Malaysia Airlines Flight MH17: Ukraine crash may be too much for airline to recover from
After two once-in-a-lifetime air disasters within a span of months, speculation is mounting that Malaysia Airlines won't be able to overcome the catastrophes, as the airline was deeply in debt even before its problems captured the world's attention.
Malaysia Airlines MH17 flight was destroyed in eastern Ukraine on Thursday, and the 298 people on board are all presumed to have died. American intelligence agencies suggest the plane was shot down by a surface-to-air missile.
The tragedy comes barely four months after Malaysia Airlines became a household name for another tragedy, after flight MH370 disappeared from radar screens on a flight out of Kuala Lumpur, never to be seen again.
Lightning shouldn't strike two times in the same spot- Airline analyst Barry Prentice
By themselves, each tragedy would have been hard enough for an airline to overcome, both in the loss of trust from passengers, as well as the financial ramifications of cancelled flights and recovery efforts.
But coming in quick succession to each other, aviation experts say the company may be facing an insurmountable battle to stay in business.
"I can't comprehend of anything they can do to save themselves," said Mohshin Aziz, an aviation analyst at Maybank in Kuala Lumpur.
Well before the twin tragedies, Malaysia Airlines was in financial trouble, even when compared to the low bar set for financial stability in the aviation industry.
The airline has lost $360 million last year, the third straight year it has been in the red. Indeed, Malaysia Airlines losses in 2013 are three times what it saw in 2011. That comes at a time when the airline industry as a whole is seeing sunnier skies on the profitability side — lobby group IATA says worldwide, the airline industry is expected to earn a net profit of $18 billion this year, up from an estimated $10.6 billion for 2013.
And yet, Malaysia Airlines was losing about $1 million a day, even before they lost two planes. The company's shares are down 40 per cent this year, including 11 per cent on Thursday as news of the Ukraine crash spread.
Like many airlines, Malaysia Airlines is state-owned, with the government owning almost 70 per cent of the company. That buys the company a little more leeway than private airlines with a pure profit motive as the government requires the airline to run certain unpopular and unprofitable routes.
Seth Kaplan, managing partner of industry newsletter Airline Weekly, said the airline was in "worse shape" financially that almost any other airline before Flight 370 vanished.
"It's just hard to imagine that they could have even survived the first incident without a lot of government help and now they're going to need even more," he said.
But there's a limit to how much leeway the company can get, airline analyst Barry Prentice at the University of Winnipeg says. "They're a legacy airline living in an [age] where there's a lot of budget, cut-rate airlines going."
"The state's been willing to pay the costs of having them lose money for some time [but] we don't know whether that will continue," Prentice says.
Unlike the bungling of Flight 370, which was at least partly the airline's own fault, the second disaster appears largely beyond the airline's control. It may, however, face questions about why it continued with flight paths over Eastern Ukraine, which is the heart of a violent rebellion against Kyiv, when some airlines were circumventing the country.
"I find it pretty remarkable that a civil airline company — if this aircraft was on the flight plan — that they are flight-planning over an area like that," said Robert Francis, a former vice chairman of the National Transportation Safety Board. "You wonder a little bit about Malaysia Airlines, if that's true."
In the hours since the tragedy, airlines the world over have been quick to cancel flights and divert routes away from the area. Many airlines had been flying over Ukraine despite warnings because it offered a shorter route that saved money on fuel.
Some, including Air Canada and Korean Airlines, say they have been avoiding the area for weeks already.
That may provide some small comfort to uneasy passengers, but over the long haul, diverting planes into new routes will cost them money and drive up prices. "Where you have to fly further, you burn more fuel [and] take more time … so those airfares would have to go up for those particular places," Prentice said.
For air travellers in Asia, who have a multitude of options thanks to the budget airline boom, the latest incident will make the Malaysian carrier even less attractive. Its brand in the rest of the world, where it became known largely because of the Flight 370 mystery, will become more closely associated with the worst fears of the flying public.
Higher prices for flights may be a moot point for Malaysia Airlines, however, if the company can't come up with enough cash to cover itself while it tackles the uphill journey to refurbish its tattered image.
"Perception-wise, it really hits home," Aziz said. "It's very challenging. It's very difficult to fight against negative perception."
As Prentice puts it: "We say that lightning shouldn't strike two times in the same spot but maybe they're worried about a third time."
With files from The Associated Press