockpit while on a flight two years ago. The informant of the sighting should have reported it at that time and not after a tragedy has happened.

Flag Reply +2 rate up
jayreda March 12 2014 at 8:11 AM

for the both of you this argument is counterproductive

Flag Reply +1 rate up
nelsonbldr March 12 2014 at 8:52 AM

AOL, if you're quoting stats from Moody's, better make sure your math is correct.

Flag Reply +2 rate up
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