By Chan Quan Min
Make no mistake about it, Malaysia Airlines’ fourth rescue plan in as little as 14 years is more daring than ever. KiniBiz points out the differences, one of which is the severe job cuts, and asks if this is part of a strategy that will lead to a smaller airline with a clear focus on yield management.
_______________________________________________________________________
Over a hundred reporters crammed into a library on the 33rd floor of the Petronas Twin Towers last Friday to hear Khazanah Nasional managing director Azman Mokhtar lay out the details of a 12-point restructuring plan that will plough RM6 billion into Malaysia Airlines over the next three years.
As Azman spoke, it was immediately clear Khazanah had taken over the reins. The “complete overhaul” of struggling Malaysia Airlines or MAS, with an end-2017 deadline to return to profitability, would be under the purview of the state investment fund.
In contrast, previous turnaround plans were initiated not by Khazanah but by former MAS CEO Idris Jala in 2006 and 2009, and more recently, by current CEO Ahmad Jauhari Yahya in 2011.
It turned out that rumours of Jauhari stepping down at the end of his three-year term in September were only half-true. False because Jauhari would stay on as CEO for another year and true because he would be leading what would eventually become just a shell company with up to 6,000 redundant employees.
Khazanah’s restructuring or “recovery” plan is perhaps the most daring yet for being the first to make decisive job cuts.
About 30% of the staff count will lose their jobs and to facilitate this painful process a new company will be set up as the “new MAS.” Just the employees that Khazanah wishes to retain will transfer to this new company in the coming months, an arrangement that eliminates the need for what might be a messy retrenchment process.
“This takes guts, and I give it to them for having the courage,” Mohshin Aziz, an aviation analyst at Maybank IB said in an email to bank clients.
Employees left in the old company can elect to join programmes specifically set up for them to learn new skills for employment elsewhere.
According to the recovery plan, the operations, assets and liabilities of the old company will be migrated to the new company by July 2015. The MAS identity and branding will not be lost in the process, Azman assured.
The new company or new MAS, as Azman puts it, will “critically involve a significantly corrected cost and operational structure” because the airline will unceremoniously terminate any contracts that are deemed unfair during the migration process.
In short, Malaysia Airlines will start on a clean slate. And to make sure that there are no stumbling blocks on the way, the government will seek to pass legislation – a MAS Act – to specifically address any legal issues that might arise.
The likelihood that such a piece of legislation will pass Parliament is without doubt. The highest levels of government have at this early stage shown the conviction to apply the required medicine to nurse MAS back to health.
“Only wholesale change will deliver a genuinely strong and sustainable Malaysia Airlines,” Prime Minister Najib Abdul Razak, who in also the chairman of Khazanah, said in a foreword to the 38-page recovery plan.
“If we seek a different outcome from past experiences, we must have the courage to choose a different method. Piecemeal change will not work,” he insisted.
Global search
Azman Mokhtar
Aside from the job cuts, Khazanah’s Azman appears to have also committed himself to another “different method,” that of a “global search” for a new CEO to lead the new MAS.
Khazanah found the current CEO, Jauhari, from within its group of related companies. But his replacement, according to Azman, could come from just about anywhere.
“The search has begun,” he said. “And we are looking at both Malaysian leadership talent and global aviation specialists.”
One of the new CEO’s first tasks, Azman told reporters, would be to make the “decision on who stays and who leaves.”
Khazanah’s mention of “aviation specialists” points to a shift in hiring practices. Past CEOs Idris Jala and Tengku Azmil Zahruddin as well as current CEO Jauhari were appointed without any prior aviation experience.
Jauhari’s admission that his turnaround plan was not working, made after the last Malaysian Airline System Bhd annual general meeting in late June could have spurred Khazanah to consider an aviation man (or woman) as his replacement.
Leaning on yield management
Jauhari last year led MAS through a phase of rapid expansion, adding up to 20% of additional flight capacity by “sweating assets” or working the current fleet more efficiently.
Expanding a business while still loss-making is an unorthodox strategy in any circumstance but Jauhari reasoned that by working the same number of aircraft more efficiently he could “spread out” the fixed costs of operations.
That was indeed true, but at the same time MAS was forced to discount tickets to fill the additional seats. Inevitably, yield, an aviation term for revenue per unit or revenue per kilometre per passenger, lost ground to regional full-service airline competitors who were less hasty with expansion.
It is almost certain that Khazanah will reverse most of Jauhari’s expansion plans. The recovery plan calls for running the new MAS on strict commercial criteria.
“The new MAS will apply purely commercial criteria to its route decisions, only flying profitable routes,” said page 27 of the recovery plan, suggesting MAS will ditch unprofitable prestige routes to “focus the network where MAS can win.”
Routes with a high proportion of point-to-point traffic would be given greater importance than routes currently operated for transfer passengers. The plan explicitly said MAS will “build scale on routes which has a high proportion of customers for whom Malaysia is primarily an origin or destination (versus a transit point).”
Apart from that, MAS will focus more on regional routes. Azman explained to reporters that regional means “as far as Japan.”
Passengers going further afield will increasingly be funnelled to flights operated by partner airlines as MAS will now focus more on “securing global connectivity through oneworld and other alliances.”
In addition, the current fleet would be downsized and end up smaller as a result. “MAS will reconfigure its fleet to better fit MAS’ network and markets, which could include moving to smaller aircraft, retiring specific aircraft types, and/or adding seats to aircraft to reduce unit costs,” the plan said.
Yesterday: Malaysia Airlines’ history of failed recovery
Tomorrow: What it will take to turn around MAS
You must be logged in to post a comment.