Government Considering Selling Or Shutting Down Malaysia Airlines

Filed Under: Malaysia

Malaysia Airlines has been struggling financially for many years, but things got significantly worse when the airline lost two 777s just weeks apart about five years ago.

The airline has restructured… sort of, but not really. The problem is that the airline can’t seem to decide on a strategy and actually execute it. Malaysia Airlines decided they’d bring a 747 back into their fleet. They spent the money to reactivate it, only to never fly it.

Then the airline decided they’d retire the A380then they decided they wouldn’t.

The list of things they’ve changed their mind on goes on and on. On top of that, the airline has seen significant management changes:

I have a lot of respect for the current CEO. He’s a local, and he has been at the airline his entire career. At the same time, I also think that’s a liability, because I imagine he has a harder time making tough decisions, given that he views the entire airline as being his “family.”

Anyway, the airline has been aiming to return to profitability, but that hasn’t happened. Bloomberg reports that Malaysia’s prime minister has now said that he’s studying options for Malaysia Airlines, including investing more funds, selling it off, or even shutting down the airline. Mahathir Mohamad has said:

“It is a very serious matter to shut down the national airline. We will nevertheless be studying and investigating as to whether we should shut it down or we should sell it off or whether we should refinance it. All these things are open for the government to decide. We have to decide soon.”

The airline has been taken private after Khazanah Nasional Bhd poured 1.5 billion USD into the airline in 2014 in hopes of turning the airline around and making it profitable (and I should say “sort of private,” since this is the sovereign wealth fund of the government of Malaysia) . They’re now demanding the airline come up with a strategic plan for profitability, which is easier said than done.

The added challenge at the moment is that the wealth fund that owns Malaysia Airlines reported a loss of over 1.5 billion USD last year, and Malaysia Airlines accounted for about half of those losses.

Bottom line

With Malaysia Airlines continuing to lose money with no end in sight, it sure seems like their current plan isn’t sustainable. So while some drastic measures need to be taken, my guess is that the government will just pour more money into the airline and maintain the status quo.

I just don’t see Malaysia letting their national airline go out of business. At the same time, I also don’t see the airline undertaking a real turnaround plan. Goodness knows that if they haven’t been able to do so in the past five years, the next five years are unlikely to be any different.

What do you think will happen to Malaysia Airlines?

  1. that’s a lot of money to lose. What are they doing wrong? Running lots of unprofitable routes? Fares too low? Not enough cargo? Too many aircraft? Labor costs? Just mismanagement like THAI?

  2. A crucial point is that previous bailouts happened under the old government with lots of entrenched interests and corruption. The recent general election and actual first transfer of power brought in a much more reform-minded government that might have the political will to take radical action.

  3. Malaysia Airlines must be having too many internal problems that prevented them being profitable. Ps: if Mahathir Mohamad is serious about shutting the airline down, this will leave a huge black hole in Southeast Asia (CX only runs one fifth freedom between BKK-SIN), even though alliances is now less important.

  4. They did have a good idea where Airasia and MAS would be owned by common shareholders. Idea being that the back end could be shared to drive operational efficiency. But in the end politics got on the way. Mixed feelings as there would then be a very powerful monopoly for airlines in Malaysia, which isn’t good for consumers either.

    Fundamentally MAS is not run well. Website still shows routes that have been cancelled. I’ve seen more than one instance where almost all seats were blocked, when the plane was actually almost empty. There’s no real pressure to perform.

  5. On precisely what grounds do you say you have ‘lot of respect’ for the current ceo? What exactly has he done to get the airline towards profitability? Or are you simply respecting someone because they spent several years with one company? (That would be plain stupid.)
    also, what data / references do you have to support that you think he views the airline as his ‘family’?

  6. Flew with them in the mid-2000s and they are/were a brilliant airline. Can’t say what they’re like now as things have changed. I really hope they turn it around. It won’t be shut down – it’s a national airline. But certainly profitability and a strong sense of direction will make it an excellent airline again.

  7. Also should add that I think Malaysia should work to boost their tourism again. There are a lot of places like Langkawi and Borneo that are very appealing (for Europeans for example). Having stronger tourism movement would give the airline a boost.

  8. This airline has undergone crazy cost cutting to the point tech crews were leaving and management faced manpower shortage. Their financial problem has be a mixture of many. Malaysia itself as a country is loosing out yielding premium passengers. Malaysia Airlines itself is also loosing on the connecting flight demand as their network has shrunk a lot. Brought on by poor currency exchange losses and weakening purchasing power, locals generally dont travel with Malaysia Airlines unless corporate travel or there’s no choice especially if AirAsia cant provide.

