By Stephanie Jacob
Ultimately no matter which route Malaysia Airlines Bhd’ s (MAS) restructuring takes, there are certain issues which must be addressed. In this article, KiniBiz identifies four key factors that must be on the to-do list of whoever is tasked with saving the struggling carrier.
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While there are several different restructuring options on the table for Malaysia Airlines going forward, the issues that must be addressed immediately and comprehensively remain the same.
Whether it remains listed on Bursa, or is taken into private hands; there are clear unavoidable problems to tackle. The most obvious and pressing factors appear to be cost cutting, the yield factor, management and maintaining MAS’ five star rating.
Yet it is also worth considering that in addressing some of the issues, different parties might be better placed to take the necessary action. KiniBiz considers these four issues and attempts to identify which restructuring option or player might be most effective in addressing it.
Taking the necessary cost-cutting measures
In a report late last week, RHB Research called on MAS to address the ‘low-hanging fruit’ or in other words the issues that could be dealt with over the next few months. It noted that while a comprehensive plan might take months to generate – the management of MAS must begin to take steps where it can.
Highlighting that among MAS’ concerns, cost issues are probably most addressable, RHB Research suggested that steps to lower costs should be taken as quickly as possible. The report went to identify the three areas that often have a significant impact on the carrier’s bottomline, as being fuel, workforce and capacity.
While fuel cost fluctuations are largely out of MAS’ control, the same cannot be said for workforce and capacity. It said that by downsizing its staff count by 19% and reducing capacity by 10%, the airline could cut losses by as much as RM349 million in financial year 2015 (FY15). With analysts estimating that MAS will likely be seeing significant cash burn rates over the next few quarters — this could be a significant amount of savings.
If any one thing was more glaring than any other in MAS’ FY13 results or its first quarter for 2014 (1Q14) losses, was that yield levels are not optimal.
In 1Q14, MAS’ available seat kilometre (ASK) levels expanded some 19% year-on-year (y-o-y) and its cost per ASK (CASK) y-o-y fell by 10% – – yet this was all but nullified by the fact yields also fell 9% y-o-y.
Analysts said that so long as MAS keeps to these yield levels, it will need a load factor of 98.7% to just breakeven – however 1Q14, load factor stood at 76.4%. Simply put, the current ‘load active, yield passive’ strategy has not worked quickly enough for MAS.
Regardless of which restructuring option is taken, MAS’ business plan it going to require a massive overhaul, and it needs to start by addressing the yield factor.
MAS’ management needs to get its business plan right
The current business plan emphasising load was put into place by current MAS chief executive officer (CEO) Ahmad Jauhari Yahya. It has been in place for sometime now and all evidence points to the fact that it was not the right strategy for MAS.
Ahmad Jauhari Yahya
Either Khazanah or any new investor coming in will need to evaluate if Ahmad Jauhari and his team, are the right fit for whichever new course of action the airline decides to take. If going forward this team is maintained, it will be necessary for them to be willing to try a different route to recovery.
Should it be decided that MAS requires a new team to lead it, then careful thought needs to be given as to who might be best equipped to take the reins. The unions such as the Malaysia Airlines System Employees Union (Maseu) have advocated for someone who is familiar with the industry to be chosen, preferably from within the MAS family.
Whether or not the individual should be promoted from within the ranks aside, Maseu’s call for management to be led for someone from the industry is fair and logical. The airline sector is a highly specific industry with a steep learning curve, and someone who knows its ins and outs would be able to address issues more quickly and effectively.
In any event, the management team tasked with the job will need to be backed to the hilt. Rescuing the ailing carrier is going to need deep restructuring and this could translate into management having to make some difficult calls. Whoever is in charge must be able and willing to stick with and backup the decisions of the management team.
Maintaining MAS’ five star rating
MAS struggles this year has not been limited to just financial woes, and the airlines reputation has taken some hard hits. First there was the ‘naked’ nasi lemak incident, and then the much more significant and unfortunate MH370 incident.
That said MAS largely still has an excellent reputation both in terms of service standards and safety, that it has worked hard over the years to establish. MAS has consistently been rated as five star airline by the reputable Skytrax, it would be shame to lose that distinction now.
Unless it is totally reinvented as a budget airline, MAS must be run as a full service carrier (FSC). This means both, providing a standard of service that it expected of such an airline, and this includes charging the right fares that will enable the airline to maintain a high standard of service.
Who is best suited to take charge?
As mentioned previously, whoever takes charge of this next chapter in MAS’ journey will have to be able to make tough calls, and MAS position as government linked company and the national carrier can make that tricky.
In the first part of this series, an aviation analyst emphasised that a high level of political will would be needed. As a Finance Ministry vehicle, Khazanah has that political cover in addition to having the incentive to make things work given the significant amounts that it has invested in the carrier.
Should privatisation ultimately be the government’s choice for the airline, then perhaps it might be useful for Khazanah to be the entity that takes full control of MAS.
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