PETALING JAYA: Malaysian Airline System Bhd (MAS) aims to fly back into the black by 2013 through an aggressive capacity cutting exercise. It could be the largest in the airline’s history.
Group CEO Ahmad Jauhari Yahya said MAS has taken a leaf out of the book of airlines like Japan Airlines and Garuda, which suggests that aggressive network cuts work in turning around a bleeding airline.
MAS will remain in the red this year after posting a RM1.25 billion loss for the first nine months.
Jauhari said to stop MAS — which has RM1 billion of cash in the kitty to last it a year — from further bleeding, it will reduce 12% of its capacity and cut unprofitable routes over the next year.
The move will save some RM300 million, which accounts for over 20% of the RM1.18 billion to RM1.51 billion in cost savings and additional income MAS aims to achieve under the turnaround plan it unveiled yesterday.
Jauhari said, given the necessity to shrink to grow, the airline has no choice but to consider right-sizing the organisation.
“A leaner and meaner organisation will quickly become agile, competitive and a winning entity,” he told the briefing, which was also his first encounter with the media as the head of the airline.
Jauhari said while the aim is to narrow losses to a “base case” RM165 million net loss next year, its stretched target would be a net profit of RM238 million.
All these targets, including a net profit of RM900 million by 2016, are based on a jet fuel assumption of US$130 (RM406.90), he added.
Besides the financial targets, the new MAS chief emphasised that it is a matter of survival that the airline transforms itself into a high-performance organisation.
He called for a boost in productivity, performance-based remuneration and a customer-oriented culture from MAS staff.
Jauhari said while he plans to shrink the organisation, the extent of any right-sizing exercise would depend on the execution of its recovery plan and “game changers” that play an integral role in the national airline’s business turnaround plan.
“We are flying only 88 aircraft as we are returning 36 to the lessor, and we take delivery of 23 aircraft next year. Based on the fleet reduction, we will see a reduction in networks and obviously we will have to right-size our organisation,” he said.
He said while cutting jobs is a “last resort”, a few game changers and recovery plans have already been identified.
He said the game changers include the launching of the new regional premium airline by the middle of next year, which will serve mainly Asian routes.
“There is a market for [premium airlines] in this region. It will remain, in fact, it will grow,” he said.
Analysts, however, are negative on this move.
“MAS is bleeding, we really question why [it should] take the risk, starting an airline from scratch when you have a well-known brand at your disposal,” said an analyst.
Be that as it may, analysts view MAS’ aggressive capacity cutting positively as it signals a different “management and fundamental” approach to running the airline.
Going back to the business turnaround strategy, Jauhari said his team will explore more alliances, enhance collaboration with AirAsia Bhd and spin off its ancillary businesses, which include its maintenance, repair and overhaul (MRO) unit.
Jauhari said MAS is also open to a strategic partner to take up a stake in its MRO business, apart from the transfer of skills and technology, but he ruled out listing the entity.
Deputy group CEO Mohammed Rashdan Yusof said that under its recovery plans, MAS expects to save RM220 million to RM302 million by cutting loss-making routes, which include South Africa, Dubai and a few European destinations. An additional RM255 million to RM337 million will come from spinning off ancillary businesses.
He said with the deployment of new and more efficient 737-800 aircraft, MAS could save some RM300 million from lower fuel bills, and generate RM394 million to RM477 million from optimising yields.
There is also an annual savings of RM100 million from the joint procurement and consolidation of key activities with AirAsia Bhd.
This is the result of the comprehensive collaboration framework (CCF) agreement entered into with the budget carrier earlier in August, which was facilitated by the share swap between shareholders of MAS and AirAsia.
Jauhari said MAS is also in exploratory talks with Australia’s Qantas and other airlines on partnerships, but did not elaborate.
MAS already has code sharing arrangements with a few major airlines, and will be a full member of the One World Alliance in September next year.
Rashdan, meanwhile, said MAS is not concerned with its cash position of just RM1 billion for a whole year.
“We have our funding mix plan [for aircraft purchase] ascertained,” he said.
He added that the airline could raise some RM5 billion worth of funds from banks, credit agencies, and leasing arrangements of its new aircraft. He said another RM1 billion will come from the return of pre-delivery deposits from the aircraft manufacturer.
He ruled out any equity fundraising. “Khazanah has indicated that they’ve already done so in 2010. We cannot do a capital call very soon but we can tell financiers that we have strong shareholders.”
On operating expenditure, Rashdan said the plan is to cut some 12% in absolute cost from the estimate of RM13.76 billion this year to RM12.88 billion next year. He said MAS also targets to increase its revenue per available seat kilometre (ASK) by about 20% to 22.3 sen from an estimated 18.7 sen this year, and decrease its cost per ASK by 27% from 22.4 sen to 22.3 sen.
