MAS and AirAsia Shares Swap

[Mohd Suhaimi Fariz 2]

They will have very few European routes left and both LHR and AMS will be served by A380s. As such, even on European routes, only a few B772s are needed. If MH is not able to return the B772s to PMB, they may just store them to minimise MRO costs. These can be used if business improves and new long haul routes are launched.

 

AMS is not an A380 run.

[flee 5]

MAS turnaround plan fails to excite analysts

There are many issues to sort out within one year and it will take time to turn around the fortunes of the ailing national carrier, says HwangDBS Vickers

 

KUALA LUMPUR: Malaysian Airline System Bhd's (MAS) business turnaround plan does not excite most analysts as it failed to address some key issues.

 

"There are many issues to sort out within one year and it will take time to turn around the fortunes of the ailing national carrier," HwangDBS Vickers Research said in a report yesterday.

 

HwangDBS Vickers has downgraded its recommendation on MAS to "fully valued" from "hold" previously.

 

It also lowered its target price to RM1.10, from RM1.35 earlier.

 

The national carrier, which posted a net loss of RM1.25 billion for the nine-months ended September 30 and foresees further losses this quarter, expects to be profitable again by 2013 with a series of cost-cutting measures.

 

It expects a net loss of about RM165 million next year.

 

MAS said the cost-cutting measures can help generate between RM1.12 and RM1.51 billion cash through several measures. They include suspending unprofitable routes early next year and spinning off some ancillary businesses such as cargo and ground services.

 

"Overall, the business plan was not a surprise as most of the initiatives outlined were mentioned during the recent quarterly result briefing," said an analyst from a local brokerage.

 

While it is seeking a strategic partner to help expand its profitable maintenance and repair business, MAS is also looking to launch a new premium airline by the second half of next year.

 

The new carrier will link Malaysia with Asean , South Asia and Greater China.

 

It also has started talking to AirAsia Bhd on joint procurement and operation consolidation initiatives.

 

Although these proposed initiatives could help MAS cut cost and return to profitability, analysts stressed that execution of the plan remains a key challenge.

 

They said one of the issues the MAS management did not discuss was how it plans to solve the issue of over-employment.

 

The management did not hint if it will reduce its workforce, they added.

 

Some analysts are doubtful if the cost-saving goals could be met without reducing staff strength.

 

"We felt that MAS is attempting to effect a painless restructuring (without headcount reduction, for instance) according to its business turnaround plan revealed yesterday.

 

"We doubt if this could produce the targeted results, i.e. RM1.2 billion-1.5 billion positive swing in performance from a RM1.2 billion net loss projected by analysts in FY11 to a mere RM165 million net loss to a RM238 million net profit in FY12," RHB Research said.

 

The firm has an "underperform" recommendation and a RM1.04 target price on MAS.

 

So far this year, MAS share price has fallen by more than one third. It closed 10 sen lower at RM1.34 yesterday.

 

Analysts in general remained negative on the stock, with more than 60 per cent placing a "sell" call.

 

Source

[alberttky 0]

The turnaround plan failed to impress us aviation buffs so how to excite analysts???

[alberttky 0]

It’s a tough pull for MAS

 

 

MALAYSIA Airlines (MAS) is perhaps the only Malaysian company that has undertaken the most number of restructuring exercises over the past decade to try to get back on its feet.

 

A decade ago its books were severely tainted with red ink and had to be cleaned up via the Widespread Asset Unbundling (WAU) exercise where it became an asset light airline. But 10 years later it is still in dire straits and appears not too far from where it was a decade ago.

 

This Wednesday the new boss of MAS, Ahmad Jauhari Yahya, after coming in one-and-a-half hours late for the media briefing, threw in yet another plan to put it back on course. The theme is “right sizing'' and it involves cost cuts to spinning-off businesses.

 

Some analysts were quick to say the plan “is yet another exercise to cut cost and sell assets to show profits. This is the fourth in a decade after WAU, Business Turnaround 1 and Business Transformation 2.''