    Recently as well Malaysia traffic as a whole has been mostly budget casual travelers from North Asia. I used to remember seeing loads of Aussies and Europeans visiting North Borneo of Sabah. Nowadays they’re all PRCs. You also have recent government change so stock devaluation will take time to recover and this has burden the Forex exchange rate for airlines in Malaysia to stay afloat. Even Airasia is feeling the heat.

  9. Malaysia is a very good airline with a good geographic footprint. It should be able to make money, especially with considerably lower labor costs than neighboring Singapore. Unfortunately, the airline has been a political arm of the government in the past and, as you can imagine, the pensions, the high salaries and the duplication in hirings is insane.

  10. I remember when MSA – Malaysia Singapore Airlines came into being in 1966 (and flew the very cool-looking Comet 4), and how six years later the governments of Malaysia and Singapore decided to split the company into two independent carriers. Singapore Airlines has been a decades-long success story, while poor Malaysian Airlines seems dogged by bad luck – and bad management.

  11. Malaysia is part of oneworld and losing them would be a loss for the alliance. However, I think a shutdown is unlikely. Hopefully, the carrier can turn around. Thai seems like they are in a worst spot IMO

  12. I think the main problem is the brand itself.
    A start would be perhaps to rename the airline as their name is infamous.

    Perhaps Malay Air?

  13. Anyone who has been to KLIA 2 knows that Air Asia is the real airline of Malaysia. The sooner that is recognized the better it will be for Malaysia.

  14. Not everyone has forgotten the MH370 tragedy and the Malaysian Government fiasco which followed of contradictory information, poor search coordination with other countries, refusal to release military tracking radar and all the rest of it.

    It should be sold and rebranded.

  15. Malaysia Inc is not doing well. Khazanah has been given the message from the PM that they should go back to their original mandate. As a result many of the state owned companies are being rationalized.

    I totally believe that Mahathir is willing to pull the plug on this one.

    And no, the current CEO has not shown much.

  16. KUL is such an annoying airport – I avoid it at all costs. That’s not the airline’s fault per se, but I’d pay extra to NOT have to transit there.

  17. I agree with some others here – the airline needs a rebrand. I have friends who still wouldn’t consider flying MH because of safety.

    Always good award availability in J though!

  18. The non-local CEOs didn’t leave because they got better offers but because their hands were tied and were unable to make necessary changes to a political sacred cow – the only reason why this airline exists in 2019 at all. I rather doubt that Mahathir is going to be the man to shut MH down and admit defeat and will instead keep plowing Malaysian taxpayer’s money into it to keep his political allies employed. Malaysia would no doubt be much better off in a world were there was no MH and it could not longer crowd private and more skilled operators — but of the wrong ethnic and political background — like AirAsia out of the market.

  19. Is Malaysia increasingly Islamic now like Indonesia, might be putting off Western and liberal first world tourists.

  20. @Michael, what makes KUL so annoying to you? In my experience it’s one of the more user-friendly airports with a lovely design to boot.

  21. The best cabin crew in the air. At least from my travels with them in the early 2000.

    Lucky, have you flown them recently?

  22. If the new Malaysian government were to decide to close down Malaysia Airlines, it would be the “right” decision, in my view. Whether it will is still uncertain.

    When Malaysian Airlines was “born”, it was the result of the split up of the bi-national Malaysia-Singapore Airlines (MSA). MSA was the original airline who has the world-famous sarong kebaya uniforms, the same ones which are still worn by Singapore Airlines today. It was also the airline which provided the “DNA” for fantastic cabin service, which has been seen on Singapore, and to a degree on Malaysia Airlines.

    When MSA was split into Malaysia Airlines and Singapore Airlines, Malaysia Airlines had the unfortunate luck that it was under the “clusp” of the extremely corrupted Malaysian government. They used the airline as its “national toy” whereby profitabillity was secondary to “national pride”. Some local Malaysians have criticised Malaysia Airlines as the “poorer” twin of Singapore Airlines, being more inefficient.

    It was used by government ministers to fly to different parts of the world at taxpayers’ expense, usually in first or business class. Malaysia Airlines was forced by the government to fly routes, both international and domestic , which were loss-making, just for prestige.

