More Losses in MAS
August 23, 2011
More Losses in MAS
By Jahabar Sadiq
Editor, The Malaysian Insider
Malaysia Airlines (MAS) is considering delaying its membership with global airline group Oneworld and deliveries of the super airliner Airbus A380 as its new management focuses on cutting losses, which spiked in the second quarter of 2011.
The Malaysian Insider understands that MAS will announce a bigger loss today for this year’s second quarter, traditionally its weakest business period, from the net loss of RM242.3 million in the first quarter ended March 31. It posted a pre-tax loss of RM532.6 million for the second quarter in 2010.
“The exco met last week and are looking at their options of delaying the alliance with Oneworld because it will cost money to provide interlining services and also upgrade the lounges to their standards,” a company source told The Malaysian Insider.
“They are also looking at delaying the A380 deliveries. It’s already delayed since 2008 but the exco is concerned if it can make money for MAS,” he added, referring to the executive committee headed by MAS chairman Tan Sri Mohd Nor Mohd Yusof now managing the airline after managing director Tengku Datuk Azmil Zahruddin resigned effective August 9.
Azmil’s resignation was announced after the airline’s biggest shareholder, state asset manager Khazanah Nasional Berhad, swapped 20.5 per cent of MAS stock for a 10 per cent stake in Asia’s biggest budget carrier AirAsia on August 9. The swap enabled AirAsia bosses Tan Sri Tony Fernandes and his partner Datuk Seri Kamaruddin Meranun to sit on the MAS board and help turn around the loss-making flag carrier.
Another source confirmed the possibility of delays, pointing out that MAS is now just a designated member of Oneworld since June and has to go through a process that could take as long as 18 months before being a full member of the world’s third biggest airline group.
It is understood that a cause of concern is MAS’ sponsor to join oneworld, Qantas, which recently
announced it wants to set up two new airlines in Asia with part of its US$9 billion (RM26.81 billion) plane order from Airbus in order to salvage its loss-making international business.
Under the plan, the Australian carrier has decided to set up a Japanese budget airline with Japan Airlines and Mitsubishi Corp and a premium airline based in Southeast Asia, possibly Malaysia.
“MAS is going to be a premium airline and if Qantas goes ahead with its plans, there will be competition. An alliance might not work then, apart from the costs of meeting the alliance’s standards,” the source said.
When MAS announced its entry in Oneworld last June, it said that MAS passengers will gain access to the alliance’s global network which covers almost 950 destinations in 150 countries. MAS Enrich frequent flyer members will be able to earn and redeem rewards on Oneworld’s carriers and vice versa.
This strategy was to work with the April 2012 delivery of the first of six A380s that MAS ordered in 2003. There has been three delays for the world’s biggest passenger jet from Airbus, which were first to be delivered in January 2007 before being delayed to last January and the third delay was to this month before it was confirmed for next year.
MAS will be the seventh operator of the US$300 million aircraft when it finally arrives but some exco officials are leery about whether it can fill up the plane on its lucrative Kuala Lumpur-London route which is now operated by the aging and fuel-guzzling Boeing 747s.
“MAS is losing out because the B747s are old and uses too much fuel. They aren’t too sure about the A380s because no one has made money using it yet in the competitive routes.
“It wants to use the B777s as they are fuel-efficient but it’s smaller than the B747s,” one source told The Malaysian Insider.
The Malaysian carrier’s main competitor in the region, Singapore Airlines, was the launch customer for the A380 and offers competitive rates for seats on that aircraft going to popular destinations such as London and Sydney.
“MAS has to compete on the premium market with Singapore Airlines while also keeping its passengers from opting for budget carriers like AirAsia X. It’s a tough business so it has to see what makes money and cut what doesn’t,” the source added.
Over to you, Semper Fi. You can start the ball rolling on this. It seems to me that MAS is caught between the devil and the deep blue sea. It must replace its aging Boeing 747 aircraft and exercise its option for A-380s for fuel efficiency and yet it cannot do so because of mounting operational losses.It has to find a solution to this dilemma. Tough times ahead for MAS. –Din Merican
dinobeano - August 23, 2011 at 7:43 am
It is normal for the new Board and management to make a lot of provisions in the MAS accounts. In the short term, MAS results will look dismal. Delaying much needed new aircraft is not a good strategic move. Negotiate with the Lessor and come up with a mutually beneficial solution on the sale and purchase of aircraft. Also, it is bad for MAS’ image to delay joining OneWorld Alliance.
Perhaps, consideration should be given to a rights issue, although the time may not be good given the current state of the stock market. Then how about private placement with PNB and EPF?
abdul haleem - August 23, 2011 at 7:58 am
Din, many commentators can write a book on how to improve MAS. Perhaps MAS new Board should start a suggestion box and invite its Enrich members to contribute on what they want from a revamp MAS.
