Is there a future for Malaysia Airlines after flights MH370 and MH17?

http://www.theguardian.com/world/2014/jul/29/is-there-a-future-for-malaysia-airlines

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It was a sultry summer evening as Alice Ephraimson-Abt, a bright 23-year-old, waited to board the Asian aeroplane that was to take her to start a new life halfway across the world. She grabbed her father, Hans, for one last hug before jumping on to the plane. Just hours later, the passenger jet was shot down by the Russian military. Two hundred and sixty nine innocent people perished in the attack.

That was in August 1983. But the downing of Korean Air Lines Flight 007 from New York to Seoul 31 years ago has distinct parallels with this month's killing of 298 passengers on Malaysia Airlines Flight MH17, which was shot down over Ukraine, with many blaming pro-Russian rebel forces. Both incidents sparked global outrage and heightened tensions between Moscow and the west. Both incidents put the airlines involved under extreme commercial pressure. Korean Air Lines survived its brush with disaster, but not without huge changes to the way it looked and operated.

The human cost of airline tragedies is well documented. Hans Ephraimson-Abt, who passed away last year aged 91, went on to become a renowned air crash victims' crusader after setting up the Air Crash Victims Families Group. But the business cost of recovering from these shocks is often harder to quantify. A tarnished airline brand coupled with weak finances can spell doom. Both Trans World Airlines (TWA) and Pan American (PanAm) failed as a result of the wounds left by fatal air disasters.

The latest Malaysia Airlines tragedy comes just four months after an earlier plane, Flight MH370, disappeared en route from Kuala Lumpur to Beijing with 239 passengers on board. Jonny Clark, an aviation brand consultant, says passenger jet disasters live longer in the memory because their recognisable logos and corporate colours are splashed across TV news channels and newspaper front pages. "When a plane crashes, it's not the Boeing 777 that crashed," Clark says. "For the general public, it's the company that was flying the plane that crashed – in this case, Malaysia Airlines."

Recent reports suggested the management of Malaysia Airlines were weighing plans for a brand overhaul that would have included renaming the carrier, although Clark cautions that this could be "a nail in the coffin". "Passengers could see through a superficial name and brand change, especially after the global media coverage of both incidents."

He notes the example of Japan Airlines, whose reaction to a deadly crash in 1985 that killed 520 people was to rebrand its planes, scrapping the tsurumaru crane logo because "the world had seen blood on its tailfin". The concern was to prove misplaced: the public wanted Japan Airlines to keep the tsurumaru, and it was reinstated in 2011.

In the case of Malaysia Airlines, an expensive rebrand might not even be necessary. Clark notes that the carrier had already started repainting older planes with new livery earlier this year: a blue-and-red vertical stripe is now painted halfway along its planes, instead of the stripe that runs along the whole length of older models. Both of the striken planes still had the old livery, so none of the images of the wreckage in Ukraine, or the reconstructions of the missing plane, have featured the new corporate paint job.

After its 1983 tragedy, Korean Air Lines opted for a name change; within a year of the attack it had been renamed Korean Air. Perhaps more significantly in the eyes of customers, its planes were repainted from white to light blue, and the KAL tailfin logo – a red crane enclosed in a red circle – was replaced with a red-and-blue taegeuk, the Korean yin-yang symbol. The distinctive blue livery and tail fin remain to this day.

Despite the corporate makeover, Korean Air struggled for years to overcome its poor safety record. In 1999 it suffered three crashes in the space of six months, two of which involved fatalities. This time, there was to be no rebranding – the airline decided it had to completely change its internal operation. It swept away old management hierarchies, hired more non-military pilots and brought in Lufthansa, the German airline giant, to retrain its pilots. It took a long time, but Korean Air's revamp worked. It is now a top-ranked airline for safety and service.

The future of Malaysia Airlines, which has racked up huge financial losses in the last three years, is far less certain. Joseph D'Cruz, airline industry expert and professor at the Rotman School of Management at the University of Toronto, thinks the latest crash "will reduce sales to the point that it will not be financially viable".

