Malaysia Airlines Recovery Plan Quarterly Update (1 Sept-30 Nov 15)
Malaysia Airlines Berhad, benefits from encouraging momentum in its first quarter and moves into the next phase of its restructuring.
- In spite of macro-economic headwinds, adverse currency exchange rates and a significantly reduced headcount, Malaysia Airlines saw good and sustained progress.
- The newly incorporated airline started seamlessly on the 1 September as a new legal entity with a new air operator’s certificate
- Network expanded via new global aviation partnership with Emirates while remaining a member of the oneworld alliance
- 7 new crew bases will be opened across Peninsular Malaysia, Sabah and Sarawak to improve connectivity and service quality
- A new product strategy with enhanced customer experience will be rolled out over the next 18 months
- Negative trend of revenue per available seat kilometer stopped and reversed
- Cost saving measures and renegotiation of vendor contracts remains main imperative of the turn-around
- Leadership team further strengthened with appointment of Chief Financial Officer, Chief Human Resource Officer and Head of Corporate Finance
- Establishment of Work Council to promote and foster industrial harmony
Sepang, 3 December 2015: Malaysia Airlines Berhad today announced its first quarterly update, since becoming a new legal entity on September 1, 2015. This is in line with its commitment to good corporate governance and full transparency.
Group Chief Executive Officer of Malaysia Airlines Berhad, Christoph Mueller said: "It is very rewarding to see the new team of employees creating a truly new airline, entirely customer focused and commercially led. We still have a long way to go but existing and new partners believe in our success and Malaysia Airlines has been set on a path towards reclaiming its position as one of the world’s leading airlines.
Next phase of restructuring
Malaysia Airlines moves into its next phase of its restructuring through a global aviation partnership with Emirates. The partnership will significantly expand the airline’s global coverage and provide a dramatically extended range of travel options for customers.
Malaysia Airlines will add its code on flights of Emirates to Europe, Middle East, Africa and the Americas. In return, Emirates will add its code on flights of Malaysia Airlines to domestic routes in Malaysia, South East Asia and selective cities across the Asia Pacific region. The partnership will see Malaysia Airlines suspends its Paris and Amsterdam routes from 25 January 2016. The partnership with Emirates will enable Malaysia Airlines’ passengers to continue having access to these destinations, and many more, with the added advantage of better schedules and more frequencies. It will also make it much easier for travelers from all corners of the globe to visit Malaysia and experience its rich culture, nature and Malaysian hospitality. This is one of the airline’s initiatives towards enhancing air connectivity with key priority markets overseas for increased tourist arrivals into Malaysia.
Malaysia Airlines remains a member of the oneworld alliance, providing co-ordination with carriers such as British Airways, American Airlines, Qantas and Cathay Pacific.
New crew bases
Concurrently, Malaysia Airlines will be opening seven new crew bases in Malaysia, with a total of 18 Boeing 737-800s being relocated with locally employed pilots and cabin crew staff to permanent bases in Kota Kinabalu, Kuching, Miri, Labuan, Kota Bahru, Penang and Johor Baru. The move will improve connectivity and service quality on the domestic network and emphasizes the airline’s commitment to the respective states, boosting local economies and fostering inbound tourism. Malaysia Airlines has also applied to extend its rural contract agreement with the Ministry of Transport, to further underline its commitment to rural air service in Sabah and Sarawak.
To ensure convenience and improved connectivity for passengers, Malaysia Airlines intends to reorganise its operations in Kuala Lumpur International Airport (KLIA) to concentrate operations in the main terminal. The plan, expected to be in place by early next year, will mean quicker connections for ASEAN passengers between international and domestic flights. This will mean faster and more reliable baggage transfer and ultimately ensure better customer satisfaction.
Malaysia Airlines has seen an improved on-time performance (OTP) since the seamless transition to becoming a new entity on the 1 September 2015, with 89.8% OTP on the day despite major disruptions caused by the recent haze.
Performance and product improvements
The route optimisation work conducted in the previous quarter has already started to show the anticipated effect. Revenue per available seat kilometer for the quarter has improved year on year with the seat load factor also showing improvements.
Demand out of China and North Asia is showing a positive trajectory, boosted by increased inbound tourism demand. Capitalising on this, Malaysia Airlines has signed an agreement to operate 180 additional charter flights from China to Sabah. Moving forward, the airline will be introducing more charter flights from selected key cities in China beyond the airline’s network, on top of the existing 180, to meet the increased appetite for inbound tourism.
The airline’s charter service has seen great success with the Umrah operations ferrying pilgrims to Madinah on its A380-800. This year saw an increase in capacity from 282 seats to 494 per flight on 45 direct flights from Kuala Lumpur to Madinah.
