MAS’ recovery plan will bode well for M’sia’s aviation sector

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KUCHING: Malaysian Airline System Bhd’s (MAS) recovery plan announced last Friday will likely have positive repercussions to the overall aviation industry, analysts say.

On top of placing the ailing airline on the path of recovery, analysts envisaged Malaysia’s aviation sector’s yields will recover further and towards more sustainable growth.

Analysts also believe that other airlines in the country would benefit from MAS’ restructuring programme as the company has abandoned its ‘load-active, yield passive’ strategy to focus on more premium segments in the market.

The research arm of TA Securities Holdings Bhd (TA Securities) in a research note yesterday, viewed the RM6 billion 12 point recovery plan has covered every single aspect to turnaround of MAS.

These aspects include cost cutting, right-sizing company’s assets and human resources, and outlining current/future competitive strategies, it added.

“The set-up of NewCo would allow the company to reduce the operational headcount by proper workforce planning and break apart the strong union.

“We believe fair compensations like voluntary separation scheme (VSS) will also be offered to MAS employees. Also, the NewCo will honour all properly benchmarked contracts, implying that unfair practices to MAS disadvantage will be renegotiated,” TA Securities noted.

It further highlighted, “The recovery plan will likely affect the operational landscape as the NewCo will be injected some RM3 billionn capital progressively over 2014 to 2016.

“We believe this RM3 billion capital, or 50 per cent of the budget for recovery plan, will be used mainly for its fleet renewal programme to improve aircraft efficiency in order to compete with local and international peers.”

In the future, TA Securities pointed out the airline would likely rationalise the network to be principally regionally-focused with strong global connectivity through oneworld and other code-share partners as highlighted in the recovery plan.

“The new business model will also encompass a renewed focus on revenue yield management,” it added.

As for the impact on the overall aviation industry, TA Securities opined, “We believe the RM6 billion lifeline will be able to revive the business as a going concern, if all the measures stipulated in the plan can be successfully implemented.”

For other airlines, it said, AirAsia Bhd (AirASia) and Malindo could also benefit from the plan as MAS, a full-service airline, will re-focus on the premium segment and target business travelers and frequent flyers as far as market segmentation is concerned.

“In other words, airfares will be priced rationally based on cost structures and services rendered to avoid unfair competition. However, we continue to expect pricing pressure to persist in the near term as we believe MAS would need to undercut pricing to get its load back to above 70 per cent,” it projected.

Meanwhile, AllianceDBS Research Sdn Bhd (AllianceDBS Research) expect industry yields to rise again to more sustainable levels going forward.

“This would benefit domestic airlines, but would be negative for Malaysia Airports Holdings Bhd (MAHB) as travel demand could drop in response to more expensive fares,” it added.

On the other hand, AmResearch Sdn Bhd (AmResearch) believed the impact to overall passenger traffic might not be as dire as anticipated.

“MAS’ plan to expand regional network may very well offset the impact of the long-haul network cut, as the airline would be able to fly on a higher frequency on its regional route compared to the latter,” it explained.