MAS caught between a rock and a hard place

One analyst from Maybank Investment Bank Bhd reckons most of the routes axed were those that never got a chance to make money from inception.


KUALA LUMPUR: Malaysia Airlines is caught between a rock and a hard place.

While some quarters are condemning it for cutting routes that reduce the country's connectivity to key or potentially key tourism destinations, others are lauding the fact that it is finally axing routes which have been bleeding the national carrier since inception.

MAS announced it would be cutting several routes last week, including to those destinations perceived to be gateways to Europe and South America.

Among others, the airline announced cuts to Buenos Aires, Rome, Dubai, Capetown and Johannesburg.

Malaysian Association of Hotel Owners president Datuk Seri Abdul Aziz Abdul Rahman, for example, lamented that MAS lacked foresight in discontinuing routes to Buenos Aires and Rome.

He said the route cuts would make tourists bypass Malaysia, reducing the number of travellers to the country. He was concerned that this would hurt the tourism industry's long-term development.

"It is a pity that there appears to be no strategic long-term planning on MAS' part. They just believe in chopping here and chopping there," Abdul Aziz said.

On MAS' losses, Abdul Aziz said the national carrier should be thinking in terms of the tourism industry as a whole.

Malaysian ambassador to Chile S. Ganeson also expressed disappointment at the route cut to Buenos Aires, especially at a time when other carriers are seeing the need to expand into that region.

Singapore Airlines started flights to Sao Paulo, Brazil, in March this year, it is understood, in anticipation of the upcoming 2014 World Cup to be held in Brazil.

According to MAS, its decision to withdraw was made as various initiatives to revitalise them (the routes) in the past did not yield positive results.

"As for the Kuala Lumpur-Cape Town-Buenos Aires route, the losses were heavy, compounded by the fact that it was serviced by a four-engine B747 aircraft which required heavy fuel consumption," the airline said in response to queries.

As MAS is also on track to phase out the B747 aircraft by end of 2013, this means that the national carrier would have eventually exit the route.

The decision to exit early was to contain the losses expected for the 2012 financial year.

"I think the only thing we can ask of MAS is that in their criteria to determine which routes to axe, they should keep in mind whether these routes involve countries which are major tourism markets for Malaysia," Bank Islam Malaysia Bhd chief economist Azrul Azwar Ahmad Tajudin told Business Times when contacted.

While no one believes that route cuts are the end all and be all for MAS' problems, one analyst from Maybank Investment Bank Bhd reckons most of the routes axed were those that never got a chance to make money from inception.

"We have to give due respect to current management for actually axing it," he said.

The analyst went on to say that this was the first positive step made by management.

"External parties who complain about MAS discontinuing routes must also understand that it's a crucial requirement for MAS to get back on track. You can't have it both (loss-making routes and a profitable airline). It's one or the other," he said.