AIRLINE OF THE YEAR 2008

[Ken M. 0]

I just wish MH would start to re-focus on providing a top quality in-flight product.

I've read negative comments on some websites about long-haul catering in both C and Y classes recently.

This issue really needs addressing fast.

Malaysian Hospitality - I think not.

Ditch the low-cost approach (especially on long-haul), it's ruining MH's reputation.

 

[Eugene Koh 4]

2008 TPC Report Highlights Airline Survivability from Aviation Week and Aerospace

 

Aug 8, 2008

By Adrian Schofield and James Ott

 

The latest Top-Performing Companies report proves once again how quickly fortunes can change in the airline industry. The 2007 version showed legacy carriers gaining strength as the lingering effects of the post-2001 slump finally dissipated. But just a year later, the focus has switched to which can best ride out yet another potentially destructive downturn.

 

With few exceptions airlines are under extreme financial pressure as economies falter and oil prices remain abnormally high. A siege mentality is beginning to take hold, with traffic demand starting to slide and airlines in most regions slashing capacity. "The industry will go on, but only after a deep transformation and a new focus on efficiency," observes Christian Torrego of PricewaterhouseCoopers, one of the advisers who helped Aviation Week & Space Technology analyze this year's TPC results (see p. 54).

 

The TPC study offers clues about who the winners and losers will be as this transformation unfolds. One trend in particular that stands out is the continued strong showing of Asia-Pacific carriers at the top of the rankings.

 

Four of the first eight in the major airlines category are from the Asia-Pacific region. Singapore Airlines (SIA) is at the head of the list for the fourth year in a row, biggest improver Malaysia Airlines is in second place, and Qantas and Cathay Pacific are not too far behind. The TPC advisory panel agrees that these airlines are among the best situated to weather the latest slump.

 

Another common thread from last year's study is the stability of European national airlines compared with the U.S. majors, which are firmly ensconced in the bottom half of the list. The gap between the Asian and European top performers and the U.S. airlines has only grown larger over the past year.

 

The TPC airline formula has been revamped this year, with much more emphasis placed on "survivability" measures like liquidity and financial health. Liquidity is the factor that really sets the highest-ranked airlines apart, notes TPC analyst George Hamlin of ACA Associates. "There's a stark difference [in liquidity] when you get below the top 10."

 

There are many reasons why the leader board is heavy on Asian carriers - true, these airlines enjoy some advantages unique to their markets. But the TPC analysts also stress organizational strengths that stem from good management rather than geographical location.

 

The inherent advantages are simple, says Raymond Neidl of Calyon Securities: long-distance routes with very little competition. Hamlin adds that these airlines operate in a region where economies are still robust, and low-cost competitors have been a relatively recent arrival compared with the U.S. and Europe. Lower labor costs help, too.

 

 

 

Another factor that must be considered is state ownership. Many airlines in this region - including Malaysia and SIA - have significant levels of government investment, which is not factored into the rankings. While this can be an advantage, the TPC analysts agree that in the case of the top two in particular, they are so commercially successful that any government safety net is probably of little consequence.

 

To be sure, regional advantages only tell part of the story: After all, Asian carriers also dominate the bottom eight of the majors' ranking chart. The four at the top end have management structures that for years have focused on financial discipline, Hamlin says. TPC adviser Michael Dyment, of Nexa Capital Partners, notes SIA's management in particular has been bottom-line oriented, focused on efficiency, and has invested well in technology and equipment.

 

SIA has been a perennial overachiever, and it recorded a massive $1.5-billion net profit for the fiscal year ending March 2008. The TPC rankings use data from SIA's previous fiscal year, but the analysts agree that latest results prove it deserves its place at the top.

 

Malaysia has turned out to be the biggest surprise in this year's report. The airline bounded from 17th to second place in the course of a year by making sound decisions on route streamlining and dramatically improving its revenue management.

 

The TPC analysts believe that Europe's national carriers are also comparatively well positioned to endure high oil prices. Panelists tended to agree that European airlines pay close attention to adjusting capacity to specific markets, are well managed and possess greater pricing power than their U.S. counterparts. Even without government ownership, they doubtless have advantages in their home markets.

 

A big problem in the U.S. is the inability of legacy carriers to raise ticket prices enough to cover costs. Because of cutthroat competition, "airlines have trained people to look for cheap tickets," says Neidl.

 

U.S. airlines' rankings reflect the reality that they have suffered most from rising fuel rates and sinking demand. TPC Project Manager Michael Lowry has calculated which of the U.S. airlines are at greatest risk of filing for Chapter 11 bankruptcy protection (see p. 56).

 

Lowry ranks US Airways as a high risk for a bankruptcy filing this winter, assessing the carrier's liquidity as being inadequate by the end of the year. American, AirTran, Northwest and Continental are also at risk in 2009.