A collapse of an airline founded in October 1937 would be a severe blow to national pride. Malaysia Airlines, which is 69% owned by Khazanah Nasional, the state investment fund, flies around 37,000 passengers a day to 80 destinations worldwide and employs about 20,000 people. The mysterious disappearance of Flight MH370 tarnished the airline's reputation and hammered sales, particularly in China, where customers flocked to rival operators. Shares in the operator have plunged 28% in the last year, and the business is currently valued at £682.5m – around ten times less than IAG, the group that owns British Airways and Iberia.

Long before these crushing blows to public confidence, though, Malaysia Airlines was battered by high costs and falling sales, culminating in a £222m plunge into the red in 2013. It is expected to do even worse this year, after reporting a pre-tax loss of £82m [link to pdf download] in the first three months. The carrier has struggled to compete against low-cost entrants such as Indonesia's Lion Air and Malaysia's AirAsia, and cash-rich Middle Eastern powerhouses such as Etihad and Emirates. Douglas McNeill, investment director at City financier Charles Stanley, says: "We've seen in Europe that it is possible for legacy airlines to compete, but it takes many years and a lot of restructuring."

Malaysia Airlines was strongly criticised by travellers for the way it handled the disappearance of Flight MH370. The reaction to the second disaster has been better; it is offering refunds to any passengers who are too scared to fly on its planes. It is also waiving all fees and accepting requests to postpone or cancel flights scheduled for this year, even on non-refundable tickets. Whether the gesture is enough to win back the trust of its Chinese customers remains to be seen. The disappearance of MH370 sparked a 60% fall in sales from China in March.

Malaysia Airlines faces a long road to redemption. While some airlines have been able to move on from tragedy and regain customers' trust with little more than a fresh coat of paint, others have had to take far more drastic action. ValuJet, a low-cost US operator, rebranded itself as AirTran Airways after a crash in 1996, and managed to shed the perception that it had a bad safety record. Another that was forced to embrace a corporate makeover was SwissAir, following a crash in 1998. Three years later it became Swiss International Airlines. The brand revamp was more subtle than some: the airline, often known as Swiss, has kept its instantly recognisable tailfin logo of a white cross on a red background. During the seven-year project, it refreshed its planes' liveries, refurbished its premium-class lounges and upgraded cabins in its longhaul aircraft. Clark thinks Swiss was able to pull through because it retained the support of the public in Switzerland, who viewed the airline as a symbol of national pride; this, perhaps, offers some hope for Malaysia Airlines.

Others were not so fortunate. TWA never really recovered after one of its Boeing 747s exploded and crashed in 1996 just 12 minutes after takeoff from New York's JFK airport on a flight bound for Rome; the carrier eventually filed for bankruptcy in 2001. Another airline that never managed to pull itself back from the brink was Pan Am. The carrier limped along for a few years after Libya's 1988 bombing of Flight 103 over Lockerbie in Scotland, which killed 270. It finally collapsed in 1991, following the outbreak of the first Gulf war, which sent fuel prices skyrocketing and depressed the global economy.

Despite current public concerns about air travel, it is still much safer to fly today than it has ever been. Until this year, Malaysia Airlines had just two fatal accidents in its history, and the last 19 years have been fatality-free. The website planecrashinfo.com shows there were between 25 and 35 air disasters a year throughout the 1960s and 1970s. Last year there were only two.

Yet D'Cruz reckons there are no good options left for Malaysia Airlines. The most likely saviour is the Malaysian government. Reports suggest Khazanah Nasional, the sovereign wealth fund, is working on an emergency rescue by buying up the shares it does not already own. Taking Malaysia Airlines off the stock market and into state ownership would pave the way for Khazanah to perform radical surgery.

Khazanah owns stakes in about 50 firms, valued at $40bn, across sectors as diverse as banks, telecoms, hospitals and theme parks. According to sources quoted by Reuters, the restructuring plan could be revealed next month. It would involve a sale of the profitable engineering arm, plus the airport services or budget airline subsidiaries. Other cost-saving measures would be driven through, including slashing its bloated payroll and installing a new management team. The airline and Khazanah commented that the reports were "speculation". The next move by Malaysia's power brokers will be decisive in determining whether the airline can indeed rise from the ashes.