It is incredibly rare for two catastrophic events to happen to the same airline in such a short period of time, Chris Sloan, president of aviation news organisation Airchive, told Business Insider.
Malaysia’s recent tragedies have indelibly stained the reputation of an airline that has one of the best safety records in the world. Until this year, Malaysia Airlines had experienced only two fatal accidents in 68 years of operation. In fact, the last 19 years have been fatality-free. And the airline regularly receives stellar marks for service and comfort from airline ratings agency Skytrax.
Despite high marks from passengers, the airline’s financial performance over the years has been dismal. With the Malaysian government holding a majority stake in the airline through its holding company, Penerbangan Malaysia Berhad, Malaysia Airlines has become a veritable black hole that sucks in money. Multiple government bailouts over the past decade were required keep the carrier aloft.
In the past three years, the airline has lost an astonishing $US1.2 billion, reports Businessweek. And according to the CAPA Centre for Aviation, Malaysia Airlines lost a further $US140 million in the first quarter of this year alone, with business down 59%. In other words, the airline hasn’t been profitable for years. And it’s unlikely to achieve profitability anytime soon.
With the loss of consumer confidence compounding the company’s financial troubles, what’s in store for Malaysia Airlines? Here are three ways the company could turn around.
A potential solution is to simply rebrand the airline: Take the existing company and relaunch it with a new logo and a fresh coat of paint. This strategy was successful for both ValuJet and Swissair, though under different circumstances.
ValuJet was a budget airline that rebranded as AirTran Airways after a fatal crash and subsequent financial losses in the mid-1990s.
While the company’s transformation following its merger with AirTrain was nothing short of spectacular, its situation differed greatly from Malaysia Airlines in both complexity and symbolism.
At the time of ValuJet’s rebranding, it was a 5-year-old airline with a small, ageing fleet of 15 short-range DC-9/MD-80 series jets.
Malaysia Airlines, on the other hand, is nearly 70 years old, with a fleet of 100 aircraft, ranging from smaller Boeing 737s to 500-seat Airbus A380 superjumbos. As Malaysia’s flag carrier, the airline is also a symbol of national identity, serving as a flying ambassador for the country.
Swissair’s rebranding also offers some parallels. Swissair, known for its high-quality service and strong financial performance, was referred to as the “flying bank” for many years. However, by the late 1990s, after a decade of poor financial decision making, the Swiss national airline was struggling to deal with massive amounts of debt. Its grim financial situation was worsened by the crash of Flight 111 off the coast of Nova Scotia in 1998.
By 2001, the company announced it would have to liquidate its assets. SWISS International Airlines arose from the ashes, and has since been rated as one of the best in the world. The success of SWISS shows it’s possible to rebrand a nation’s flag carrier and recover financially. However, SWISS had two advantages that Malaysia Airlines does not: Consumer confidence in the Swissair brand wasn’t fatally tarnished by the company’s troubles, and Switzerland’s aviation tradition was well-established.
So Malaysia Airlines may have to do more than simply rebrand — it may need a top-to-bottom overhaul.
Korean Air’s revamp in the early 2000s offers some context, says Airchive’s Sloan. In 1999, the airline suffered three crashes in six months. Two were fatal.
Instead of simply rebranding, Korean Air made major internal changes. The airline brought in Lufthansa to retrain its pilots, changed its corporate culture, and relaunched. Malaysia will have to follow a similar playbook, Sloan says, adding, “they have to show the world they learned their lesson.”
There have been calls from inside Malaysia for the government to dump its investment in its money-losing airline. However, Sloan believes the opposite is likely to happen: Not only will the government pump more money into the airline, it will also nationalize it, he says. No country wants to lose such a prominent international symbol at a time of weakness.
Nationalization could provide the airline with a temporary financial safe haven, buying time to execute the sweeping changes needed to ensure long-term viability. In 2001, the New Zealand government nationalized Air New Zealand and injected more than $US700 million into the company after the airline’s failed merger with Ansett Australia drained its coffers. The nationalization allowed Air New Zealand to make drastic shifts in its business model. Eventually, that airline returned to profitability.
If the Malaysian government does not step up to the plate, another option for Malaysia Airlines is to seek a merger. In the month before the crash of MH17, rumours sprang up about cash-rich Etihad Airways’ interest in acquiring shares of the airline. But since the crash, the Abu Dhabi-based carrier has distanced itself from the rumours.
One prospective partner for Malaysia Airlines may very well be a competitor: AirAsia, a low-cost carrier that also operates out of Kuala Lumpur.
In the last 15 years, CEO Tony Fernandes has taken AirAsia from a tiny, debt-ridden operation to a financial juggernaut. Much of its explosive growth has been at the expense of more established regional competitors.
Now, Fernandes wants to jump into the long-haul game with the company’s AirAsiaX brand. In fact, the airline purchased 50 Airbus A330neo long-haul airliners at this month’s Farnborough Airshow.
To remove a local competitor and bolster its transcontinental operation, AirAsia may be willing to take on Malaysia Airlines’ international assets for a reasonable price. It’s not unheard of for a younger regional airline to swallow up a large international carrier. In 2007, Brazil’s Gol Airlines purchased the remnants of the country’s bankrupt national carrier, Varig. After the merger, Varig — once Brazil’s preeminent international airline — now operates as an arm of Gol Airlines.
In 2012, Malaysia Airlines and AirAsia actually agreed to $US364 million stock swap that was nixed by pressure from Malaysia Airlines’ union. With the airline confronting an unprecedented crisis and AirAsia enjoying a meteoric rise, it may make sense for the airlines to revisit their past agreement.
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