Friday 17 June 2011

Can MAS take off on time?

MAS posted a net loss of RM242 in Q12011. High fuel price is largely blamed for the loss as its fuel expense increases RM321mil QoQ.

Since the appointment of new MD/CEO in 2009, MAS is determined to be the number one airline in Asia by 2015. It has a 5-year fleet renewal plan and aim to have the youngest fleet in the region by 2015. Younger fleet is good because it is more comfortable for passengers, more fuel-efficient and cost less in maintenance. To achieve this, MAS needs to buy a lot of new planes - about 50 planes ordered. Debts will surely increase and it needs a sustained profit to cover. It can't afford to make loss after loss. Can MAS do this?

Recent 2011Q1 result:
(in RM mil)2011Q12010Q1
Total Revenue31953302
Operation Revenue31422909
Net Profit-242311
Fuel expenses13311010
Total borrowings41513709
Short term borrowing577293

Total revenue falls but revenue from operation increases. Cash reduces and debt increases.

MAS financial result 2006-2010

Revenue (mil)1358811605155701523313407
Net Profit (mil)237523272853-134
Load factor (%)75.469.467.665.866.8

In 2009, MAS suffered an operational loss of RM600+mil. The reason it can still post a net profit of RM523mil in 2009 was due to the incredible fuel hedging gain of RM1.16bil!

In 2010, MAS received an one-off compensation of RM329mil from Airbus for plane delivery delay. If not due to this, MAS will also suffer net loss of RM92mil in 2010.

Thus, I regard 2009 & 2010 as loss-making years.

Latest 2011Q1 also registered loss. Now in 2011Q2, though the fuel price drops to slightly below UDS100, it is still above MAS's fuel hedging of USD88 in 2011 and 75% of fuel will be bought at market price. From its 2011Q1 presentation, MAS expects tough operating condition to continue in Q2, mainly due to: softening of demand, Japan impact, volatile fuel price, strengtening of MYR and traditionally weak Q2. When the CEO told the public that Q2 is "challenging", it usually means they will have a hard time. So, will 2011Q2 be another loss-making quarter? Will the ambitious re-fleeting project turn out to be a success or a burden?

Nevertheless, MAS recent tie up with Qantas and oneworld should be viewed as positive.

Aviation industry is extremely competitive and high risk. Global political unrest, volatile fuel price, natural disaster, terrorist attack, disease outbreak etc all have a significant impact on it, and on MAS share price as well. However, MAS will always get support from the government.

    MAS: supported at RM1.35

 MAS vs Airasia: Which company is better-managed?

FY2010(RM mil)2011Q1(RM mil)Market

Revenue Net ProfitRevenueNet ProfitCap
Airasia3993106710481728.58 bil
MAS135882343194-2424.85 bil

    New Airbus A330-300

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