First of all, MH17 is a terrible tragedy that has hit at least one family twice in five months. The families of those concerned have the compounding emotion of not only their loved ones perishing, but also of outrage that the death of their loved ones were preventable on multiple fronts.
But this post isn’t about that.
There were several aircraft in the area at the same time, one of which was operated by Singapore Airlines, it could have been that flight that was shot down just as easily. But it wasn’t. It was the second total loss of an aircraft and it’s passengers for Malaysia Airlines in five months. In time we might come to understand that MH370 was also not within the control of Malaysia Airlines, but until the aircraft or remnants are found, it remains unknown.
What is to become of Malaysia Airlines? It was only recently that the carrier joined oneworld, and it was made clear in 2013 that prior to these incidences their financial status was a struggle. After two extremely high profile aircraft losses in less than half of a year, their financial position must be dire. Despite that, the airline has offered full refunds or flight changes to both revenue and award ticket holders through the end of the year, for any passenger at all – not just those affected by these extraneous circumstances. This is a gesture that is above and beyond what is required by an airline in this situation and incredibly generous.
I believe that these two incidences will cause a dramatic shift in the way that Malaysia Airlines operates. This is a shame because the Sherpstress and I really enjoyed our experience (coincidentally on an MH 777-200 to Europe) and have grown to love Kuala Lumpur. As much as we enjoy Air Asia, we would prefer not to fly them long haul when we choose to return to KL.
Option One – Government Intervention
Malaysia has a lot at stake with their flag carrier and the brand of Malaysia. While I am personally not in favor of US airline interventions, the American market is quite different. There are a diverse group of carriers, a ton of available market domestically, and plenty of private sector options to swallow up a struggling carrier.
In Malaysia the landscape is different. For long haul operations the choice is either outside carriers (assuming MH was no longer a going concern) or Air Asia which has just a few A330s and a handful of long haul routes. Domestically, the country is much smaller and the gap would be easily filled by discounters without a major drop-off. It is important for Malaysia, as they are now on a global stage, to show themselves as competent, capable and resilient. The examples of unstable states in Southeast Asia are many and it is not the message that should be sent to the world at large. That being said, I maintain that government intervention is a likely outcome in this situation.
Option Two – Insolvency
The carrier could find that the losses are insurmountable and they cannot find a way back to profitability even with the panache of oneworld. The government could take a market approach and allow the airline to fail, which would be a good sign that their government respects the private industry and trusts market economies to create an opportunity for another player to fill the gap. I don’t think this will happen but it could.
Option Three – Takeover
While I think an outright takeover by, for example, Singapore Airlines would be unlikely, it could fix the problem. A far likelier outcome is an investment from an outside party like Etihad who have a history of investing in failing flag carriers in strong markets. They have invested in the domestic Swiss market, they now have 49% of Alitalia, and a good chunk of Air Berlin among others (including Aer Lingus, Jet Airways of India, Virgin Australia, Air Seychelles, Air Serbia). Their coverage in the Asian market is sparse, in fact just this month they announced many new destinations, among them Hong Kong, which shocked me because I had already assumed they already flew there. This could bolster their strength in the region and could also provide an additional network to Malaysia beyond Asia and limited destinations in Europe.
Option Four – Avianca of oneworld
Hoping for the best, the airline will remain a wholly independent entity and one way to liquidity would be a to wholesale miles to credit card companies and mileage savvy travelers. Avianca has long been the wholesale clearing house of Star Alliance by selling their miles on a 100% bonus for purchase or share. One could easily buy an award seat for dramatically less than the going rate. For Avianca it works well, they pay a lot less to partner carriers for award seats than the rate for which they sell the miles. Meanwhile, Avianca gets to hold on to the revenue until those miles are redeemed and in some cases, some miles will never be redeemed in which the money is essentially additional profit margin for the airline instead of an extended future liability. Some would argue that US Airways is currently the consolidator for oneworld miles, but in my opinion I doubt that the “New American” will continue to sell discounted miles eligible for use on oneworld airlines, thus creating an opportunity for Malaysia Airlines to step in. Here is an example of how this could play to your benefit. The cost of acquiring Enrich miles is about $31.50/1,000, fairly standard in comparison to other airlines. But with a 100% bonus structure such as Avianca and US Airways have employed, these points could be acquired for as little as $15.75/1,000 plus a flat purchase surcharge of about $13.
They could also start selling tons of miles to credit card companies and other mileage vending programs in bulk. There aren’t any current US based offers for Malaysia Airlines Enrich miles credit cards (International dollar version of an AMEX membership rewards card may be the only possibility), and even Avianca LifeMiles have a US Bank card paying out 20,000 for the sign-up and have had offers as high as double that. There was a recent post by another blogger (The Miles Professor and Gary Leff) that suggested they may now offer transfers from Citi Thank You Points, though there is some ambiguity there.
I prefer this option the best because I think it is a way for the airline to build back their capital at a guaranteed rate of profitability. I would even go as far as saying I would go out of my way for a Malaysia Airlines Enrich credit card with a 40,000 point bonus. Their chart is distance-based and as with any chart there are always sweet spots. On the Malaysia chart it is 75,000 miles for distances of 2,401-4,800 miles in business class or 90,000 in first. This could be used for Miami-Rio, or Seattle-Tokyo. If they were to sell their miles at half price the cost would be $1,181.25 for either of these seats in business class.
None of this really matters to the families of victims on either MH17 or MH370 (or in one terrible case – both). Nor should the fate of the airline matter to any of us at a time like this. But it could have been any of the 22 aircraft flying well overhead at that time. The sad reality is that it wasn’t.
This post may offend some, and others may see it as the next evolution for an embattled airline. Feel free to post your respectful comments below.