Friday, September 4, 2009

MAS Clarifies On "BN's Bullshit On MAS Revealed"

From the Comments Section of the original post on Sarawak Headhunter:
Comments by Sarawak Headhunter in red.
Tan Wai Fong said...

We would like to offer clarification pertaining to our Q2 financial results announcement in August.

We made a conscious decision to be an early adopter of the Financial Reporting Standard 139 (FRS139) beginning FY09. When we announced this in May, we highlighted that we wanted to ensure that we were aligned to how other full service carriers reported their results and to ensure transparency around our results.

This is where FRS139 can be found.

Due to the unprecedented collapse in oil prices after reaching a historical high in July 2008, most airlines were hit with significant mark-to-market (MTM) loss positions on their fuel hedging portfolio.

Obviously, we at Malaysia Airlines were not spared as we practice competitive hedging and the early adoption of the FRS139 enabled us to be transparent about our MTM position. Prior to FY09, there was no urgency to adopt FRS139 as our MTM position was not significant.

Just what is "competitive hedging"? Is there such a thing as "uncompetitive hedging" or is that an oxymoron?

In our Q209 results announcement filed in Bursa, under part B review of performance, we first announced that MAS recorded an operating loss, followed by derivative gains and net profit. During our result briefings, we walked the media and analysts through our P& L in terms of revenue, expenditure, operating loss and net profit. We had robust discussions on yield, seat factors, operational losses and ways to increase revenue, operating cash flow and fuel hedging.

The financial figures including the operating losses were reported by The Star and The Edge as below:

The Star: Malaysia Airlines (MAS) reported an operating loss of RM420.8mil but exceptional derivative gains of RM1.34bil on fuel hedging resulted in the carrier reporting a net profit of RM876mil in the second quarter ended June 30.


For us laymen, perhaps MAS could clarify what exactly "exceptional derivative gains" means. Does it mean that MAS made more money from fuel hedging than they did from operating an airline and if so how was this achieved? Perhaps MAS is in the wrong business. More importantly perhaps, can this "profit" be spent? Is it cash in the bank?

Also what are the components responsible for the operating loss of RM420.8mil?

The Edge Financial Daily: The group recorded an operating loss of RM420.8 million in 2Q compared with profit of RM62.0 million a year ago mainly due to lower operating revenue in line with the declining trend in global travel and cargo movements resulting from the current economic downturn.


Interestingly, the media at the results briefing asked the same question you did – will Malaysia Airlines be profitable as the yields have dropped even though the load factor is up? In comparing Q109 vs Q108, our yields went up 4% but our load factor was down 56% as all the airlines were discounting their fares heavily. For Q209, we have decided to drop our yields in order to increase the load factor, rather than keep the yields up and lose the passengers. This strategy worked and our systemwide load factor for Q209 was up 10% to 66% compared to Q109. With more passengers flying with us, we can now work on increasing our yields.

This does not quite answer the question "Will Malaysia Airlines be profitable?" Passengers prefer lower fares and can be fickle. Will that 10% increase in load factor remain when MAS tries to increase its yields (presumably by increasing its fares, at least partially)?

We are facing the worst crisis ever. Many airlines are registering losses at the operational level. This includes regional airlines like Singapore Airlines and Cathay Pacific. We are not immune from this. Like all the other airlines, we are facing huge challenges.

We are doing everything we can to boost our revenue, conserve cash, and manage costs. We are on the right track with attracting passengers as our loads are up by more than 10% to 66% in Q209. Our forward booking loads are up.

What exactly is MAS doing to "boost revenue, conserve cash and manage costs"?

We are aggressively pushing sales, and some 15 campaigns for Malaysia and 30 for global markets have been lined up for the rest of the year.

Has MAS actually carried out a study on how cost effective these sales campaigns have been? Have they actually resulted in a net increase in revenues or yields?

We expect the economy to recover next year, and are looking forward to take delivery of our new B737-800 in late 2010 to capture the expected growth. We are reviewing aircraft requirements according to supply and demand, and realigning our capacity to tap into the growth in demand.

What if the economy does not recover?

We will increase our frequencies into key ASEAN capitals, South Asia, China and offer more flights to certain points in Australia. In the Middle East, we are looking at expanding our services.

With a 36% load capacity yet to be filled, does it make sense to increase frequencies unless these sectors are already at full load capacity? What are the present load capacities of each of these sectors?

The full clarification by Tengku Azmil Zahruddin, then Executive Director/ Chief Financial Officer is available here,

The bulk of this full clarification was in fact regurgitated here. Sarawak Headhunter reserves the right to make further comments and ask more questions upon a full review of MAS' accounts.

Thank you.

Tan Wai Fong
Head, Media Relations
Malaysia Airlines

September 2, 2009 10:18 PM

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