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As your Chairman indicated, this has been the most challenging year in Malaysia Airlines’ recent history. As I said in my statement within the recent annual report, in all 41 years of our operations, never before have we felt such a profound sense of loss as we did with the disappearance of flight MH370 on the 8th of March.
However, it is my responsibility as the CEO of Malaysia Airlines to update you, our shareholders, of what we did in 2013, the lessons we learned, and how we will manage the challenges ahead, now made more complex by the implications of MH370.
Certainly, we are not satisfied with our performance in the financial year 2013.
Despite posting a positive year-on-year EBITDA growth, the Group recorded an even larger financial loss in 2013 compared to the previous year. In part, this was due to higher depreciation, a weakening Ringgit and falling yields. There were also costs incurred in 2013 whose benefit will accrue in future years, including costs incurred for our fleet rejuvination and investment to strengthen our brand position.
Amidst the challenges there were some bright spots. We were able to increase Passenger Revenue by 10% in 2013 by an additional 1.09 billion Ringgit through an aggressive volume push, growing Seat Loads from 74% in 2012 to 81% in 2013 on an airline Capacity (ASK) increase of 17% compared to 2012.
Globally, regionally and domestically, there has been a significant increase in capacity into many key markets important to Malaysia Airlines. However, heightened competition for market share caused significant erosion in passenger average fares and yields.
While we are not alone in our suffering – all carriers around the globe have been impacted – the overall result was a 1.174 billion Ringgit net loss for the 12 months ended 31 December 2013, which as I said earlier, is unsatisfactory.
On the balance sheet, the Group underwent a capital restructuring in the first half of 2013, and conducted a Rights Issue in which we raised over 3.1 billion Ringgit.
Our total assets at the end of December 2013 were at 21.86 billion Ringgit, whilst net gearing remained at 1.9 times.
Significant cashflow movements in 2013 were related to new fleet purchases and new debt raised. Save for the fall in operating cashflow, the rest of our cashflow activities normalised somewhat in 2013.
I alluded to bright spots earlier. Within the challenging competitive environment, we can be proud of some key progress made.
We were able to improve EBITDA by 36% to 254.0 million Ringgit in 2013 compared to 187 million Ringgit at the end of 2012.
While capacity, measured in Available Seat Kilometer (ASK), grew 17% utilising existing fleet and resources, costs grew by only 10% after absorbing higher costs from the weakening Ringgit against the US dollar and a one-off cost for aircraft redelivery. This has resulted in a lower CASK (Cost per ASK), which was reduced by 10% in 2013.
Traffic went up 27% on capacity that increased only 17%, our average Seat Factor improved 6.3 percentage points to 81% compared to the previous year. We saw the highest ever Seat Load Factor at 93.5 percent.
Although encouraging developments, they were not nearly where we need to be in order to be competitive in the future.
For many years, we grappled with a set of very real external pressures characterised by an ever-shifting competitive landscape, the constant arrival of many new market players, and the increasing perception of commercial air travel as a commodity.
These pressures, combined with internal financial, structural and institutional issues, meant that the business reset embarked upon in 2012 was not comprehensive or deep enough to deliver the desired results on earnings yields, cost efficiency or productivity.
In his opening remarks, the Chairman reported that radical change was already firmly on our agenda before the tragic events of March 8th. These events have sadly now added an entirely unexpected dimension, damaging our brand and our business reputation, and accelerating the urgency for radical change. In effect, MH370 created a critical point for deep reflection in our history.
Undoubtedly, you will have followed the recent speculation in the media and among analysts suggesting fundamental changes to the business model of MAS.
We know that there are many options to consider. But we also know that we cannot simply go on with incremental improvements. And I have no intention of standing here in front of all of you at next year’s AGM with further news on the results of piecemeal or ineffective change.
Our only option at this point of our business evolution is radical or sweeping change.
And let me tell you why I am optimistic.
The foundations for the resurgence of MAS are there. Over the long history of the airline, we have created a set of truly world-class assets.
We have a world--class product. We are one of only seven airlines in the world to achieve the Skytrax 5-star rating, the highest quality ranking for a commercial airline. And we also took home the coveted ‘Asia’s Leading Airline’ recognition at the World Travel Awards in 2013.
We now have one of the newest fleets in the industry, with our ongoing fleet renewal programme reducing our average fleet age to just under 5 years.
Our service is truly world-class, having received more than 100 awards in the last 10 years, including World’s Best Cabin Crew eight times since 2000.
We have a world-class engineering arm used extensively by the rest of the industry.
And over our 41 year history, we have enjoyed an excellent safety record, thanks in part to this world-class engineering arm.
These four world-class assets: our product, our service, our engineering capabilities and our safety track-record, are real and tangible assets. To be competitive in the future, we have to unlock and unleash the full value of these great assets.
So the foundations for the resurgence of Malaysia Airlines are very much there.
We are actively exploring all options to make that commitment tangible and are close to the point when such delivery is feasible, taking into account the diverse views of different market audiences and participants.
Of course, we are acutely aware of the need for clarity about Malaysia Airlines’ future. But with so much at stake for the airline’s reputation and for the country whose name it carries, the solution cannot be a partial or an ill-conceived exercise.
Fundamentally, it is about the rebuilding of the airline, so that it can meet the expectations of all those with whom we work and are associated. As a result, we cannot allow the short-term drive out the long-term and sacrifice the right outcome to the quest for a quick, short-term fix.
However, while finalising a detailed plan, which we will naturally bring to all shareholders, we are pro-actively addressing critical parts of the operations on revenue and cost. To achieve a turnaround of the business, we will need the support of all employees, unions and all stakeholders; to work together towards a shared vision for unlocking the competitiveness of the company. It is important to note that some of the current work rules are not conducive for this turnaround.
In the meantime, our focus remains firmly on delivering and evolving a world-class service to 55,000 passengers on 360 flights each day who we have the privilege of flying to 60 destinations around Malaysia, across Asia and the world.
Thank you very much.