By Andy Heong
From 2012 to 2014, the performance of Australia’s Qantas Airlines was faltering. In 2014, Qantas posted a historic loss of A$2.8 billion. An urgent transformation plan was undertaken by the airline and subsequently returned it into profitability. Northwest of Australia, Malaysia Airlines was fast becoming a source of despair to Malaysia. After years of losses, the government finally implemented a plan to redeem the flagging fortunes of Malaysia Airlines. Can Malaysia Airlines take a leaf from Qantas’ book?
Over the weekend, Tiger took a trip to KLIA to pick up his cousin coming back from the land down under. As Tiger gazed upon the airplanes there, many of them being proud symbols of national pride, Tiger could not help but think of Mr Dickens’ words:
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us…”
Yet it was not a tale of two cities which went through Tiger’s mind. Rather, it was the tale of two airlines.
The year was 2012, when a certain airline from down under suffered its first net loss since 1993 to the tune of A$245 million from the previous year’s (2011) net profit of A$323 million. Profit before tax (PBT), which was the airline’s preferred financial indicator, plunged to A$95 million from A$552 million the year before.
The airline was dragged down by an 18% spike in fuel costs and by its international division which ended the year with a loss of A$450 million. The airline was also grounded by the management in response to a union threat of industrial action. The cost of the grounding would be some A$194 million as well as a significant loss of goodwill among the general public. Added to this were the usual accusations of incompetent management (by the public) and over-staffing (by the management). The airline which was a source of national pride and a major employer is suddenly starting to looking like a joke and a source of economic worry.
The airline continued to falter and in 2014 suffered a record-breaking loss of A$2.8 billion. A$2.8 billion – a figure that boggles the mind. Still, all was not lost as a closer examination would reveal that the main reason for the massive losses was a A$2.6 billion writedown largely due to the historic cost of aircraft purchased at a much lower Australian dollar exchange rate. It was a “paper” lost, not an actual cash loss. The actual loss was “merely” A$646 million.
This airline is Australia’s Flying Kangaroo or better known as Qantas.
Take a little trip northwest of Australia, to the shores of rainy Malaysia, another airline was entering into its own winter of despair. Year after year this airline continued to suffer losses. By the end of 2013, Malaysia Airlines was suffering from a loss of RM3.6 million after tax for the year. After numerous turnaround plans and bailouts which cost the Malaysian government an estimated RM17.4 billion from 2001 to 2014, enough was enough. In mid-2014, a “final” turnaround plan was proposed. Malaysia Airlines would be privatised. The existing company would be dissolved and a new company called Malaysia Airlines Bhd will be created.
Back in the land down under, into those times of despair, a man from Ireland would provide the firm guiding hand to turn Qantas around. With ruthless efficiency (some would term it German efficiency), he implemented a programme of cost-cutting, consolidation and downsizing. He would face down union opposition to implement a 5,000 employee job cut over three years that would save a total of A$2 billion. An 18-month wage freeze would be put in place. Older planes would be retired and purchase of new planes deferred. Underperforming routes would be terminated. Fast forward to August 2015, Qantas reported a PBT of A$982 million. That firm hand belongs to Qantas CEO Alan Joyce.
Over in Malaysia, a global search for a firm guiding hand with the necessary resolve and wisdom to lead the new company was undertaken. After much searching and gnashing of nationalistic pride (critics questioned why must the hand of wisdom be non-Malaysian?), the man chosen was the then-CEO of Aer Lingus, Christoph Mueller, widely acknowledged for turning around the fortunes of Aer Lingus (the ailing national carrier of the Republic of Ireland).
Similar to the measures taken by Qantas, Mueller started off with his turnaround plans by calling for a drastic reduction in staff with a 6,000 employee job cut. He has also put in place plans to move to smaller planes and to re-examine the routes of the airline. In short, pretty much the same steps taken by Alan Joyce at Qantas.
Christoph Mueller
Interestingly enough, Alan Joyce was from Aer Lingus before he left for Australia in 1996. One former Aer Lingus man has managed to turn a national carrier around from its largest historic loss. Can another do the same for Malaysia Airlines?
The big question on Tiger’s mind is: will this turnaround work? Malaysia Airlines has a dismal track record of failed turnaround plans. Would this time be any different? With all the financial support promised by the government to the tune of RM6 billion, the establishment of an all-new company to begin fresh legacy (while wiping out some 42 years of history) and the appointment of a turnaround expert as the new CEO, it would seem that there are many reasons to expect success and few reasons for failure.
On the surface of it, if Qantas can do it, so should Malaysia Airlines. Both airlines are national carriers and full-fledged 5-star airlines. Both turnaround plans involved the cost-cutting measures, route profitability and rationalisation of the aircraft fleet. Both CEOs in the face of union opposition have stuck to their guns in proceeding with massive job cuts. Additionally, both airlines will benefit from the continuing slump in global oil prices as fuel costs will be significantly lower.
Will it be the dawn of the new age of wisdom at Malaysia Airlines, a season of light emerging from the failures of previous rescue plans? An epoch of belief whereby if Kangaroos can fly, why not the proud Wau of Malaysia Airlines? Why not indeed?
Tiger can only hope and believe.
GRRRRR!!!
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