 

“The same people who crafted WAU are back. Had they put in place a long-term plan then, would MAS be in this state?'' ask Standard & Poor's senior aviation analyst Shukor Yusof from Singapore.

 

To him, the new team “has taken a short-term view of MAS when they should have engaged with the experts from within to get to the root of the problem as the plan to him does not address that.''

 

Brendan Sobie, the analyst at CAPA Centre for Aviation adds: “MAS has an unenviable track record of failed turnarounds and transformations, its rivals will be watching closely as MAS takes a stab at yet another new strategy.''

 

The question is no longer about whether it can do it, but about confidence.

 

New plan, same story

 

At a glance, the plan is no different from the previous ones that focused on cuts and asset sale to remove the red ink from its books in the short term.

 

A Maybank Investment Bank Bhd analyst describes the 43-page business plan document as a “fairly good academic paper, full of comparisons, but lacks critical details on exact execution plans which is key for investors to decide'' if the turnaround story is bankable.

 

Of the 17 brokerages tracking the stock, according to Bloomberg data, only two are still maintaining a “buy” call while 12 have a “sell'' recommendation and five “hold'' with a target price of RM1.30 a share. Yesterday MAS closed at RM1.31

 

But Ahmad Jauhari, who declined to be interviewed for this article, contends that there was a recovery plan that focused on “right-sizing'' to address the bleed, and a growth plan for sustainablity.

 

He says MAS is in a “deep crisis'' due to lack of focus on the premium segment and its quality of product fell. Basically the attraction waned because of its pricing, an ageing fleet, a stale product and it was not as fast as its rivals to adopt change.

 

Ahmad Jauhari believes that by replicating the “playbook used by Japan Airlines (JAL) and Garuda International'' to turn around MAS, there will be success.

 

But not to Shukor.

 

“It is naivety at its highest order to do that. JAL's recovery plan was based on making the Boeing 787 as the workhorse of its fleet, and slashing 16,000 employees 30% of its workforce. What is MAS prepared to do? The airline has close to 20,000 workers; will the company lay off a third of them now that it is downsizing?''

 

He also warns that downsizing is not the best way to address MAS' problems when it wants to be considered a serious premium player and is going to add five 500-seater A380s in 2012.

 

It will open itself to “predators, and there is no shortage of them in the region from Jetstar, LionAir, Singapore Airlines (SIA), Cathay Pacific and many others,'' Shukor adds.

 

Ahmad Jauhari contents that, if nothing is done, in terms of a fundament re-engineering, the losses could balloon to RM2bil. For first nine months, MAS reported a net loss of RM1.2bil.

 

More cuts needed

 

Under the new plan, MAS will shrink its network by 12% to grow.

 

In 2012, it will suspend flights to loss-making routes such as Dubai, Johanesburg, Cape Town and Buenos Aires which make up only 5% of total international available seat kilometer (ASK). Sobie says MAS needs to cut 25% of its capacity to European cities (probably Rome and Frankfurt) to make up for a 12% system-wide cuts.

 

“This figure could be reduced slightly if MAS opts to also trim back its Australia/New Zealand operations,'' he adds.

 

Some experts say the Singapore-Langkawi route will go, and so will the long-haul routes out of the Kota Kinabalu hub, whose future as a hub appears dim.

 

“It is surprising they find the Dubai route loss-making when its rivals can make money from it,'' says the expert.

 

When a particular route is suspended, the rights go back to the government and here is where AirAsia or AirAsia X (AAX) can apply for them.

 

MAS and AirAsia are now partners by virtue of the share swap deal in August, and to facilitate the working relationship, a comprehensive collaborative framework (CCF) exists so that both can work together in many areas in a bid to reduce cost and MAS is looking at RM100mil savings a year. But the bigger aim is really to prepare the players for the onslaught of competition with liberalisation of Asean's air sector by 2015. Here is when any airline in Asean can fly to any city and pick up passengers, and having a strong home carrier is therefore key.

