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June 3, 2008

MAS cuts costs as jet fuel goes dearer

Malaysia Airlines (MAS) is taking tough cost-cutting measures, including freezing recruitment and reducing the budget of every division by 10 per cent due to the gloomy outlook for the aviation industry caused by rising jet fuel prices.

MAS will also identify areas that it can defer spending until the situation improves, said managing director and chief executive officer Idris Jala.

The airline will freeze all discretionary training except those approved by the managing director or executive director and stop discretionary expenditure such as office renovations, upgrading and refurbishments until further notice, he said.

The national carrier will also review routes that are losing money as well as prioritise projects and expenditures, Idris said.

"It is the worst time for the airline industry. We are, however, cautiously optimistic," he said on the sidelines of the International Air Transport Association (IATA) 64th Annual General Meeting and World Air Transport Summit.

With several airlines already seeing lower profits, 12 airlines are reported to have gone bankrupt.

The situation was further dampened by global economic uncertainties, weaker demand for discretionary travel, lower global air traffic and a decline in passenger loads, Idris said.

He disclosed that if the oil price during the first quarter of financial year ended March 31, 2008, remained at $80 per barrel as in the first quarter of 2007, MAS would have registered 600 million ringgit in net profit instead of 120 million ringgit.

During the first quarter this year, the oil price stood at $127 per barrel range.

Idris said many of the routes and their capacities that were cut or taken off would have remained profitable if the oil price had stayed at US$80 per barrel.

"Some of the cost reduction measures under the Business Turnaround Plan gave us some resilience in facing the high fuel price," he said.

Besides the internal cost-cutting measures, MAS has also increased its fares as well as fuel surcharge in line with that of the competitors.

The airlines fuel surcharge has increased gradually from $5- $80 to $12-$160 according to the destinations, Idris said.

"Where MAS is the key player or market leader such as the Kuala Lumpur-London route, we lead in establishing the fuel surcharge," Idris said.

However, in cases where another airline is the key player or market leader, MAS will match the fuel surcharge, he said.

As a result, fuel surcharge revision was continuously implemented on a route-by-route basis, he added.

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