    Soon after the two unfortunately incidents when not one, but two Boeing 777’s were lost, and the airline was on “death bed”, the Malaysian public were clamoring for the airline to be closed as it would have been a waste of taxpayers’ money to prop it up. Instead, the then “corrupt” government insisted on pumping in more money though its sovereign fund. It even did a very poor version of “Sabena/Brussels Airline switch” or “Swissair/SwissAirlines switch”, closing the old airline and starting a new one overnight. The thing was, it was more a technicality . The old Malaysia Airlines (MAS) and the new Malaysia Airlines Berhad (MAB) had the same aircraft livery, same uniform, same logo. It felt to the public that hardly anything had changed, eventhough management would argue otherwise.

    Even then, the then Malaysian government continued to interefer in the airline and putting its “grubby fingers” into its interest. This included the past Prime Minister (who is being charged for being allegedly involved in major financial corruption cases that nearly brought the entirely country down) , When he visited the US to see Donald Trump, some suggested that he pressured Malaysia Airlines to sign an MoU for several Boeing Dreamliners, which the airline did not really want. It was alleged it had done for political reasons to get the then PM into the good books of the US President. Malaysia Airlines then was more interested in the Airbus A350 and A330 to renew their long-range fleet, and it was not so keen on the Dreamliner.

    After having had two expatriate CEO’s come and go, and now a Malaysian CEO at the helm, its timetable to achieve profitablity from 2018 slipped to 2019. Now, it looks like it may never be profitable ever. Just more excuses come forward for missing the target.

    This is probably why the new Malaysian government,and which were voted into government in 2018, decided enough is enough. Since they have toppled the old regime of 60 years, in the last election of 2018, they want to get rid of anything related to that regime.They may also feel Malaysia Airlines was somewhat too closely linked linked and too tainted with the fingerprints of the old corrupt and inefficient regime , and as they wanted a “clean-start” for the country, they may also welcome a new national airline starting with a clean-slate.

    The new Malaysian government may also feel that if a new flag carrier is to be started in place of Malaysia Airlines, it could be in the form of a private enterprise like AirAsia (which is also Malaysian in origin) but operating as a full-service carrier instead of being a budget airline.

    Time will tell to see if the current Malaysia Airline survives, or a new airline will take over its place.

  23. @Dennis

    Problem with Langkawi is the short length of the dry season, and 2,400 mm/94 in of rain annually.

    Thailand is far enough north and Bali far enough south that they have longer dry seasons.

  24. As a Malaysian, I am certain MAS will never be sold or legitimately privatized. There are too many govt officials who make an earning from its fiscal inefficiency.

    The current administration / Mahathir is keen to threaten the old bureaucracy, and state enterprises are a way to send messages to the people. Both sides are tied to state funding, though.
    For fully privatized options and bona fide investors, there’s AirAsia and Malindo.

  25. An internal report from Khazanah Nasional lists the airline as a national asset. With certainty, the airline will not be shut down.

  26. If they *did* shutdown, that’ll mean most ripe opportunity for Philippine Airlines to take its place in oneworld as the lone (and growing) Southeast Asian carrier. And that idea wouldn’t be so farfetched; there’ve been many rumors of Cathay being willing to sponsor the airline, so Malaysia Airlines disappearing will inevitably leave a gaping hole in access in, to and around Southeast Asia.

  27. @Marcus Leather: Malay Air would never fly (pardons he expression). Malay is one of the races in multicultural Malaysia and to name the national airline after one of the races (albeit the majority races) would be politically incorrect.

    @Cal: Indonesia is much less fundamentalist Muslim than Malaysia. Indonesia has the world’s largest Muslim population but the brand practiced there is more liberal in nature than in Malaysia these days.

  28. I for one have about five flights booked with MH at the end of the year, so for me and everyone else with flights booked that’d be a whole heap of money being paid back and me not able to get around Malaysian Borneo!
    I could see a sale, but really hope it won’t be shutdown as that is a drastic even more loss making move

  29. Simply put, there is a weakness in Strategic Marketing Planning and that torpedoes Revenue Management. Revenue Management, understanding how the EMSR moves with time in different market segments is the key to success of perishable assets.

    Marketing Plans must be built on the Blue Ocean Strategy and not just on SWOT, SPIN and all that. Often airlines talk of “out of the box” little realising that box is also part of the churning Red Ocean. As long as you are in the churn of red ocean no way out.

  30. A nation runs by Fascistic Malay Supremacism governance only good at corruption & using their “ketuanan Malay / bumiputera” status quo to hog for privileges &
    Prestigious position.. instead of by merit & capability, what do you expect?

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