 

The CCF also means there will be sharing of flights to save cost, though the airlines have not made it clear how this will work.

 

But Ahmad Jauhari did say that “we are close to finalising a connecting-service that will enable passengers on either airline to seamlessly connect between carriers and non-overlapping routes.”

 

While AirAsia's group CEO Tan Sri Tony Fernandes has declined comment on this issue, the market has gone on to speculate that AirAsia X may be looking at giving up some routes, such as Mumbai and the European routes, in exchange for Sydney and some China routes. AirAsia X has been fighting to get Sydney for a long time.

 

Premium equation

 

To get back at the premium market where rivals such as SIA, Cathay Pacific and Emirates reign, MAS has to do a total revamp of its approach to branding, distribution, customer loyalty, product and the works in order for these high-fare paying customers to re-look at MAS.

 

It would be a tough battle and shrinking its network puts it back a few notches in the premium game where frequency and connectivity is king, says an industry expert.

 

“It is not just frequency, but the right product, a top-notch frequent flyer programme and knowhow to treat the customer right. SIA, Emirates and Qatar Airways know best how to treat the customer, they even know what toilet paper their high-paying travellers use. That is premium service. Is MAS willing to go down that route?'' asks an industry expert.

 

The good thing is it will have 23 new more fuel-efficient aircraft plus the six A380s which will be its star product. It will use the jumbos for the London route.

 

However, Sobie says that the KL-London-KL routes where MAS has double daily flights had suffered over the last several months from low load factors and yields. With the A380, there will be more capacity at a time when market conditions in Europe are worsening. But MAS hopes to woo more premium passengers after noticing the impact of the A380 from other carriers in attracting new clients.''

 

To offer premium services, Shukor points out that MAS needs a reservoir of premium passengers and KL is not considered a premium city. Still, others think MAS' entry into the oneworld air alliance provides some reprieve in linkages and volume, though small.

 

MAS also wants to re-focus on South-East Asia and Greater China, But others are also zooming in on Asia, such as Qantas, British Airways, SIA and even Emirates.

 

There will be more capacity added into the region by existing players and new players, and that points to more competition. Next year, SIA's long haul low cost carrier Scoot enters the market, Emirates will fly its A380 into Kuala Lumpur and Qantas will set up an Asian hub.

 

International Air Transport Association director-general Tony Tyler predicts Asia will do better than most regions amid the gloom and doom due to the eurozone crisis that threatens to throw the global economy into a tailspin. CAPA says the overall Asian market is poised to grow at a much faster rate of 10% per annum, to reach 900 million passengers (excluding China) by 2020.

 

MAS wants to launch a regional airline by the first half 2012 to tap into Asia but analysts warn of the execution risks of doing so.

 

“Ten years and the problem at MAS still persists. Now they want to adopt a new baby, perhaps they should re-look their strategy,'' an analyst says.

 

The regional airline, yet to be named, will give MAS the needed traffic as it will act as a feeder airline to MAS and more importantly yields, while MAS will focus on long haul routes.

 

The existing Firefly turboprop operations will also remain as a feeder to MAS.

 

MAS is targeting to increase its revenue per available seat km (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.

 

But more interesting is the talk that MAS, Qantas and British Airways may work together. It is mere speculation at this stage. If it does materialise, there is a good chance that Ahmad Jauhari will succeed in turning MAS around.

 

“Something is certainly brewing with Qantas, and BA may be involved,'' said an expert.

 

Qantas, on its own, wants to set up an ultra-premium carrier airline to be based either in KL or Singapore. A report from Australia yesterday says that Qantas is keen to work with MAS and “discussions are continuing with relevant parties about the establishment of a premium carrier. Qantas remains very much committed to this,” a report citing Qantas' government relations chief, Olivia Wirth, as saying, adding that any future activity between the two fliers “would be complementary” to MAS' plans for a new short-haul carrier.

