This article first appeared in The Edge Malaysia Weekly on February 10, 2025 - February 16, 2025

MALAYSIA Airlines Bhd’s return to profitability appears to have been short-lived as the national carrier slipped back into the red for the financial year ended Dec 31, 2024 (FY2024). While the airline benefited from a strong recovery in passenger traffic after the Covid-19 pandemic, a series of service disruptions had forced it to make an 18% reduction in network capacity in the fourth quarter of 2024.

In FY2023, Malaysia Airlines’ parent company Malaysia Aviation Group Bhd (MAG) posted a net profit of RM766.19 million — its first annual net profit since 2010 — versus a net loss of RM343.59 million in the previous year.

But challenges such as supply chain disruptions, for example a shortage of parts and a hold-up in aircraft delivery, and workforce attrition led to flight delays and cancellations last year, ultimately forcing Malaysia Airlines and its sister airlines, Firefly and Amal, to cut capacity.

MAG group managing director Datuk Captain Izham Ismail, also the CEO of Malaysia Airlines, says the group started the first three quarters of 2024 well but a drastic 18% capacity cut across its network in 4Q2024 erased all the gains, resulting in a full-year loss.

“Year-to-date performance as at Sept 30, 2024, was positive, with MAG clocking a net profit of half a billion ringgit. Credit has to be given to our 13,000 team members, who did pretty well. However, disruption in flight operations in 4Q2024 had a huge impact on the group,” he tells The Edge in an interview.

The group incurred higher-than-anticipated costs due to increased repair and maintenance expenses caused by supply chain constraints, aircraft engine procurement, customer compensation for cancelled or delayed flights and potential revenue lost from the capacity cut.

“On a normal day, Malaysia Airlines operates about 290 flights per day. However, the capacity cut saw the number of flights reduced to 200 daily in 4Q2024. In a day, we lost about 90 flights, which could potentially generate about RM100 million in revenue for the airline. That is an opportunity lost,” explains Izham.

Still, he stresses that MAG made the decision with its “eyes wide open”.

“We wanted to uphold safety at all costs. That was paramount. At the back of our mind we knew that if we cut capacity, it would put our financial position at a disadvantage. But we wanted a good night’s sleep,” he says.

“Today, as we speak, I feel comforted that we made that decision. It was a tough situation and we had many options on the table, but safety superseded commercial interests, even if that meant taking a loss for FY2024.

“If you look at our financial results for FY2024, which we will announce in March or April, it might not be a ‘beautiful’ set of numbers to a certain degree but I am comforted that we upheld safety and airworthiness. Today, I am confident that Malaysia Airlines will come out stronger in 2025.”

The capacity reduction in 4Q2024 led to the cancellation of about 6,300 flights, affecting about one million passengers. “About 6% of the affected passengers requested refunds [for tickets on cancelled flights] and all [of them] have been paid,” he adds.

The airline also provided reimbursements to passengers affected by delays and cancellations for expenses such as meals, accommodation and rebooking on other carriers. “Rebooking passengers on another airline is also an additional cost to us,” says Izham.

Malaysia, as well as the US, Australia, Thailand and the Philippines, is among the countries that have beefed up their airline consumer protection regulations, mandating refund options for delays and cancellations.

Despite the capacity cut, MAG’s passenger revenue was 1% ahead of budget in FY2024, driven by a higher passenger load factor, he says.

MAG remains cash flow positive, with a cash balance of RM3 billion as at Feb 3, 2025. The group has not yet utilised the remaining RM2.3 billion of the RM3.6 billion in new capital committed by its controlling shareholder, Khazanah Nasional Bhd, as part of its 2021 debt restructuring plan. Izham considers the cash position comfortable.

MAG has made significant progress since launching its 2021 debt restructuring, which reduced liabilities by over RM15 billion and debt by RM10 billion. The reopening of international borders allowed the group to achieve its first operating profit of RM540 million in FY2022 and a net profit of RM766.19 million in FY2023.

State fund Khazanah owns 83.58% of MAG, while the Minister of Finance Inc-owned company Turus Pesawat Sdn Bhd holds 12.94% and Kumpulan Wang Persaraan (Diperbadankan) 3.48%.