MAS needs to answer the question what type of airline it wants to be. The A 380 is a fine aircraft but filling the capacity is another issue. How many passengers can a route support. Can KUL/LON support more than 500 passengers a day?
It’s better to have smaller, fuel efficient airplanes run on more frequencies, thus giving the passengers a better choice of departure time. Front end Passengers which MAS is trying to lure will want the flexibility to travel at the time they want and not when the airline wants to fly. If someone who pay US$ 12,000 to fly KUL/LAX, will the passenger be willing to wait 3 days to fly or will the passenger be happier if he/she can have a choice of 3 flights per day to choose from?
Secondly MAS needs to better manage its fleet by reducing the number of models and variant of its fleet. If the B747 is not fuel efficient then substitute with the B777 while waiting for the B787 Dreamliner. The B777 is an ETOPs and have the range to service all MAS destination including cross the Pacific. Reconfigure the B777 to a higher level of creature comfort. Anyway most of MAS B777 are now dual class. It’s only government Ministers that want to travel first class as they are not paying for it. Most Business passengers are comfortable in upgraded Business Class.
MAS can make up with better inflight entertainment, inflight amenities and better ground service at airports. Revamp the reservations system to make it user friendly and more proactive. Treat the passengers well and they will be repeat passengers.
webelos - August 23, 2011 at 9:14 am
The mess in MAS was initiated by Kutty . So why not sell it to Kutty and then wait and see if he can do anything right, aside from stealing of course.
arokiasamy - August 23, 2011 at 9:29 am
Thanks, Webelos. You remind me of Peter Drucker’s first question to managers: What is your business? Back to basics.
The reservation system, for example, needs a total revamp. Try and get a ticket. More often than not you are wait listed. But once you are on a flight, you find that there are plenty of seats available. That is unacceptable. Ticketing agents should be penalised. Furthermore, MAS only takes care of VIPs.These people don’t fill the aircraft.On domestic flights,for example, you find empty B-class seats because they are reserved for politicians and other VIPs who may not turn up or use them on any given day. Why can’t these people to plan their trips in advance so that unoccupied seats can be sold to others.–Din Merican
dinobeano - August 23, 2011 at 9:30 am
Ya, back to basics, learn the ‘garage culture’ to walk first before flying high, dangerous to fall, more losses expected, no surprise.
rightways - August 23, 2011 at 11:43 am
Why is MAS and other GLCs losing money.. or rather where have all the profits gone?
One thought circulating around is that over the last 20 years, the kickbacks into UMNO’s kitty , pockets of UMNO cronies and the ridiculous high salaries and perks for the UMNO proxies drained the financial viability of these companies. To make it worse, incompetent UMNO cronies were put up run these companies and these bums recruit more useless and incompetent staff to manage the companies.
Look at Sim Darby and almost all of the Govt-sponsored companies.
I wonder why the Govt does NOT want Petronas to be accountable to Parliament. It is because the siphoning of Petronas funds into UMNO war-chest cannot see daylight.
Frank - August 23, 2011 at 12:16 pm
This is the challenge for Tony Fernandes to show his mettle. Turn MAS back in the black. Back to being the golden airline. Tough call though.
I see TF is back in his second home, triumphant with the football club take-over,
How often is he home?
MAS must be ready to provide competitive air fares. Now who can afford to fly MAS except for minsters and governments and govt sponsored scholars which is compulsory to fly on the national carrier,
Din is right. You see a lot of empty seats on international route that you can sleep in the four aisle seats.
Jeff the Man - August 23, 2011 at 1:23 pm
arokiasamy,
The mess was started by kutty by way of privatising MAS to Tajudin Ramli. Pak Lah continued by forcing MAS to sell its Infight Catering unit to his brother. Catering is normally a profitable business unit in most airlines.
Imagine after this MRO (MAS Engineering) and MASKargo are also taken out from MAS. Then MAS will be stripped naked!
Pok Li - August 23, 2011 at 1:33 pm
When all is said and done, the real problem is one of TOP MANAGEMENT.
Khazanah should take a couple of steps back and engage the best talent money can buy and not try and manage its investment directly studded as it is by dubious ex-consultants of suspect credentials and ex- and current civil servants and nominees who more often than not look upon MAS as a social welfare organization.
And Why have they appointed as directors that looter who was Diam Diam’s crooked protege and that other guy who was Wig’s nominee for many, many years?
dpp
we are all of 1 Race, the Human Race
donplaypuks - August 23, 2011 at 1:36 pm
Now is not the time to whine and whimper on MAS losses and to blame previous owners/managers. Its water under bridge. Now is the time to look forward and salvage whatever is left of MAS and turn it around into a money making airline.