 

They could collaborate on scheduling, interlining, pricing and revenue management or just interlining. Whatever they do they have to move fast.

 

“MAS can be the link into intra-Asia, South East Asia, BA for Europe and US points, and Qantas for Australasia. By combining to scale they can beat Emirates and even SIA,'' says the expert.

 

In the black

 

Despite all the cuts, MAS will remain in the red this year and the next. Ahmad Jauhari estimates the net loss for 2011 to be RM1.32bil and his “base case'' net loss for 2012 is RM165mil. The light at the end of the tunnel will only shine in 2013, and by 2016, he expects MAS to report RM900mil in net profit.

 

That projections are a bit conservative, says Maybank, which expects a RM903mil net profit for 2013. By 2016, the expectation is that it should report RM2bil in net profit, provided of course it is able to turn around as per the business plan.

 

“The one thing they are doing right is cutting loss-making routes that has not been possible previously,'' says a Maybank analyst.

 

“Whatever they do, it will take a while before any research house will turn bullish on this stock.”

 

MAS also needs to conserve its RM1bil cash in its coffers and raise RM12bil in financing for its aircraft, but a cash call is not on the cards.

 

MAS deputy CEO Mohd Rashdan is not unduly worried about the financing or the cash reserves for he feels it can roll into next year and the airline can raise about RM5bil worth of funds from banks, credit agencies, and leasing arrangements of its new aircraft.

 

“We have our funding mix plan for aircraft purchases and another RM1bil will come from the return of pre-delivery deposits from the aircraft manufacturer.''

 

The move to spin off its ancillary units and getting strategic investors may also raise some funds for the airline.

 

“Selling assets or stakes to raise money to show profits has been done before, and AirAsia is a potential buyer,'' says a source.

 

AirAsia recently formed a joint venture with Canada-based CAE International Holdings Ltd to set up an aviation academy to provide training for pilots, cabin crew, engineers, guest services, ramp handlers and aviation management. And since MAS wants to spin its pilot training unit, it could end up with CAE and AirAsia, says the source. Ahmad did not name the potential strategic partners that may end up having stakes in the ancillary units that it wants to spin off.

 

Job cuts

 

Will there be job cuts since MAS is downsizing?

 

Ahmad Jauhari says that will be the last resort.

 

AmResearch says any workforce downsizing and change in performance-driven incentive mechanism could face hurdles especially with the unions.

 

“It would only be fair to make it very clear to the staff, instead of talking in riddles about job cuts. It is their livelihood and don't blame them for MAS' misfortunes,'' says an industry expert.

 

Sympathy is not what many employees are looking for. They want straight answers and not answers like “work in progress,'' says another industry expert, who adds that “During Tan Sri Idris Jala's time, we knew exactly what was happening but now we are clueless. We don't even know if there will be layoffs and who will be affected... it is utterly confusing.''

 

The issue of jobs cuts could send another wave of uncertainties when the unhappiness over the share swap and CCF is still fresh. Many parties have lambasted MAS and AirAsia over the CCF and share swap.

 

Labour is the second-biggest cost item after fuel and oil for MAS.

 

“The larger issue on cost side is inadequate labour productivity. In the months ahead, there will be a need to overhaul our organisational structure,'' Ahmad Jauhari warns.

 

“Following the share swap and board revamp, Fernandes and Datuk Kamarudin Meranun of AirAsia were appointed directors of MAS. Ahmad Jauhari was head hunted for the job and joined the airline on Sept 15 on a three-year contract.

 

Shukor felt MAS must do more to develop and nurture its own set of managers to run the company in future. It is a sad day for MAS that, in the past decade, it can't even produce a single individual from its own rank and file who has the ability to steer the airline now. You can't parachute leaders when there is a pool of talent within waiting to be recognised.''

 

While some in MAS feel that the CCF should not be there, the feeling is mutual for some at AirAsia.

 

“Many have questioned Fernandes on the need for the share swap and CCF, but his answer is “do you want to go on fighting for routes or do this for the greater good,'' says an insider.