Greater focus has been given to improving customer service. The quarter saw a new product initiative with the introduction of a premium business class lay flat seat for the A330-300 fleet. The seat marks the beginning of a planned product roll-out of more customer centric, personalised and innovative offerings. The fully flat seat will be introduced from April 2016 on all A330-300 aircrafts. The conversion will be completed by September 2016. Other new and improved product offerings are in the pipeline, including a new catering concept in all classes and on-board Wi-Fi.
The entire customer experience is being re-examined starting with a total refurbishment of KLIA lounges as well as a centralised global customer contact centre where reservations and ticketing will be housed together to ensure faster response times.
IT as an important enabler
A key aspect of improving customer experience will be an overhaul of Malaysia Airlines’ IT systems as the airline looks to become a technology driven company. The airline will be introducing systems for easier and faster bookings both on the website and on mobile applications. A new passenger service system has been put out to tender and, after the final vendor selection, implementation will start in the first quarter of 2016. This will result in a much better booking experience on the company's website and mobile applications. The airline has also signed a contract to introduce AirPas, a state-of-the-art software system, to maximize cost savings from ground operations and audit accurate billing. AirPas has been successfully used by other world leading airlines and the company is looking at a target saving of up to 20% on ground operations over the next 18 months.
The IT strategy has been approved to enable a new data centre. The migration to a state-of-the-art cloud based data centre infrastructure will improve reliability and resilience and data protection.
Centralisation of operations
A move to new headquarters has now been completed with most of the working teams now under one roof in KLIA's South Support Zone. The new working environment allows for better working access and teamwork across the separate divisions. Close proximity of staff has allowed for a new and jointly developed set of values and behaviours upon which the new Malaysia Airlines will operate in future.
Cost saving remains main imperative of the turnaround
Significant cost saving initiatives has been identified across the new aviation group, with its more than 10 subsidiaries. A focal point will be the renegotiation of uncompetitive contracts with suppliers. In a structured process, most vendor relationships will be retendered over the months ahead in order to reduce the number of suppliers and to consolidate purchase volumes for better discounts.
Most aircraft leasing contracts are still in the hands of Malaysia Airline System Berhad which is in administration. The new airline will only permit leasing agreements at competitive market rates. This process of contract renegotiation will continue into 2016.
Enhancing corporate governance
Malaysia Airlines places the utmost importance on transparency, accountability and good corporate governance. The MAB Board of Directors (Board) plays a pivotal role in ensuring these principles across the group. The Board recently approved two new policies - the Malaysia Airlines Group Governance Framework and the Corporate Approving Authority Policy (LOA) - to improve empowerment and accountability.
Malaysia Airlines is working towards a new group structure which will streamline its operations into individual profit centre subsidiaries such as airline, ground handling, cargo, engineering and aircraft ownership. This will ensure P&L (profit and loss) accountability which will unlock the value of assets by driving new levels of operational and financial efficiency. Concurrently the airline is disposing its non-core assets for better management focus on its core business.
Investing in a talent pipeline
The leadership team is complete with the appointment of Omar Siddiq Amin Noer Rashid, as the Chief Financial Officer, Claudia Cadena as the Chief Human Resource Officer and Linda Yeow as Head of Corporate Finance. The quarter also saw new Executive Counsel, Nik Azli Abu Zahar and Chief Commercial Officer, Paul Simmons commence work with the company.
The new team is an important building block in an overall strategy of having world class and diverse talent that reflects the company’s global business and operations.
The development of talent and human capital will be a major focus to ensure a more robust and sustainable organisation. Experienced and industry talent have been brought in to provide on the job training for staff. The end goal is that a future generation of leaders for the airline will be recruited entirely from within. The airline also saw its first leadership training session in the quarter whilst the search for a new Head of the Malaysia Airlines Academy started in earnest.
Strengthening industrial relations
As part of promoting harmony and a constructive dialogue with employees, the Malaysia Airlines Work Council has been created and is expected to be fully established by January 2016. The Work Council aims to provide a platform for employees to brainstorm ideas, voice concerns and ultimately work together with management towards a common goal. The council will have two elected representatives from the separate employee groups which include pilots, cabin crew, engineers, ramp services and cargo handling amongst others. The formation of the Work Council will enable Malaysia Airlines to begin with a new and mutually cooperative relationship between management and employee groups.
“We are working hard to change the structure of the airline fundamentally, from the inside out. This will involve looking at process, efficiency and tighter cost controls. Through diligent execution, we’ve scored some quick wins this quarter. There is still a long way to go towards putting in the foundations for sustainable long term growth, but our progress in the quarter signals a positive trend in the right direction” added Mueller.