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MAS drops routes for profitability

A Malaysian Airlines aircraft is parked next to an AirAsia jet at Kuala Lumpur International Airport in Sepang, outside Kuala Lumpur, in this Feb. 27 photo. PHOTO: REUTERS

Money-losing Malaysia Airlines (MAS) will lay off 6,500 workers and surrender 96 domestic routes to budget airline AirAsia under a major restructuring plan that will end 59 years of near-monopoly in the nation's aviation market.

State-owned Malaysia Airlines will be left with only 19 domestic routes and it will lose all government subsidies as of Aug. 1, the prime minister's office said in a statement late on Monday.

AirAsia, Southeast Asia's biggest low-cost carrier in fleet size, will also fly the 19 trunk routes in competition with Malaysia Airlines, the statement said.

Malaysia Airlines, will continue to operate as a full-service airline, while AirAsia will stick to its no-frills business model, providing distinct choices to customers on the 19 routes, it said.

The restructuring comes amid efforts by the government to reduce state expenditure, while MAS also strives to become profitable and shed its unsavory reputation for corruption and mismanagement.

Malaysia Airlines, 69 percent owned by the government, said last month that only four of its 118 domestic routes were profitable. In the nine months through December, the airline suffered a 1.26 billion ringgit (US$340.5 million) loss.

"The government will not be giving any subsidy to Malaysia Airlines or AirAsia to operate the domestic sector."

prime minister's office statement

To keep the airline afloat, the government has been bearing an annual loss of about 300 million ringgit (US$81.3 million) -- in essence providing the airline an indirect subsidy.

From Aug. 1, "the government will not be giving any subsidy to Malaysia Airlines or AirAsia to operate the domestic sector," the statement said.

Also, "the profit and loss account for domestic routes will be borne by Malaysia Airlines, not by the government," it said.

Separately, Malaysian Airline System Bhd, the company that operates the airline, said on Monday night it will fire 6,500 employees from its current staff of 23,000 because of the reduced operations. It will also reduce its domestic fleet from 40 to 21 aircraft, the airline said.

It is expected that AirAsia will absorb some of the Malaysia Airlines employees and lease its redundant aircraft. AirAsia, which flies mainly international routes, has been trying to get a foothold in the domestic sector.

AirAsia Chief Executive Tony Fernandes called the government announcement "a historic day for Malaysian aviation."

Idris Jala, MAS' managing director who has promised to make the airline profitable by next year, said the collaboration with AirAsia "the beginning of a new era for the airline industry in Malaysia."

The moves are part of a broad turnaround plan announced by Idris last month to raise 4 billion ringgit (US$1.08 billion) and cut unprofitable international routes. The airline also plans to sell its headquarters in Kuala Lumpur to raise cash.
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