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Fuel Price Impact


August 19, 2008

Malaysia Airlines’ Q2 profit falls 65%
Malaysia Airlines said Monday its net profit drastically dropped 65 percent in the second quarter from the previous year due to soaring fuel costs, reported AP.

AP said the state-owned airline also warned it may not be able to meet its profit target of 400-500 million ringgit ($121-152 million) this year.

In addition, the airline’s net profit fell to 40 million ringgit ($12 million) in the quarter through June, despite an 8 percent rise in revenue to 3.78 billion ringgit ($1.15 billion). This was largely due to a 56 percent surge in jet fuel cost to 1.73 billion ringgit ($524 million) for the period, the company said.

For the first half this year, Malaysia Airlines said it posted a net profit of 160 million ringgit ($48 million) while revenue was up 7 percent to 7.53 billion ringgit ($2.3 billion).

“I am pleased that we are able to make a net profit in the most difficult business environment in the airline industry’s history...but the industry outlook is still very grim,” Managing Director Idris Jala was quoted as saying.

“It’s a very difficult business environment to achieve these (full-year profit) targets but we will give it our very best shot,” he said.

Pressure on the aviation industry has eased as global oil prices fell to around $114 a barrel Monday from nearly $150 a barrel in July, but Jala said it is insufficient to lift the sector out of its doldrums. At least 25 airlines had gone bankrupt this year due to high oil prices.

“Anything above $100 a barrel is bad. Oil prices have marginally reduced but it must come down a lot more for the problem to go away,” he said.

Malaysia Airlines will continue to cut capacity on routes with weak demand, trim costs and hedge its fuel requirement, he added.

The flag carrier returned to the black in 2007 after two years of losses. But its growth plan has come under threat due to high oil prices and global economic uncertainties which have weakened travel demand.

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