By Stephanie Jacob
RM6 billion is a lot to spend on one company, but there are crucial reasons that justify Khazanah Nasional Bhd’s decision to try and rescue MAS despite many previous failures. Kinibiz highlights them in the final piece of the series and concludes that the trick is to make it work this time.
____________________________________________________________________
Is Malaysia Airlines worth saving? This is a question that has been asked repeatedly by analysts, industry experts and the public since the national carrier posted an RM1.2 billion loss for the year ending 2013. Given that the government has pumped in RM17.4 billion from 2001 to 2013 to keep national carrier flying, is it really worth several billion more?
According to Khazanah Nasional Bhd’s managing director Azman Mokhtar, MAS is indeed worth saving although not at any cost.
Azman’s caveat of “not at any cost” will be of some comfort to the many sceptics who would still like to know how the government plans to recoup the billions already expended. However at RM6 billion, MAS rescue plan 4.0 still comes with a steep price tag.
Prime Minister Najib Abdul Razak along with Khazanah’s top management has emphasised that the recovery plan is not a bailout. Rather it is billed as a necessary investment for a national icon that should be saved.
But Malaysia Airlines should be saved, not because it is a national icon but an economic imperative which serves the national interest. To see that imagine what Malaysia would be without its airline.
Does that mean that we have to completely depend on others to bring people and cargo in and out of Malaysia? Can we rely on them to do it? Will they do it well and according to our needs? It will be hard to ensure that they do.
Almost every country of some size in the world has a national airline or airlines or defacto ones which are domestically owned – and it is not for national pride or sentiment. They serve an important economic purpose.
The amounts that they save in terms of outflow of funds is tremendous. Besides it’s a vital service which helps oil the wheels of commerce and industry and directly contributes to the economy of the country.
MAS’ economic impact
Putting aside sentimentality, the most important factor in deciding to rescue MAS is its importance to the economy. According to Khazanah, MAS contributes RM6.9 billion in direct, indirect and induced impact to the nation’s gross domestic product (GDP), which is about 0.7% of GDP.
The aviation industry in general has one of the highest economic multipliers among the various sectors, notes Khazanah. It pointed out that the industry has a multiplier effect of 12x versus the standard 1x to 3x usually found in other sectors.
MAS also has an impact on job creation – for every employee MAS’ hires another four are created throughout the economy. With new MAS slated to hire 14,000 employees, this roughly translates into about 56,000 jobs being created or maintained elsewhere in the economy.
Furthermore although in a tough, crowded industry, Khazanah believes there is still a business case to saving MAS. It highlighted Malaysia’s strategic position in a region with one of the largest tourism and consumer markets, as an opportunity for MAS. “By 2025, more than half the world’s consuming class will live within a six-hour flight to Malaysia. Growth in intra-regional trade, and business travel is likely to accelerate.”
The strength of the MAS brand
Taking questions after presenting the recovery plan to a crowded room of journalists last Friday, Khazanah’s MD was asked if the national carrier would retain the name Malaysia Airlines when it becomes a new company in July 2015.
Azman Mokhtar
Azman answered that in his opinion, the new entity should retain the name and brand. Based on the nods of agreement that greeted his comments, many in the room seemed to concur with his sentiments. According to Azman, a recent survey done on the MAS brand indicated that it still generates a lot of positive sentiment from Malaysians.
For all its management and operational struggles, MAS has consistently offered a high quality product. It is especially known for a high standard of service on-board its flights. The MAS brand has been built on the hard work of MAS staff, primarily its front-line employees over 77 years, and is among the factors that make the the ailing airline worth saving.
MAS’ cabin crew was named the best in the world, seven times in the last 12 years by international aviation consultancy Skytrax. The World Travel Awards also deemed it to be ‘Asia’s Leading Airline’ and the ‘World’s Leading Airline to Asia’ in 2010 and 2011 respectively.
Importantly prior to the two tragic events of MH370 and MH17 this year, MAS had an excellent safety record. Even after these events, most fair minded commentators would be measured in apportioning blame to the airline given the nature of the two events, especially MH17.
MAS contribution to national development
Given its status as the national carrier, MAS has over the years run unprofitable but socially important routes. Khazanah said these include routes that are important from a developmental or tourism standpoint.
In an extremely competitive industry, it is unlikely that any privately owned airline will be willing to take this burden on. This puts MAS in a difficult position, especially with Khazanah emphasising its expectation that New MAS’ routes are primarily decided on a commercial basis.
To deal with this, Khazanah has said that it is working with the government to appropriately manage the countries’ developmental needs and the impact of running such routes on MAS’ bottomline.
Point 11 of the Khazanah’s 12 point plan which covers obtaining the ‘appropriate government support on key initiatives’ notes that the government and MAS will work together to “manage developmental air routes.”
It includes the suggestion that these routes be contracted through a competitive bidding process by the government. This would mean MAS receiving some level of compensation when running these routes, allowing them to cover its costs while maintaining this important national service.
Political will the key to success
Given these facts, MAS appears to be worth saving and Khazanah has taken some fairly bold moves to do so. This includes its decision to reduce the workforce, rationalise so-called prestige routes (routes that are neither profitable or socially necessary) and to renegotiate contracts to meet industry standards.
Should all these aims be met come July 1st when New MAS is slated to begin operations, then the national carrier has a good chance of meeting its goals over the next three to five years. However much political will is needed both in the build up towards July 2015, and importantly, beyond that.
Because beyond mid-2015, if New MAS does not work consistently to maintain itself as a lean, commercially driven, expertly led airline, then it will end up a RM6 billion waste carrying all the same baggage as the old failed version.
However, as explained in yesterday’s article, Malaysia Airlines is a good airline whose problem is to translate a 5-star product to earn 5-star returns, not low-cost ones. That can be done.
If the transition is executed well, then Malaysia Airlines, which is an economic necessity, will also become a profitable entity in the premium segment able to withstand industry vagaries and rebound to greater strength each time after that, much like Singapore Airlines or Cathay Pacific.
You must be logged in to post a comment.