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Double whammy for Malaysia Airlines

July 18, 2014 12:12 IST

Image: Relatives of the Malaysia Airlines flight which disappeared en route to Beijing.
Photographs: Reuters Una Galani

The woes of Malaysia Airlines will resonate more widely as geopolitical risk continues to boil, says Una Galani.

Fatal air accidents almost never happen, fortunately for both passengers and investors in airlines.

Yet Malaysia Airlines has been struck twice by tragedy in little over four months.

The aviation industry may have its own set of challenges, but it is a reminder that even more robust businesses need to consider political risk carefully.

Double whammy for Malaysia Airlines

Photographs: Reuters

A long-range surface-to-air missile is suspected to have brought down flight MH-17 killing all 298 people on board when it crashed over eastern Ukraine on July 17. 

Another Malaysia Airlines flight en route to Beijing disappeared in March without a trace.

Double whammy for Malaysia Airlines

Image: Passengers queue up at the Malaysia Airlines ticketing booth at the Kuala Lumpur International Airport in Sepang.
Photographs: Edgar Su/Reuters

The chances of either were vanishingly small.

Fatal accidents per a passenger departure have more than halved in number since 1990, according to the International Air Transport Association. 

The airline industry is one of the least able to financially absorb shocks.

High oil prices and intense competition for market share have already driven several close to the brink.

Double whammy for Malaysia Airlines

Photographs: Reuters

In Asia, high levels of government ownership set the scene for undisciplined expansion. State-controlled and loss-making Malaysia Airlines was already planning to announce a major restructuring within the next year.

That may now need to be accelerated. 

Yet woes of Malaysia Airlines will resonate more widely as geopolitical risk continues to boil. A year ago, the rise of al-Qaeda offshoot, the Islamic State in Iraq and the Levant (ISIL), across Syria and oil rich Iraq was not on the global agenda.

Double whammy for Malaysia Airlines

Photographs: Reuters

Nor were the acts of separatist terrorism seen recently in China.

Even in Hong Kong, one of the world's richest and most modern cities, calls for democratic reform have emerged as a threat to its stability that few would have foreseen. 

Investors and companies can minimise risk, where they can identify a threat in the first place.

Double whammy for Malaysia Airlines

Image: School students during a prayer for passengers aboard Malaysia Airlines flight MH370 that went missing in March.
Photographs: Reuters

Several international carriers say that they had shifted the route taken by flights operating in Ukraine months ago amid increasing tensions between Kiev and pro-Moscow rebels, even though the area was not subject to official restrictions.

Malaysia Airlines' misfortune may be a tragic reminder of the dangers of underestimating the likelihood of the unthinkable.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.) 

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