MALAYSIA Airlines Systems is fighting a life and death battle after losing $US1.3 million ($1.6 million) a day for the past three months.

Malaysia's flag carrier has been losing ticket sales to aggressive local discounters Air Asia and its long haul affiliate Air Asia X as well as to rising newcomers Jetstar and Singapore Airlines' cut-price affiliate Tiger Airways.

Figures given this week show Malaysia's jets are flying just 66 per cent full, well below break even point.

Only an unexpected $US371 million gain from fuel hedging kept the bottom line in the black, offsetting a $US120.3 million operating loss to produce a $US245 million profit.

MAS, like full-service airlines everywhere, is under assault from the discounters and low cost start-ups that slash fares to win sales from budget-conscious holiday travellers.

And at the moment MAS is losing the fight.

Malaysia charges three times what an Air Asia return ticket costs between from Kuala Lumpur and Penang.

Last week Air AsiaX was selling Christmas holiday flights, from Melbourne to KL, for as little as $99. An equivalent Malaysia fare including taxes cost $710.02.

Nevertheless, Malaysia seeks to project a message that finances are turning around and managing director Idris Jala argues the airline is "managing well in this crisis".

"While the operating environment remains tough, the load factors have increased due to our aggressive strategies to boost sales," he said after the accounts were posted.

"On the domestic front, more passengers are travelling with us.

"On the international routes, we have performed better than the industry average, as we are less dependent on the front end (ie: premium traffic)."

Malaysia said in its note to the Malaysian stock exchange that it had "aggressively pushed sales" through promotions which included the new Business First fare that allows customers to be upgraded to First Class while paying to travel in business.

Idris Jala said booking forecasts for the second half were encouraging.

"With the loads on an upward trend, we will now be able to work on increasing the yield," he said.

But should the recovery strategy fail, the Malaysian government, which retains a major stake in the business, will have to dig into its treasury coffers to save face by bailing the airline out.