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Malaysia Airlines sees red Q1

MALAYSIA Airlines said yesterday that the company plunged into the red in the first quarter of the year, hit by a triple blow of overcapacity, fuel hedging losses and the global economic slump which hurt passenger and cargo demand.

It warned of tough prospects this year as airlines are forced to cut fares to boost sales.

The national carrier posted a net loss of 695 million ringgit (US$199 million) for January-March, compared to a profit of 120 million ringgit a year earlier.

The decline was blamed on derivative losses - mostly on its fuel hedging contracts - of 557 million ringgit, it said in a statement.

Revenue fell 28 percent to 2.7 billion ringgit as the percentage of seats filled fell sharply while yields - which measure income per seat - dwindled further, it said.

Managing Director Idris Jala said the airline has cut passenger capacity by 11 percent in the first quarter and may further reduce capacity to cut cost in line with falling demand.

Its operating loss for the quarter was 138 million ringgit.

"This is the first operational loss for Malaysia Airlines since the third quarter of 2006 as it faced a triple squeeze: overcapacity, extreme fuel volatility and a global slump," Idris said.

But he said the airline's fundamentals remained strong, with a cash balance of 3.8 billion ringgit.

The airline said air travel demand was set to remain soft. It warned that the "outlook remains challenging as yield pressures continue to mount as airlines proceed to reduce fares and fuel surcharges to encourage consumers to travel."

The carrier said it has decided to maintain its fuel hedges as oil prices rallied past US$70 a barrel recently. It has hedged 47 percent of its fuel requirement this year, 60 percent of its needs for 2010 and 40 percent for 2011 at a price of around US$100 a barrel.

He said Malaysia Airlines will further trim costs by up to 1 billion ringgit this year with no new aircraft deliveries until the end of 2010, freezing new recruitment and cutting budgets across the company.


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