A shortage of aircraft maintenance engineers was also partly to blame for the flight disruptions at Malaysia Airlines last year. It was reported that the airline’s maintenance, repair and overhaul (MRO) arm MAB Engineering Services Sdn Bhd (MABES) lost 63 engineers to SIA Engineering Co Ltd, following the latter’s opening of its facility at Sultan Abdul Aziz Airport in Subang, Selangor.

MABES has faced attrition since 2023 due to retirement and employees seeking greener pastures with other airlines, but the attrition rate has stabilised, says Izham. “We have managed to circumnavigate the problem by improving our remuneration packages for our maintenance personnel.”

Still, he sees little respite from issues concerning supply chain challenges such as a shortage of labour, spare parts and planes and engine problems, which will continue to impact the global airline industry for another two to five years.

Servicing engines on its aircraft used to take around 55 days but now it takes about 150 days, he says.

“Even our MRO facilities and original equipment manufacturers (OEMs) handling all our engines are facing the same constraints of supply chain and human capital. These challenges will continue to be every airline’s issue and a drag on airlines’ earnings,” he adds.

“As for Malaysia Airlines, being the national airline, it is important for us to continue training new aircraft maintenance personnel and this will take years, not overnight. We have developed numerous programmes for our technicians and licensed engineers,” says Izham, adding that this will help create a steady pipeline of aircraft maintenance engineers.

“These aircraft maintenance engineers and technicians will not only serve MAG, but the entire industry. That is the position we have taken and our manpower issue today has to a certain degree stabilised.

“I would not say things have totally stabilised. We are still on soft ground because the demand for skilled workers in the marketplace will continue to intensify [as airlines expand their fleets]. Engine reliability has also become an issue worldwide, as well as parts shortages, as geopolitical conflicts such as the crisis in Ukraine have disrupted the supply of raw materials.”

Malaysia Airlines chief operating officer Captain Nasaruddin A Bakar says the airline has drawn up four programmes that will produce about 200 licensed aircraft engineers and technicians a year.

“This will support the [human] resources needed by the group. And in the context of nation-building, it will ensure there are job opportunities for Malaysians,” he adds.

The airline is also investing in producing around 100 cadet pilots a year, even though it has sufficient pilots to meet its needs for now. Nasaruddin describes this as a “healthy number”, exceeding pre-Covid-19 levels.

“Let’s not kid ourselves that all our pilots will stay with us forever. Middle Eastern airlines are popping up with aggressive recruitment drives for pilots. So, before we have our backs against the wall, we have established an internal key performance indicator (KPI) to produce 100 cadet pilots a year,” says Izham.

While Malaysia Airlines is addressing its manpower needs, a weaker ringgit presents a potential challenge. The airline is exposed to currency fluctuation risk due to a significant portion of its aircraft lease liabilities and supplier obligations being denominated in US dollars.

For 2025, the airline is projecting the ringgit to trade at 4.5 against the US dollar. At the time of writing last Thursday, the ringgit had strengthened to 4.4256 against the US dollar. Over the past year, the ringgit has fluctuated between 4.1249 and 4.7979 against the greenback.

After decades of focusing on the price-sensitive domestic market, the airline restrategised in 2021 to focus more on the international market, where passenger yields are higher. The strategy is bearing fruit, according to Izham.

“Airlines with strong network capability will be able to circumnavigate the rising costs [due to currency fluctuations]. In the meantime, Malaysia Airlines has been taking steps to reduce the impact of volatility since three years ago by not focusing too much on the domestic market but more on the international market, henceforth the strategy of network flow comes into play,” he says.

“With intensified network flow, when you sell tickets overseas, you sell them in the local currency. So you create a natural hedging environment for your business. At the peak of 2024, the US dollars that we held accounted for about 40% of our cash balance.

“The strategy of network flow has benefited Malaysia Airlines over the last three years. We will continue to focus on the network.”

In 2017, the domestic market accounted for about 50% to 55% of Malaysia Airlines’ revenue. The remaining 45% was from international flights. Last year, the international market accounted for 90% of the airline’s revenue and only 10% was generated from the domestic market.

The following is an excerpt from the interview.

The Edge: How has it been, running Malaysia Airlines amid supply chain challenges? (Izham, 64, was initially due to retire at end-2024, but his contract was extended for another year.)