 

Fernandes when contacted said “they (those at AirAsia) are quite indifferent, they are willing to go (for the change).''

 

Fleeting chance

 

The odds are lesser than previously as the biggest challenge previously was an ageing fleet. With the new deliveries, MAS will have one of the youngest fleet in the region and the partnership with AirAsia will hopefully drive cost savings as promised. More importantly, the partnership is intended to make them into stronger entities in a liberalised environment.

 

But like in all restructuring exercises, the “devil is in the execution'' and whether Ahmad Jauhari can pull the airline across to safe grounds remains to be seen. One thing for sure, the market is not going to believe any more stories if this fails. It has become a confidence issue.

 

http://biz.thestar.com.my/news/story.asp?file=/2011/12/10/business/10069906&sec=business

[KK Lee 5]

Bro Albert, cakap baik baik sikit..... MAS is our treasure, its not trash. Despite its trials and tribulations and being done in by the dishonest and the incompetent, operationally its great. The Flight crew has done an amazing job keeping a safety record that even those down South envies. Our Cabin crew, despite being shafted by the Union on one side, the Management on the other, are still the best around. Technical Engineering is great, and so are many other support staff.

 

When you shoot, please aim your bullets properly, take care not to cause collateral damage. There are more good people than bad people in there.

 

Its not that difficult to turn MH around. And there are many right people who can do it.

 

 

The good people are at best in 2nd or 3rd tier management, mostly near retiring age, exiled posted to overseas or isolated departments, lack political support and below khazanah, MoF, PM, ‘First family’ radar screen to be appointed to the top management or even asked for input.

 

Even if the good people are appointed to fill top 3 tiers of management, they won’t be permitted by the gomen to make the bad people redundant or terminate unfair contracts. MH will still leave with bloated overhead and excessive expenditure.

 

Until the day politician stop meddling with MH, the management could only find ways (WAU, BTP, etc) to make profit for a few years and move on. As there are too many vested interests in MH, MH is not allowed to fail, overhead and expenditure will continue to balloon until the country couldn’t afford to bail out.

[Mohd Azizul Ramli 2]

Just to share some interesting quotes from the same topic in A.Net:

 

Ah yes, the annual MH 'relaunch'! MH will be flying the wrong aircraft to the wrong places with the accordingly wrong onboard product and probably charging the wrong price! - LX138

 

 

Why on earth would you focus your resources on inventing yet another product/approach while your current one is already in trouble ? As one saying goes: If you try to do everything you'll end up doing nothing particularly well. - 9MMPQ

 

 

What MH is doing is to simply replicate what two key regional competitors have long done: by moving its regional narrow-body routes into its own dedicated full service regional airline. This is the exact same strategy which SQ has done over 20 years ago with MI and which CX has done by buying up all of KA in 2006. If you look around East Asia, you will find that JAL, ANA, China Airlines, etc, all have similar arrangements although Japanese subsidiaries tend to be highly splintered across multiple small subsidiaries. - huaiwei

 

 

MAS can not as long as its seen as a good place for people with political connections to work emerge as a world-class player.

 

It's not just overloaded on staff, staff in Malaysia is relatively cheap, but the problem is that they are top-heavy. Management levels, and there are more management position at MAS than I have ever seen at a company before, is where the big purge need to happen. MAS is way overtsaffed at those levels. Creating a new position for a niece with a nice university degree where she does nothing of value is the norm. Most of these employees are hardly in the office at all, they aren't needed. But flying perks they have and use...

 

I feel sad that MAS sometimes is used in an Italian or greek government style way and not run as a professional business. It's not good for Malaysia as a country nor for the employees at MAS that are professionals, and there are quite a few real good employees at MAS that tend to have to stand back to people with uncles in the right positions.

