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'Unlikely to survive'

Interview: Gabriel DomínguezJuly 18, 2014

As Malaysia reeled from the disappearance of Flight MH370, another disaster hit its national airline. Aviation analyst Mohshin Aziz tells DW the firm's future looks dire after one of its planes was downed over Ukraine.

A file picture dated 10 March 2014 shows a Malaysia Airlines Boeing 777-200 airplane sitting on the tarmac moments before its scheduled departure towards Kuala Lumpur at the Beijing Capital International Airport in Beijing, China. A Malaysia Airlines Boeing 777 with more than 280 passengers on board has crashed in eastern Ukraine, Russian and Ukrainian news agencies report.
Image: picture alliance / dpa

The airliner carrying 298 people from Amsterdam to Kuala Lumpur crashed on July 17 in rebel-held east Ukraine, with the United States saying it was hit by a surface-to-air missile. Ukraine's government and pro-Russian insurgents traded blame for the disaster. There were no signs of survivors at the crash site near the town of Shaktarsk in the Donetsk region.

The disaster comes less than five months after the disappearance of Malaysia Airlines Flight MH370. The fate of the flight has been shrouded in mystery ever since the passenger jet left Kuala Lumpur for Beijing in the early morning hours of March 8 with 239 people on board. While the Boeing 777 is believed to have crashed in the southern Indian Ocean, international search efforts have so far failed to provide any clues as to what happened to the plane.

In a DW interview, Mohshin Aziz, aviation analyst at the Kuala Lumpur-based Maybank Investment Bank, says the flag carrier was already in financial trouble when MH370 disappeared and believes the airline is likely to go out of business in its present form by the end of second quarter of next year following such unprecedented tragedies.

DW: What does the future of Malaysia Airlines look like after this second disaster?

The future of Malaysia Airlines looks very dire and the recent incident in Ukraine will make things worse. I don't see how Malaysian Airlines can survive in the near future in its current form. Even before this incident took place, we were very skeptical that the carrier could survive for more than a year as it was sustaining huge losses - up to five million Ringgit (1.56 million USD) per day. Based on that analysis, we think that the company will probably be out of business in its present form by the end of second quarter next year. This is of course assuming everything is status quo.

Mohshin Aziz
Aziz: "The future of Malaysia Airlines looks very dire and the recent incident in Ukraine will make things worse"Image: Maybank Investment Bank

What economic impact has the disappearance of Flight MH370 already had on the airline?

From the financial perspective, the impact doesn't seem to be that great - around 40 Million Ringgit (12.5 million USD). That is the direct expense incurred by the company in handling the MH370 incident. It is important to point out, however, that a lot of the expenses are set to be covered by the insurance agencies. But more important, perhaps, is the fact that there has been a big decline in the average fare price as people are not willing to pay high ticket prices to fly Malaysia Airlines.

Has there been a reduction in the number of passengers?

Only a minor reduction - mostly from passengers from China and Australia - but everywhere else seems holding up well. This analysis is based on data published in April and May.

Has such a combination of tragedies ever happened to an airline before?

No. It is unprecedented in the 100-year-old history of aviation. No airline has had to go through what Malaysia Airlines is going through right now: two huge disasters in a span of five months. You could call it a "black swan event."

Why do you think people will stop flying Malaysia airlines?

A lot of airlines have experienced tragic incidents. But what we have noticed is that if airlines tend to witness such incidents, things get back to normal after four or five months. After this amount of time, people start to feel more comfortable, put the past behind them and look forward. But we are only five months into a major disaster and now we have a double whammy.

This is why I think the sentiments of the people towards the airline are mainly negative. Many Asians are quite superstitious and will probably avoid Malaysia Airlines because they might think the company is cursed with bad luck. This may sound crazy, but, unfortunately, perception is based on unrealistic things. It will take a long time before this negative perception is overturned.

How important is trust in the aviation business?

It is essential. Under normal circumstances, price is everything. Those who offer the best price win, but if the perception of safety is not there, you can reduce prices as much as you want, but the demand will still be weak.

What can Malaysia Airlines do to keep its business running?

First, it needs to look into the most relevant areas of its aerial business. I believe that the business of domestic flights has a future. People in Malaysia are still attached to the national carrier, no matter what. It is very important to the Malaysian identity as many like the food, the service and what it represents. So I think if it were to become a domestic airline only, it will need money, but it is likely to survive.

Malaysia Airlines Boeing 777
Aziz says Malaysia Airlines is likely to survive if it becomes a domestic airline onlyImage: picture-alliance/dpa

Internationally, however, I don't think it has a business case anymore. As it is today, the company is making huge losses for its international sectors. Furthermore, after these two incidents people may start looking for alternatives. There is plenty of competition in the market and consumers can choose between three to five other airlines for any route.

This is why I believe that in order for Malaysia Airlines to survive, the company should discontinue their international flights business. I know it is painful, but at moments like this you have to focus on things that you are strong at and have good business.

Mohshin Aziz is an aviation analyst at the Kuala Lumpur-based Maybank Investment Bank.