Datuk Captain Izham Ismail: The airline industry is a very tough business. Margins are razor-thin, at about 1% to 1.5%. The fact remains that Malaysia Airlines underinvested in itself in the last two decades and is now paying the price. I hope in the future, shareholders will be more understanding. I believe in what I believe. You have got to give the man some credit for what he believes in. Malaysia Airlines is what it is today because we have a strong belief in what it should be. For whatever it is worth, it has been manifesting itself. Of course, last year was a different story.

What is MAG’s strategy going forward?

Izham: MAG has two guiding principles. The first is, we must be commercially sustainable. Second, we must uphold and drive nation-building in the context of an economic enabler, creating jobs and more suppliers for the ecosystem, advancing and making strong all aviation-related businesses like MRO and ground handling.

Thus, we are cognisant of the fact that if we were to drive our network flow hard [with a focus on international markets], we would not be instigating inbound tourism to Malaysia. For example, the network flows from London to Sydney where the Kuala Lumpur International Airport (KLIA) is just a transit hub. So, it is our duty as well to induce tourism demand for Malaysia by creating products sold outside Malaysia that make a transit stop in the country — a bonus side trip — where a customer flying from London to Sydney is able to enjoy a free ticket from Malaysia Airlines to Langkawi or Penang, with discounted hotel rates. We are well aware that the point-to-point domestic traffic can be served by other airlines in this country. So, MAG takes centre stage in the international market.

The size of the cake in Malaysia is small. If everybody were to compete for the same piece of cake, the issue of overcapacity comes into play. So we believe MAG, specifically Malaysia Airlines, should take ourselves out of the equation so that everybody is a winner. The other players can serve domestic or the Asean region while Malaysia Airlines focuses more on international markets. This is a position that we took three years ago.

One would ask, why doesn’t Malaysia Airlines fly more from KL to Alor Setar? But we tell ourselves that is a leisure market and there are other players serving that route. Malaysia Airlines does fly from KL to Alor Setar, but once or twice a day, and not five times a day anymore. So, our assets are being utilised more in the international market.

Won’t there be complaints that Malaysia Airlines, as the national carrier, is not serving the domestic market?

Izham: In the beginning [there were]. But today, [the complaints] have quietened down because consumers understand that the role of Malaysia Airlines is to connect Malaysia to the rest of the world.

When does MAG expect its capacity to be fully restored following the 18% cut in 4Q2024?

Izham: With [aircraft] engines and components coming back late and still small bits and pieces of reliability issues here and there, we don’t expect to go back to the market fully in 1Q2025. We are slowly building back capacity and expect to return to full capacity sometime in 4Q this year. This year, it is quite comforting [to note] that we are expecting to receive nine more Boeing 737-8 aircraft and a total of nine Airbus A330neos as committed by Airbus. That will help us build back our capacity towards the second half of the year. [To date, MAG has received eight of the 25 737-8 aircraft under a contract with US lessor Air Lease Corp and one of 20 A330neo aircraft leased via Avolon.]

But there is a caveat here. Even our aircraft manufacturers are facing problems with the supply chain constraints. So I would not discount any delays [in delivery]. In our planning, we have already taken a pessimistic view by pushing back our capacity build-up for our narrow-body aircraft by nine months. So this full capacity [target] in 2H2025 is the midpoint of our scenario range. If the aircraft come earlier, it is a bonus.

As for the A330neo wide-body aircraft, we are putting a three-month buffer on delayed delivery. By no means is this a blank cheque to aircraft manufacturers to delay the aircraft.

Is the series of flight disruptions in 3Q2024 a thing of the past?

Captain Nasaruddin A Bakar: We have taken action to reduce the risks by mitigating and ensuring our maintenance is being looked into and our manpower issue has been addressed. By reducing the risks, we hope there will not be any more recurrence of those incidents. But we cannot say for sure.

Izham: Flight disruptions will continue to happen, driven by weather and many other factors. If you say components in the aircraft will not fail, it will continue to fail. So the question is, how will he [Nasaruddin] manage it? In all airlines, it will continue to happen.

In 4Q2024, we were driving at high capacity. Things were failing. And we were managing a fleet of ageing aircraft. Something had to be fixed. That’s why we made that decision to fix and stabilise it. Until we have all the new airplanes, MAG will continue to nurse ageing aircraft.

[As at Feb 3, 2025, MAG was operating a fleet of 109 aircraft, comprising one A330neo, eight 737-8s, 47 737-800s, 15 A330-300s, five A330-200s, seven A350s, 17 ATRs, six Twin Otters and three A330 freighters.]

