By Stephanie Jacob
Christoph Mueller
Malaysia Airlines will remain a long-haul full-service carrier when it moves from the old company (OldCo) Malaysian Airline System Bhd (MAS) to Malaysian Airline Bhd (MAB) or the new company (NewCo). In his first press conference, chief executive officer (CEO) Christoph Mueller said news reports on Malaysia Airlines would become a regional carrier were inaccurate.
“The route network will undergo some changes in the next couple of months but not significantly. I want to say today that the new Malaysia Airlines is not what I have read in the press, a regional carrier.
“Far away from that… of course we will have our backbone in the region, but not a regional carrier. We will be an international full-fledged carrier and we will keep operating long-haul aircraft,” Mueller said.
No cuts in domestic routes
Furthermore, the CEO also emphasised that Malaysia Airlines plans to maintain all its domestic routes.
Aims to break even by 2018
Mueller’s turnaround plan is split into three phases with the aim of breaking even by 2018. The first phase will be to stop the bleeding at the airline which has seen massive losses from 2013. This will be done through capacity right sizing, eliminating sources of losses, headcount appropriation, and the renegotiating of key contracts.
Moving into 2016, the next phase will be to transform the airline into a sustainable operation through various improvement projects throughout the airline. According to Mueller, 40 projects have already been identified.
Going into 2017 to 2018, the airline will once again focus on growing its business and regaining its market share. This will be done through establishing a competitive cost base, having the best network, competent revenue management, and be driven with the best technology.
MAS technically bankrupt – hard reset needed
Mueller said June 1, 2015 is a significant day in the Malaysian aviation history because the NewCo will begin trading. “In aviation terminology, the OldCo was now leaving its cruising altitude to make its safe landing, while the NewCo is getting ready to take off,” he said.
He said it is a bittersweet day because the NewCo is sending 14,000 offer letters, but 6,000 staff will not be receiving offer letters. Mueller expressed his gratitude to these staff for their contributions over the years to Malaysia Airlines saying that “it is the people who make all the difference.”
Nonetheless, “the reality is MAS is technically bankrupt. And this is not just attributable to the tragedies of 2014 only, the decline started earlier,” said the CEO.
He noted the various stakeholders had been thinking about a turnaround plan for MAS in early 2014. And that from this debate, it was concluded that “the new Malaysia Airlines should be a principally commercial airline and that a hard reset was necessary to get it out of its financial doldrums”.
The NewCo has already begun the process of obtaining and transferring all the necessary credentials which it needs to be a fully operational airline come Sept 1, 2015. This includes applying for an Airline Operating Certificate (AOC) and to use the MH code for the new Malaysia Airlines.
In the meantime, the administrator has already commenced the transfer of contracts, assets, and liabilities from the OldCo to NewCo.
Revenue, cost, employees are key
Mueller said the key to turning Malaysia Airlines around is based on three main pillars.
First is restoring the airline’s revenue base which has been affected by several factors. Mueller said: “There is overcapacity in the market… so Malaysia Airlines has to prune its network and our frequency patterns on our aircraft. Revenue per passenger has also declined dramatically since the 2014 tragedies. And let us be honest, the product is tired and it needs a review.”
Malaysia Airlines has also failed to invest in state-of-the-art IT systems over the last decade, which in today’s aviation world is the main enabler, said Mueller.
“It is a little bit funny because Malaysia Airlines operates the A380, one of the most modern aircraft in the world which is very high tech, and just next to it you have processes in the baggage handling area which are from another century ago,” he quipped.
Secondly, he emphasised that the airlines cost management is not competitive and estimated that it is about 20% too high. Mueller said this is mainly attributable to an old-fashioned procurement process.
The airline has around 20,000 suppliers in Malaysia, but an airline of Malaysia Airlines size should ideally have about 2,000 to 2,500 suppliers, said the CEO. And added this proves that the airline has a very fragmented procurement system, which makes it lose out on cost savings.
Finally, he said the most important factor the airline must work on is the skill levels of its employees, which have suffered as a result of the many crises it has endured over the past decade. Mueller said in such periods: “The easiest thing is to cut the training programmes because you will not notice the impact in two or three years – the effect will be visible 10 years later,” – as is being seen now.
Overall, the NewCo will aim to continue to support Malaysian economy, said Mueller. “We want to keep Malaysia connected to the world and the world with Malaysia. We also want to keep Malaysians connected.
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