Malaysia Airlines to Return to the Black in Two Years - National Carrier Unveils Two-pronged Business Plan Focusing on Recovery & Sustainability
Subang, 07 December 2011 : Loss-making Malaysia Airlines today unveiled a business plan to return the Group back to the black by 2013 with a ‘base case’ Group target of loss of RM165 million in 2012. A series of necessary actions for next year is expected to generate an improvement potential of between RM1.178 billion to 1.508 billion in the profit impact for the Group. These measures include shrinking its network, a relentless focus on costs and aggressive efforts to win back customers.
Overall, the national carrier is embarking on a two-pronged business strategy focusing on recovery of the business and sustaining its growth to ensure that Malaysia Airlines realizes its vision to become the preferred premium carrier that is well-positioned for the coming consolidation of the Asian aviation market place.
“Malaysia Airlines needs to make hard and unpopular decisions simply to survive in order for it to then have the possibility to thrive and realize the airline’s vision,” said Group Chief Executive Officer, Ahmad Jauhari Yahya, at the unveiling of the Business Plan to the media today. Also present at the media briefing was Deputy Group Chief Executive Officer, Mohammed Rashdan Yusof.
The airline recently reported a nine month cumulative loss of RM1.247 billion for the first three quarters of 2011, and does not expect to make a profit for the full year.
“The market environment remains very challenging for Malaysia Airlines, given the increased competition from low cost and full service carriers, overcapacity in the Asian aviation sector, high fuel cost and the volatile global economy,” he added.
Malaysia Airlines’ poor performance was also adversely affected by its old fleet of aircraft (average fleet age of 13 years), a loss of focus on its full service offering leading to a drop in quality standards and passenger load, and lower average pricing levels compared to regional peers.
“While we face a number of inherent challenges, Malaysia Airlines can leverage on its strengths including our award-winning cabin crew which has been consistently ranked in the top two positions by Skytrax, acknowledged as the industry’s benchmark. Malaysia’s competitive cost position will be an added advantage for the airline.”
The Business Plan lists five fundamental Recovery Plan actions to stem the losses, restructure the business organization and regain the airline’s position as a commercially successful flag carrier.
The first is to make Malaysia Airlines’ network smaller yet profitable which will entail suspending loss-making services to and from Cape Town, Johannesburg, Buenos Aires and other loss-making routes.
“Successful turnarounds of other airlines, such as JAL or Garuda, have been based on aggressive network cuts. The cutting of Malaysia Airlines’ Available Seat Kilometres (ASK) by approximately 12 percent next year is expected to save between RM220 million to RM302 million,” explained Ahmad Jauhari.
Given the necessity ‘to shrink to grow’, the Group says it has no choice but to right-size the organisation for the greater good of its survival. “A leaner and meaner organisation will quickly become an agile, competitive and winning organisation. It will ultimately be the turning point on whether Malaysia Airlines can achieve and sustain acceptable financial performance”, added Ahmad Jauhari.
The second Recovery Plan action is to win back customers. Malaysia Airlines will be deploying 23 new aircraft in 2012 equipped with state-of-the-art passenger amenities and supported by intensified sales and marketing. Additionally, the airline expects to improve its revenue management and tactical sales to optimize yields which will result in an estimated profit impact of between RM394 million to RM477 million.
On-going focus on cost will be the third Recovery Plan action to undertaken by Malaysia Airlines. Savings from fixed costs reduction, procurement and productivity improvement programmes will realize a positive impact of between RM309 million to RM392 million.
The airline’s fourth Recovery Plan action is to simplify its business by focusing on its core premium carrier service and spinning off some ancillary businesses including its aerospace engineering, pilot training, cargo and ground services. This move is to enable these businesses to grow and achieve their full potential. The profit impact is estimated to be between RM255 million and RM337 million.
Given the new plane deliveries in 2012, the Recovery Plan action looks into the funding gap, which is expected to be addressed by positive operating cash flow, new debt and leasing arrangements, working capital boost via the return of pre-delivery payment deposits, proceeds from spin-offs and the support from shareholders.
“These actions for business recovery are fundamental to stem our losses and ensure that the Group returns to the black potentially by 2012. We need to move Malaysia Airlines out of this difficult situation in order for it to grow again and fly more satisfied customers to more places, build rewarding careers for our employees and build a global brand that will make all Malaysians proud,” he said.
The Management recognises that it is imperative to have a sustainable growth plan for Malaysia Airlines to lay the foundation for it to realise its vision to become the preferred premium carrier.
Ahmad Jauhari elaborated that for Malaysia Airlines to be sustainable in the longer term, the airline needs to focus on the following strategic ‘game changer’ initiatives.
By the second half of 2012, a new regional premium airline will be launched to connect Malaysia to ASEAN destinations and key cities in South Asia and Greater China, using a fleet of Boeing 737-800. On the longer-term, it will fly all of the domestic and regional routes serviced by Malaysia Airlines today.
“We intend to create a separate management structure to focus on the unique customer needs of regional premium travelers. This new airline shall set new standards for product and service quality, cost efficiency, and operational excellence. It will set the template for airline success,” he explained.
Segmentation of the businesses by aircraft type and distance travelled is also practiced widely by major airlines including United, Qantas, Lufthansa and Singapore Airlines to allow the airline with smaller aircraft to provide commuting and ‘feed’ services to the parent companies.
Another key ‘game changer’ under the Sustainability strategy is to leverage on alliances and partnerships with the oneworld global airline alliance. Malaysia Airlines will become a full member of this global alliance by the second half of 2012.
The benefits of the alliance include a broader network of international destinations, enhanced load factor and hub connectivity, cost savings through joint purchasing and equipment and resource sharing plus a basis for customers to increase their loyalty to Malaysia Airlines.
“We are also exploring the possibility of joint ventures with partners in order to serve multiple markets together, while reducing the financial risks of going alone”, said Ahmad Jauhari.
On the Comprehensive Collaboration Framework with AirAsia and AirAsia X announced in August this year, Malaysia Airlines has begun discussions with the three airlines on joint procurement and consolidation of key activities leading to greater efficiencies. Consolidated operations will deliver better service at lower costs such as fuel purchasing, maintenance, repair and overhaul (MRO), training and ground services. Savings from these initiatives is estimated at RM100 million per annum.
To support the Business Plan’s Recovery and Sustainability programmes, Ahmad Jauhari listed three fundamental organisational imperatives - branded customer experience, continuous operational improvement and turning the Group into a ‘winning organisation’ with a high performance culture.
“With the full support of our team in embracing the three organisational imperatives, Malaysia Airlines is confident that it will be able to successfully implement the Business Plan and realise the airline’s vision to become the preferred premium carrier,” concluded Ahmad Jauhari.
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