First like Din said and quote Peter Drucker “What is your business?” next identify the business model (budget or 5 stars) Then develop a road map of how to go about achieving the goals of the business model.
Develop a Brand Standard and have every employee buy into the brand standard just like Hertz and Avis or Disney. The Brand Standards must be measurable. Staff are held responsible for performing according to Brand Standards.
Have a Quality Assurance and Quality Control department for the operational units such as Reservations, Ground Staff, Ticketing, Check In and In Flight. They must all perform accordingly.
Appoint Mystery Buyers who will evaluate all aspects of MAS passenger experience from reservations to ticketing to check in and in flight service. Appoint individuals who are experienced travelers specially people that are at the top tier in other airline rewards program. Have these Mystery Buyers travel on MAS and note the deficiencies or deviation from Brand Standards.
MAS managers must also buy full fare tickets and travel on other airlines incognito. Observe how the other airlines treat their customers. Don’t just travel First Class on MAS where you are known and the service given will not be the same as to a full fare paying passenger.
Have Mystery Buyers make impromptu calls to MAS reservations and act as a picky passenger or a first time passenger and see how the reservations agent respond. Ask for such things as window seats, or bulkhead seats, or book different flights on different dates on same routes. Call at different times of the day or night. Change your mind often and make special requests such as meals and special assistance at check in, wheel chair or baby safety seats, and infant formula.
Next become the fussiest Paxzilla at check in. Stretch your request, carry excess baggage over the limit and carry more than 2 cabin bags or try to pass off an oversize bag as cabin bags. Ask for change of seats and don’t take the answer to have cabin crew reseat you.
Have Mystery Buyer make odd requests from Cabin Crew like “I would like dinner at a certain time” or request a choice of meal that is not offered. Ask in flight crew to assist in loading bags in overhead bins and tell cabin crew you’d like the bags to be right above your seat. Just for the fun of it ask for a “Comment Card” and see how the crew react.
Trim the fat. MAS have too many Sr. Vice President, Vice President, Senior General Manager and General Manager. As the title connotes get rid of the Vices and the Generals, have better trained and enthusiastic foot soldiers.
Make all operating departments a profit center instead of a cost center.
Investigate all Reservations Controller especially when you have flight that are sold out but on take off there’s empty seats.
Renegotiate the Collective Agreement with MAS unions.
All duty travel shall be in economy class not Business or First Class. Only very Senior Managers are entitled to travel Business or First Class.
Bottom line MAS needs to have fresh blood managers not the same o same o, managers that are ready and willing to make the difference and not afraid to take on responsibilities if given authority, managers who treat MAS money like their own.
semper fi - August 23, 2011 at 2:46 pm
semper ,
you left out the words ” and bingo, MAS is profitable again “. Should have been your last line lah.
abu nawas - August 23, 2011 at 4:09 pm
Let us hope the people in MAS read the comments on this blog. They don’t have to pay loads of money for con-sultans. Our comments are useful feedback for them to act. Right now, nobody really cares except for lining their own pockets.–Din Merican
dinobeano - August 23, 2011 at 6:35 pm
The Malaysian Insider Update
UPDATED @ 06:25:50 PM 23-08-2011
August 23, 2011
KUALA LUMPUR, Aug 23 — Malaysia Airlines (MAS) today announced a net loss of RM527 million for the second quarter of 2011 due to higher fuel costs despite recording a better yield and a 9 per cent growth in passenger revenue from the same period last year.
This brings total losses in the first half of the year to RM769 million even as the airline said that profit outlook for the second half of the year appears bleak.
Its main regional competitor Singapore Airlines, while also hit by higher fuel costs fared better with a S$44.7 million (RM108 million) net profit for the same period.
The flag carrier said its group total revenues increased to RM3.485 billion for the second quarter of 2011, or eight per cent more than the RM3.213 billion for the same quarter last year, while passenger revenue was RM2.086 billion for the same period this year compared to RM1.912 billion for the corresponding period in 2010.
“The airline’s aggressive and consistent cost-control measures also yielded positive results, with a two per cent reduction in non-fuel-related expenses for 2Q 2011 compared to the same quarter for 2010,” the airline said in a statement.
“The Board of Malaysia Airlines does not anticipate to make a profit for the 2nd half of 2011, although the anticipated losses will not be as severe as the first half of 2011,” it added.
MAS suffered a net loss of RM242.3 million in the first quarter ended March 31, making it a total loss of RM769.3 million for the first half of the current financial year.
