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Problems Plague Malaysia Airlines


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A day after the tragic news of another Malaysia Airlines plane going down, this time in eastern Ukraine only four months after the disappearance of Flight 370. Details are still unfolding but Ukrainian and US officials are leaning towards the plane being shot down in a region of the country that has in recent days seen increased conflict. Long before the issues with the downed aircraft, Malaysia Airlines has been plagued by financial issues leaving many wondering if the company will be seeking a government bailout.

Historically a Solid Companymalaysia airlines 2

Malaysia Airlines was formed in 1947 and only shuttles and handful of customers on local flights. Since then the company has become a major player when it comes to shuttling customers throughout Asia, the Middle East, Europe, and even to Australia. The company has even publically prides itself on serving over 13 million customers yearly, shuttling roughly 50,000 passengers on a daily basis to about 60 different destinations worldwide. In 2011 the company generated profits as high as 4.5 billion dollars and has won industry awards in superior customer service.  In recent years the company had been operating in the red until the Malaysian government stepped in to help restructure the company and in 2007 Malaysian Airlines was able to turn a profit. Soon after the company would be back in the red until 2011.

Financial Issues Plaguing Malaysia Airlines

Like many of the larger airlines whom are currently struggling to maintain customers, Malaysia Airlines is no different as its costs of operation are constantly being undercut but smaller budget airliners. Increased competition as newer regional competitors have begun operating around the company offering staggeringly lower ticket prices. In a failed effort to subvert profit losses the company tried a different strategy than many of its larger competitors. In the place of raising ticket prices the company cut some of its longer flight routes and tried selling more tickets in order to keep from passing on the financial burdens of lost profit onto their current customer base. As previously mention the strategy failed and ended up costing the company 1.3 billion dollars in under a period. Malaysia Airlines has over the last three years been consistently in the red.

In the past the Malaysian government has helped the airline which has effectively been hemorrhaging money, but the intervention by the government has only given the company short term gains. The Malaysian government even created an individual company, state owned, in order to help restructure the airline and clean up its debt. The state owned company was given the authority and power to absorb certain Malaysian Airlines assets in order to free up some money so that the company could pull itself out of the red and into the black. Only a few years of profitability were able to be achieved before more financial problems and monetary mismanagement began affecting the company again. The company took another hit when large portions of its workforce began to unionize and corporate capital started slipping. Since 2007 the company has posted losses year after year and share prices have continued to drop.

Hope For a Turnaround Weakensmalaysia airlines

In the beginning of January, Malaysia Airlines was hoping that this would be the year the company would be able to turnaround from their constant profit losses. However that did not occur when Flight 370 disappeared on March 8th. The flight vanished off the grid over the Indian Ocean along with all 239 people on board. Since the disappearance of Flight 370, the stock prices of Malaysia Airlines has continued in an almost free fall drop in value. The company has already started offering discounted priced tickets in order to help boost revenue. A couple of weeks ago, the company made a public announcement that it had been playing with the idea of considering going private in hopes of dashing the mounting financial turmoil on going for the company since March. The fiscal devastation that is plaguing this company has not been enough to cause worry about the airline shutting down but the mounting fiscal issues.

Financial problems have continued to plague Malaysia Airlines as it reels back from two devastatingly tragic crashes. The company may once again be seeking another government bailout in order to subvert their current dismal financial state. Should the company go private there may be a another restructuring to take place that might once and for all allow the company to reorganize and gain capital in which to finally direct the company into a sustainable profitable path. With news of yesterdays horrific crash, the future of the company will be known in the next couple of weeks as investors and the world populous looks on to see how the company can deal with not only a staggering loss of life, but a loss in public and consumer confidence.

 

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