With a smaller network going into 2025 and things stabilising, do you see MAG returning to the black this year?

Izham: There are a lot of moving parts. One is that, unfortunately, my competitors are also building capacity. Capacity in Asia-Pacific is expected to grow at a compound annual growth rate (CAGR) of 5.6% over the next five years. There is a chance that MAG, specifically Malaysia Airlines, may be behind the curve slightly.

Yield will also probably deteriorate slightly but I believe it will not be below 2019 levels. But more importantly, if the delivery of all these airplanes is delayed, it will impact our network because our model of network flow requires strong connectivity. So, if you don’t have assets, connectivity becomes an issue. If connectivity becomes an issue, then it will be a challenge [to turn around].

[Another challenge] is the availability of components in the supply chain.

And most important is the foreign exchange fluctuation risk. We are budgeting ourselves on a moderately worst-case situation of the ringgit trading at 4.5 against the US dollar.

[Notwithstanding the challenges] we are all fired up to make 2025 another profitable year. Based on the numbers,  the market demand and yield forecasts — I believe very strongly that 2025 will be a good year.

What are your views on the privatisation of Malaysia Airports Holdings Bhd (MAHB) by Gateway Development Alliance Sdn Bhd?

Izham: First and foremost, MAHB must deliver efficient operations and high product offerings to airlines such as improving connecting time and reducing baggage handling time. MAHB serves airlines. Perhaps, the synergy will facilitate that. Most importantly, it must be very clear that airlines are the ones that attract customers. Airlines are customers to airports. The millions of customers who walk through the airports are the work of airlines.

Also, attracting more [foreign] airlines [to operate in Malaysian airports] is a double-edged sword. Airports do need to attract more airlines to operate in the country but the question we should ask is, What are these airlines bringing? Are they bringing more tourists into the country? Or are they just bringing in transit traffic? The big airlines in Malaysia are Malaysia Airlines and AirAsia. We should also ask, Will MAHB’s bringing in more airlines be detrimental to the Malaysia-based airlines? There must be a balance.

Case in point: Within MAG, we have MABES. If they were to just focus on their profit and loss, they would probably go to market and get a lot of foreign airlines [as their customers], but where would that put Malaysia Airlines? There must be a balance. Thus, MABES exists with a clear objective — to make good of MAG’s assets and only go to market with the additional capacity. Not the other way around.

We also have a proposition [for MAHB] to make KLIA a hub that supports Malaysia Airlines connecting Asia. Malaysia Airlines is a deep-rooted member of oneworld [which includes American Airlines, British Airways, Cathay Pacific, Finnair, Iberia and Japan Airlines]. It would be fantastic if KLIA were a hub for oneworld. It would help the country, KLIA and Malaysia Airlines. In Asia-Pacific, there is no hub for oneworld yet. It has a presence in KL, Tokyo, Seoul and Hong Kong. If you look at Singapore and Thailand, the Star Alliance and the SkyTeam Alliance are strong there. I am currently talking to oneworld [to make KLIA its hub for Asia-Pacific] and I do hope my counterpart in MAHB will do the same. But for oneworld to establish itself in KLIA, the infrastructure must be strong, world-class and operate efficiently. I strongly believe the pathway to get there is for Malaysia Airlines and MAHB to work together and I hope the synergy between both entities will continue to drive this aspiration and objective so that the end result is not just profitability to Malaysia Airlines and MAHB, but also create a multiplier effect for the economy of Malaysia. That should be the focus.

What’s next after MAG’s Long-Term Business Plan 2.0 (LTBP2.0)?

Izham: LTBP2.0 ends this year. We will embark on LTBP3.0 with destination 2030 in play, driven by four strategic pillars. We remain steadfast on the journey to become a premium brand. There will be speed bumps along the way. We will reveal more details on LTBP3.0 by the middle of 2025. The caveat to destination 2030 is that it must be profitable every year.

Today, the last piece of the jigsaw puzzle is a stabilised maintenance exposition. What does that mean? Anything and everything that has to do with maintenance, such as hiring people, ensuring that our maintenance has the right skills and tools, etc, has to be stabilised.

All the legacy contracts of Malaysia Airlines have been renegotiated. The job is done. It is time [for me] to retire. 

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