Malaysia Airlines warns of 'downside scenarios' as weaker ringgit impacts costs

Malaysia Airlines warns of 'downside scenarios' as weaker ringgit impacts costs
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KUALA LUMPUR (May 30): Malaysia Airlines Bhd warned that a weaker ringgit against the US dollar impacts the company's costs as about 45% of its expenditure is denominated in US dollar.

"We are cautious of potential downside scenarios and market fluidity and are taking steps to cushion the impact they may have on our businesses," Malaysia Airlines said in a statement in response to enquiries by theedgemarkets.com.

theedgemarkets.com had earlier asked Malaysia Airlines about the net impact from the weaker ringgit against the US dollar on the company’s business.

The ringgit weakened past 4.4 against the US dollar for the first time since the onset of the Covid-19 pandemic in March 2020 on May 19, 2022 against a strengthening US dollar, in anticipation of US interest rate hikes to fight inflation.

The US dollar's strength, however, appeared to have waned on Monday (May 30).

It was reported that the US dollar was under pressure in Asia on Monday and was headed for its first monthly drop in five months as investors have scaled back bets that rising US interest rates will spur further US dollar gains and as fears of a global recession have receded a little.

At the time of writing on Monday, the ringgit strengthened to 4.3680 against the US dollar.

The exchange rate so far on Monday was between 4.3650 and 4.3780. Over the last one year, the ringgit was traded between 4.1045 and 4.4050 against the US dollar.

Malaysia Airlines did not specify in its statement the company's US dollar-denominated cost components as the airline weighs the impact of a weaker ringgit against the US dollar over the last one year on the company's businesses.

Keen observers of the aviation industry would have however noticed that fuel price is a key concern for airlines as crude oil prices rise above US$100 a barrel ((bbl) as the Russia-Ukraine war leads to supply constraint concerns amid rising demand for gasoline, diesel and jet fuel ahead of the peak summer demand season in the US and Europe at a time when global Covid-19-driven movement restrictions have been eased on vaccination progress.

On April 21, 2022, Malaysia Airlines' parent company Malaysia Aviation Group (MAG) said the Russia-Ukraine conflict had raised challenges in managing MAG's operating cost, directly impacted by escalating fuel prices as global crude oil prices exceeded US$100/bbl.

"Fuel price at current levels of US$110/bbl to US$130/bbl makes up to 40%-45% of the group's (MAG) total operational cost, an increase of about 35%-40% from a year ago.

"All companies within the group have taken immediate steps to manage the impact of higher fuel cost. Safety remains the top priority for the group and measures have been taken to avoid the conflict zone," MAG said in a statement then.

Malaysian sovereign wealth fund Khazanah Nasional Bhd owns Malaysia Airlines via MAG.

Chong Jin Hun