This article appeared in The Edge Financial Daily, December 8, 2011.
Group CEO Ahmad Jauhari Yahya said MAS has taken a leaf out of the book of airlines like Japan Airlines and Garuda, which suggests that aggressive network cuts work in turning around a bleeding airline.
MAS will remain in the red this year after posting a RM1.25 billion loss for the first nine months.
Jauhari said to stop MAS — which has RM1 billion of cash in the kitty to last it a year — from further bleeding, it will reduce 12% of its capacity and cut unprofitable routes over the next year.
The move will save some RM300 million, which accounts for over 20% of the RM1.18 billion to RM1.51 billion in cost savings and additional income MAS aims to achieve under the turnaround plan it unveiled yesterday.
Jauhari said, given the necessity to shrink to grow, the airline has no choice but to consider right-sizing the organisation.
“A leaner and meaner organisation will quickly become agile, competitive and a winning entity,” he told the briefing, which was also his first encounter with the media as the head of the airline.
Jauhari (left) and Rashdan during the media briefing yesterday.
Jauhari said while the aim is to narrow losses to a “base case” RM165 million net loss next year, its stretched target would be a net profit of RM238 million.
All these targets, including a net profit of RM900 million by 2016, are based on a jet fuel assumption of US$130 (RM406.90), he added.
Besides the financial targets, the new MAS chief emphasised that it is a matter of survival that the airline transforms itself into a high-performance organisation.
He called for a boost in productivity, performance-based remuneration and a customer-oriented culture from MAS staff.
Jauhari said while he plans to shrink the organisation, the extent of any right-sizing exercise would depend on the execution of its recovery plan and “game changers” that play an integral role in the national airline’s business turnaround plan.
“We are flying only 88 aircraft as we are returning 36 to the lessor, and we take delivery of 23 aircraft next year. Based on the fleet reduction, we will see a reduction in networks and obviously we will have to right-size our organisation,” he said.
He said while cutting jobs is a “last resort”, a few game changers and recovery plans have already been identified.
He said the game changers include the launching of the new regional premium airline by the middle of next year, which will serve mainly Asian routes.
“There is a market for [premium airlines] in this region. It will remain, in fact, it will grow,” he said.
Analysts, however, are negative on this move.
“MAS is bleeding, we really question why [it should] take the risk, starting an airline from scratch when you have a well-known brand at your disposal,” said an analyst.
Be that as it may, analysts view MAS’ aggressive capacity cutting positively as it signals a different “management and fundamental” approach to running the airline.
Going back to the business turnaround strategy, Jauhari said his team will explore more alliances, enhance collaboration with AirAsia Bhd and spin off its ancillary businesses, which include its maintenance, repair and overhaul (MRO) unit.
Jauhari said MAS is also open to a strategic partner to take up a stake in its MRO business, apart from the transfer of skills and technology, but he ruled out listing the entity.
Deputy group CEO Mohammed Rashdan Yusof said that under its recovery plans, MAS expects to save RM220 million to RM302 million by cutting loss-making routes, which include South Africa, Dubai and a few European destinations. An additional RM255 million to RM337 million will come from spinning off ancillary businesses.
He said with the deployment of new and more efficient 737-800 aircraft, MAS could save some RM300 million from lower fuel bills, and generate RM394 million to RM477 million from optimising yields.
There is also an annual savings of RM100 million from the joint procurement and consolidation of key activities with AirAsia Bhd.
This is the result of the comprehensive collaboration framework (CCF) agreement entered into with the budget carrier earlier in August, which was facilitated by the share swap between shareholders of MAS and AirAsia.
Jauhari said MAS is also in exploratory talks with Australia’s Qantas and other airlines on partnerships, but did not elaborate.
MAS already has code sharing arrangements with a few major airlines, and will be a full member of the One World Alliance in September next year.
Rashdan, meanwhile, said MAS is not concerned with its cash position of just RM1 billion for a whole year.
“We have our funding mix plan [for aircraft purchase] ascertained,” he said.
He added that the airline could raise some RM5 billion worth of funds from banks, credit agencies, and leasing arrangements of its new aircraft. He said another RM1 billion will come from the return of pre-delivery deposits from the aircraft manufacturer.
He ruled out any equity fundraising. “Khazanah has indicated that they’ve already done so in 2010. We cannot do a capital call very soon but we can tell financiers that we have strong shareholders.”
On operating expenditure, Rashdan said the plan is to cut some 12% in absolute cost from the estimate of RM13.76 billion this year to RM12.88 billion next year. He said MAS also targets to increase its revenue per available seat kilometre (ASK) by about 20% to 22.3 sen from an estimated 18.7 sen this year, and decrease its cost per ASK by 27% from 22.4 sen to 22.3 sen.
This article appeared in The Edge Financial Daily, December 8, 2011.
