Published August 19, 2008

MAS Q2 profit falls on higher fuel costs

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(KUALA LUMPUR) Malaysian Airline System Bhd, South-east Asia's third-largest carrier, reported a second consecutive quarter of decline in profit after it flew fewer passengers and fuel costs climbed.
Passing planes: MAS spent about 56per cent more on jet fuel, the company's biggest expense, as crude oil rose by more than half in the past year

Net income dropped 65 per cent to RM40 million (S$17 million), or 2.39 sen a share, for the three months ended June 30, from RM113 million, or 8.07 sen, for the same period last year, the company said yesterday.

Revenue for the second quarter rose 8.6 per cent to RM3.78 billion. Profit fell 9.5 per cent for the first quarter.

MAS, based in Subang, near the capital Kuala Lumpur, spent about 56 per cent more on jet fuel, the company's biggest expense, as crude oil rose by more than half in the past 12 months.

Airlines globally may post a combined loss of US$6.1 billion this year, the worst since 2003, because of fuel costs, the International Air Transport Association has said.

'Higher fuel costs have translated into higher prices and a weaker consumer sentiment,' said Khair Mirza, an analyst at Aseambankers Malaysia Bhd. 'It's still a very delicate situation.'

MAS flew 5.2 million passengers in the three months ended June 30, 4.6 per cent lower than a year ago, according to its website. The airline said yesterday that passenger revenue for the quarter declined to RM2.11 billion from RM2.15 billion.

Crude oil prices have fallen 11 per cent in the past month, which will benefit the airline industry, said Mr Khair, who is reviewing his share price targets for MAS and AirAsia Bhd, the country's biggest discount carrier.

MAS has said that it plans to cut capacity by 6 per cent this year by reducing flights and scrapping less-profitable routes. It also offered employees leave, or part-time work in a bid to cut costs.

In June, the airline raised fuel surcharges for international flights by as much as 80 per cent and froze most recruitment.

Still, 'all these efforts may not be enough' to boost earnings if demand remains weak, said Mr Khair.

MAS spent RM1.73 billion buying jet kerosene in the second quarter, the statement said. The carrier's share price fell 5.3 per cent to RM3.60 at the close of trading in Kuala Lumpur yesterday. -- Bloomberg