 

However, some notable caveats exist. Banks and financial institutions are proving willing to extend more credit to major airlines, and allow them flexibility on credit covenants. As Neidl notes: "The banks keep giving the airlines more and more rope."

 

This attitude may not extend to debtor-in-possession (DIP) financing during a Chapter 11 process, however. "This time, [obtaining] DIP financing will be much more difficult," Neidl predicts. "The banks will say ýýýweren't you guys here two years ago?'"

 

Even if airlines aren't pushed into bankruptcy filings, there is still the possibility they could opt to do so for strategic reasons. While American has obtained cost cuts from its employee groups, "there are still things they could do in Chapter 11 that they would have a hard time doing now," Neidl says. The airline is facing further cost pressure from contract talks with its major unions.

 

Northwest and Delta, on the other hand, have little to gain from another trip through bankruptcy court, the TPC panelists concur. These carriers already cut labor costs dramatically when they entered Chapter 11 in 2005. So any bankruptcy filing on their part would likely be involuntary.

 

Also, it is still to be determined what effect a planned wave of capacity cuts this fall will have on revenue. The airlines probably have more cuts up their sleeves, which should boost yields and offset some of the cost increases. And if any smaller airlines are forced to liquidate, this will also help trim capacity and possibly reduce bankruptcy risks.

 

For now, Dyment doesn't see a light at the end of the tunnel. "The fuel crisis has left us with few viable business models," he says. "The next 12 months will be shaky and there will be no return to the status quo . . . airlines are in a morass." Next year's TPC study will no doubt reveal which have the ability and desire to initiate the degree of change the situation demands.

[Jamie H 0]

I'm Loving It!!!

 

Love Love Love that MH are no longer Worlds Best Cabin Crew. Love that they've not made the list on most of the award cathegories (bar airline of the year which they've only managed to emulate their position last year and best economy class which they've dropped down 2 spots)

 

Pretty soon, Skytrax will degrade their 5 stars to 4.

 

IM LOVING IT!!!

[Rozhan 0]

I'm so very glad a gloatful, bestest and glittering superstars airline...finally humbled

[Kenneth T 0]

The price of fuel had fallen, thus MH remains an expensove airline to fly with. Nothing ssems to have been introduce to improve on the MH's overall product either. Dato IJ is s risky position of ruining MH image and reputations in a long term, something which he had already failed to recognise apart from the cost factor.

 

[Sandeep G 1]

The price of fuel had fallen, thus MH remains an expensove airline to fly with. Nothing ssems to have been introduce to improve on the MH's overall product either. Dato IJ is s risky position of ruining MH image and reputations in a long term, something which he had already failed to recognise apart from the cost factor.

 

That being said, Rome was built in a day. We can't expect overnight changes, and MAS can't divulge every initiative they are exploring.. so whilst we think nothing is going on, i'm sure behind the scenes - MAS executives and management and employees are working round the clock on installing profitable and sustainable initiatives.

 

For us, the excitement and the drama is like watching a movie for the first time - the suspense is killing us! Jus be patient!

[KC Sim 2]

. . . Rome was built in a day.

 

Guess you meant Rome wasn't built in a day. That is true and patience is a virtue. But patience too has its limits and when customers vote with their dollars and sense and migrate into the cabin of competing airlines, IJ and his team do not have the luxury of time to slowly experiment with many many little "initiatives" to see what work.

 

If you look at the success stories among the world's airlines, there are some simple fundamentals : good service (which thankfully MAS has), consistency in delivering good service, cost management (not necessary only looking at cost cutting but ensuring that money well spent leads to customer satisfaction and loyalty), fleet and route strategies that are realistic, marketing and promotional efforts that are professional, believable and effective, on-going staff training and once in a while, doing something that give it an edge over its competitors.

 

Perhaps I can illustrate something related to doing things that translate into customer satisfaction . . . and not just doing something for the sake of doing something and then expecting miracles. When MAS launched the first Hibiscus B744 - it boasted about the automatic window shades in its first class cabin and the ottoman seat that allows another person to dine with the first class passenger. The media questioned about the technical reliability of the mechanism that drive the automatic window shades and "what if" this mechanism fails. MAS insiders should know how popular this feature turned out to be. I have a friend who flew on this aircraft and had to endure with a whole flight with the window shades jammed in the open position. And he mentioned that other passengers complained about the noise generated by the mechanism.

 

Next - the ottoman seat. The media questioned if a passenger travelling in business or economy class could be invited by a friend travelling in first class to join him for dinner using this facility. The answer is "No". Media response - why would a first class passenger abandon his comfort - for which he or his company paid dearly - to instead sit on the ottoman seat that ordinarily only served as a foot-rest? Great intention to bring people closer but this failed to take into consideration the real needs of its premium customers.

 

Personally, I have not seen MAS doing anything that puts it ahead of the pack . . . if one does only what others have done some years ago, one will only continue to fight through the dust of those at the front of the race.

 

KC Sim