The MAS board had earlier cancelled a press conference to announce the results for what is its traditionally weakest business period. It posted a net loss of RM534.7 million for the second quarter of 2010.
The statement said fuel costs “continued to have the greatest impact to the group’s operations, increasing by 41 per cent from RM1.102 billion for 2Q 2010, to RM1.550 billion for 2Q 2011.”
The MAS board, meanwhile, will focus on finding strong leadership to steer the airline and is looking to fill the managing director, CEO and key senior management positions.
Other immediate initiatives will include capacity management, dynamic pricing to improve yields, a review of products and brand positioning and a review of Firefly’s business to focus on its turbo-prop operations out of Subang.
“The management team shall have a serious review of its current network moving forward, and shall adjust deployed capacity accordingly,” said MAS.
The airline will however continue with its fleet renewal exercise and has taken delivery of five new B737-800 aircraft and five new A330-300 aircraft as at mid-August 2011.
The first new A330 Freighter will be delivered in September 2011 and six more aircraft will be delivered in 2011 — two B737-800s, two A330 Freighters and two ATR72s. Beyond 2011, MAS has a firm order of 38 B737-800s, 10 A330s, six A380s and two A330 Freighters.
The national airline has been flying through turbulent skies the past decade after the government bought back the airline from former corporate high-flyer Tan Sri Tajudin Ramli at RM8 per share or about double the market price at the time.
MAS also suffered the indignity of having its market capitalisation surpassed by younger upstart AirAsia after its share price fell to record lows earlier this year.
In an attempt to bolster the fortunes of the flag carrier, state asset manager Khazanah Nasional Berhad swapped 20.5 per cent of MAS stock for a 10 per cent stake in Asia’s biggest budget carrier AirAsia on August 9. The swap enabled AirAsia bosses Tan Sri Tony Fernandes and his partner Datuk Seri Kamaruddin Meranun to sit on the MAS board and will ostensibly help turn it around.
dinobeano - August 23, 2011 at 6:37 pm
Jeff is right. Malaysia Airlines has to offer competitive fares and it definitely need to improve its online reservation system to remain relevant. My dad was surprised at how much MAS has deteriorated when he went back 2 weeks ago. It’s a sad state.
My question is does MAS really need A380? Why not wait for Boeing 787 and fly with more frequency? I guess this is what happens when the government treats companies like MAS as cash cows.
didi - August 23, 2011 at 6:41 pm
All of you are dancing around the issue. The NEP may not be able bulid a strong economy but a strong economy will certainly be able to sustain the NEP. Most foreign investors will tell you this. But they will not do so openly. We need to think outside the box and we need a paradigam shift if we are to stop this good money chasing after bad money.
May be we should study what Saudi Arabia did after the shape drop in oil prices 30 years ago. Contracts were given only to those who could do the job themselves and not to those who went out and looked for sub contractors to the job. That is the job of government.
Anonymous - August 23, 2011 at 6:43 pm
“..does MAS really need A380?” didi
At the rate things are going, a Sopwith Camel is all they can afford – and they can’t afford the Red Baron.
C.L. Familiaris - August 23, 2011 at 7:54 pm
MAS can continue changing its Chairman, CEO and MD but it will still remain a loss making “Mana Ada System” airline.
mickie - August 23, 2011 at 8:44 pm
Sopwith camel CLF? ha ha ha.Buying new aircraft means having to pay more money for financing. Using older paid off aircraft means having no financing cost but higher gas cost. Surely the gas cost is lower than the financing cost or maybe I forgot about the commission for new aircraft.
Buying new aircraft is not just buying the aircraft. MAS must also buy spares, components, training the pilots, engineers and technicians, and cabin crew. All these cost money. Perhaps MAS doesn’t count all these as capital outlay but absorb into operational costs.
Most successful carriers limit their aircraft fleet to just one or 2 types of aircraft. Air Asia all A320′s. Southwest 800 plus B737′s. Economies of scale. Newby LION Air 180 B 737′s-900. SIA A380, B777 and A340-500. The B747′s are being retired.
Maybe MAS should go back to DC-3, Fokker F27 nostalgic.
semper fi - August 24, 2011 at 8:43 am
Why do passengers need to “confirm” their tickets and sometimes get bumped off? Because VVIPs cannot be expected to queue up like the riff-raff. Why is the safety of luggage and transport links to the airport in such a long-standing mess? Because we must not ruffle to many feathers.
Why did we not have comprehensive, efficient and clean public transport in urban areas as far as 20 years ago? Because the needs of VVIPS for towns built around roads is rated higer (besides the giant rip-offs of highways, petrol and cars).
Feudalism is a disease of the mind.
semuanya OK kot - August 24, 2011 at 2:05 pm