PEOPLE ARE 'VERY VERY AFRAID': Malaysia Airlines faces crippling cancellations after MH17, MH370 disasters

KUALA LUMPUR - Malaysian Airline System Bhd is facing an influx of passenger cancellations after the carrier’s second disaster in four months.

Travel agents from Melbourne to Singapore, New Delhi and Malaysia Airlines’ home country said they’ve seen a spike in withdrawn reservations since MH17’s downing this month — with cancellations climbing above 20 per cent in some places. The Samoan women’s rugby team switched to Thai Airways International Pcl from Malaysia Airlines on July 27 for a flight to a world cup event in France.

The cancellations may add to the financial difficulties of an airline whose state-run parent, Khazanah Nasional Bhd, estimated it only had enough cash to operate for a year even before the latest crash. Malaysia Airlines has suffered the loss of 537 people this year, as the airline industry heads toward its worst year in almost a decade for fatalities.

Passengers “are very, very afraid about anything else happening again,” said Ann Chitumbalam, manager at Escape Travel Sdn Bhd’s branch in Petaling Jaya, who’s seen about 30 per cent of Malaysia Airlines bookings through her office cancelled. Ticket holders “don’t want to take a risk,” she said.

Chitumbalam said she received a text-message from a businessman within hours of the crash, cancelling a trip to Amsterdam on Malaysia Airlines.

The airline said July 19 it would refund fares to customers postponing travel or cancelling their tickets, including non-refundable ones. It also agreed to waive any fees for people changing travel plans to any destination Malaysia Airlines flies to during 2014, as long as they applied from July 18 to 24.

Four months

Subang-based Malaysia Airlines, responding by e-mail to questions about passenger traffic, declined to give numbers of cancellations or to comment on ticket prices.

While passenger traffic figures since the July 17 downing of Flight 17 aren’t available, Webjet Ltd in Melbourne estimates it’s cancelled about a quarter of its Malaysia Airlines bookings since the disaster, which killed all 298 people on board and occurred four months after the disappearance of Flight 370.

Yatra.com, a New Delhi-based, online travel agent, saw an increase in cancellations and a dip in Malaysia Airlines bookings after the latest incident, said Sharat Dhall, the company’s president.

“It’s just natural to be worried,” Sera Mika, manager of the female Samoan rugby team, said by phone from Auckland. “We did have a lot of concerns.”

‘Double whammy’

In Singapore, Dynasty Travel estimates passengers will think twice before booking flights with the airline.

“Many will avoid Malaysia Airlines for the time being,” said Alicia Seah, spokeswoman at Dynasty Travel, one of the three largest leisure travel agents in Singapore, without specifying any number for cancellations. “This is certainly a double whammy for the airline.”

Malaysia Airlines, which racked RM4.13 billion in losses in the past three years, will probably lose more than RM1 billion in 2014 as it grapples with costs and an exodus of passengers, according to the average analyst estimate compiled by Bloomberg.

In June, before the latest disaster, Malaysia Airlines carried 3.1 per cent fewer passengers than a year ago, the second straight monthly drop. The previous month saw the highest proportion of empty seats since 2009.

Loyal customers

Reversing that trend would involve restoring the loyalty of customers such as Vincent Sim, a 35-year-old self-employed Singapore resident.

“The airline is going through such bad time, but I will definitely fly with them in the future as their prices, service and aircraft are on par with that of Singapore Airlines and Emirates,” Sim said.

Malaysia Airlines has sought to lure passengers by offering lower fares. For example, it has four of the five cheapest single-stop fares for early-December return flights between Sydney and London on price comparison site skyscanner.net, undercutting China Southern Airlines Co. and Cathay Pacific Airways Ltd.

At A$1,818 (RM5,430), Malaysia Airline’s cheapest return fare yesterday was 4.2 per cent cheaper than its lowest-priced option a week earlier. The new rate would result in the carrier being paid less than 5 US cents per kilometre over the 34,260-kilometre round trip. That compares to average costs of 5.34 cents per kilometre on Malaysia Airlines’s network in 2013, according to data compiled by Bloomberg.

Cutting prices

“They are under severe cost pressure,” Tan Kam Meng, an analyst at TA Securities Holdings Bhd in Kuala Lumpur, said by phone. “I don’t think cutting airfares would be an advantage.”

While travellers and prices adjust to perceived risks, the downing of Flight MH17, 60 kilometres from the Ukrainian city of Donetsk, brought that region’s conflict back into the global spotlight. Rather than prompting a pause in the fighting, it risks escalating hostilities while world leaders pressure Russian President Vladimir Putin to speed an investigation. Some evidence points toward the plane being brought down by a surface-to-air missile.

Malaysia Airlines Chief Executive Officer Ahmad Jauhari, who said in a June interview that he may modify the airline’s future plane orders as a result of the MH370 disappearance, may need to reduce frequencies on some international routes, according to a May 16 report by CAPA Centre for Aviation, a Sydney-based consultancy.

Appreciating service

The carrier had previously anticipated ordering as many as 100 planes for delivery from late 2016 or early 2017, a person familiar with the matter said in February.

While cheaper prices may deter defections, some people will be harder to convince.

“I will not travel MAS,” Chen Shiying, a science tutor in Singapore, said in reference to Malaysia Airlines. He says he’s been shunning the carrier for some time because it is “suay,” or unlucky in the Hokkien dialect. “It might not be their fault, but still, I would want to avoid taking them.”  - Bloomberg