Malaysia Airlines faces fight for survival

The need for drastic change was already on the agenda "well before" March 8, he said, but the events that followed "created a critical point for deep reflection in our history and accelerated the urgent need" for action.

There have been rumors that Malaysia's state investment firm, Khazanah Nasional Bhd, the carrier's major shareholder, wants to privatize the airline after investing more than $1 billion in MAS in the past few years.

Unconfirmed reports have suggested that this may happen in August. Khazanah Nasional, however, has said it would make an announcement when there is one to be made.

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But the reality is that the airline simply does not have the financial resources to last out the year, and privatization is now a matter of necessity.

As other Asian airlines stand to benefit from any capacity cuts at MAS, their prospects for higher profits are likely to improve when the open skies agreement of the Association of Southeast Asian Nations takes effect.

This pact will allow airlines in the region to fly to more destinations with fewer restrictions.

But an open skies regime may not radically improve the fate of the region's airlines. Singapore Airlines Ltd was the most profitable airline in the world in 2008, with a profit margin of 13.8 percent. Last year, it ranked 19th with a margin of just 1.3 percent.

SIA and Hong Kong-based Cathay Pacific Airways Ltd enjoyed years of easy growth and high profits due to a combination of high-quality services and regional economic growth. Cathay is struggling with thin margins, although it is in a slightly better position than SIA because of its higher exposure to North American markets, said Aziz.

Cathay Pacific reported attributable profits of HK$2.62 billion ($338 million) for 2013, more than double the year-earlier figure. That translates to a net profit margin of 2.9 percent, on par with industry standards but trailing the performance of US airlines. And today the most profitable airlines in the world are in the US.

The fortunes of US-based airlines have been boosted by a series of mergers and acquisitions that have led to cost savings and efficiency. These moves led to cutting of excess capacity and unprofitable routes.

The airline industry as a whole is expected to see improved profitability this year, estimated at $18.7 billion, slightly lower than anticipated due to higher fuel costs. Global revenues could rise to $745 billion by the end of the year, according to the International Air Transport Association.

But the picture does not look very promising for the sector.

"Overall industry returns remain at an unsatisfactory level with a net profit margin of just 2.5 percent," said Tony Tyler, IATA's director-general and CEO.

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