 

Idris Jala did a good job. Pity he wasnt left at MAS. I know he stepped on many people's toes, that he reduced perks, that he promoted people who didn't have the correct uncles. But he did run MH as a true business. MAS under him for ten years would have been a formidable force in SE Asia. His successor and his team, wonderfully politically connected and unadapt at running a business managed to reverse most things or favour their own departments and yet again were seeing MAS being a loss making moneypit.

 

If my understanding is correct they even bought-leased new apartments in London. One of the things the team under Idris Jala discovered was a few apartments in London, in Kensington, where the children of certain people could stay for free when they went to university. Kensington is not just costly its one of the most costly places in Europe. Great apartments for unistudents and paid for by MAS. They were sold, at great profit, now I hear MAS owns three new apartments or maybe have leased them in the same neighbourhoods and that the people staying there pays about 80% below market rates in rent. Great for the bottom line of MAS!

 

MAS is a great airline. But they need to stop being run like a corrupt family unit and instead be run like a true business. - MillwallSean

 

 

Staff cut is definitely a big issue in this matter. The main problem is that this Business Plan was tabled at the brink of Malaysia's 13th General Election which will be held anytime from now. So for a gargantuan Government Linked Company (GLC) like MH to lay off some 10,000 excess staff that it didn't need is suicidal for the national interest. In the 44 pages Business Plan document it was mentioned that MH will try to cut its manpower through the divestment of 4 of its subsidiaries. - 9MMAR

[Mike P 0]

Routes cutting and downsizing are only making MH a cheaper premium airlines. There's a demand on that route and why they could not make profit out of it? This is really something wrong with the marketing and strategy. Good example is KUL - DBX route.

 

As for flights going in and out of USA, they might want to check how many Malaysians and non-Malaysians flying in and out using other carriers such as SQ, CX, EK, QR, etc.

 

I still believe in OneWorld is the only chance MH could have, along with QF and BA, where these two airlines could lift MH from loss. It would depend on how MH positions itself in OneWorld with this golden opportunity to work with QF and BA, at the same time, making KUL a real class world hub.

Edited December 10, 2011 by Mike P

[Mohd Azizul Ramli 2]

MH's CEO Ahmad Jauhari Yahya moments before being slaughtered by D7's CEO Azran Osman Rani. Photo was stolen from the recent AK's 10th Anniversary Party at the KL Convention Center.

 

 

How apt LOL!

[jit 0]

Just to highlight a point especially to those who are calling for cost cuts and headcount reduction.

 

Revenue ASK          Cost ASK

MH : 20.0.                25.6

TG : 26.1.                    25.0

EK : 29.4.                  28.5

SQ : 31.8.                    29.5

CX : 32.3.                  30.5

 

MH is cost competitive. Cost is NOT the problem. It is revenue. 

 

No of staff per aircraft seat

SQ : 0.50

CX : 0.43

MH : 0.77

At a glance, MH is way over staffed. But..

 

Monthly wages

SQ : rm5251

CX : rm5991

MH : rm1228

 

MH is overstaffed by <2 but CX and SQ have to pay their staff 4.2 tp 4.8 times more than MH! And do remember that MH operates lots more narrow body aircraft which will result in a higher no of staff per seat.

Although staff productivity needs to be increased, staff costs / nos per se is not the problem.

 

Reducing capacity may seem like the right thing to do... but this is an airline, not a car company. Reducing frequency and cutting routes affect revenue directly. Is MH's revenue so ridiculously low because they don't have the network and freq? I would'nt choose to fly to the US using MH.. with only 3x / week freq.

 

So, it is a bit tricky.. how to boost revenue and control costs?Not easy.. That is why they need ppl who understand the airline business to run it! Ppl who know the business well, who understands the intricasies of managing the network and selling seats with prices that fluctuate by the day...Not parachute a bunch of bean counters, oil man, power plant man to run it... using consultants who are generally also a bunch of bean counters.

[Isaac 0]

Just to highlight a point especially to those who are calling for cost cuts and headcount reduction.

 

Revenue ASK Cost ASK

MH : 20.0. 25.6

TG : 26.1. 25.0

EK : 29.4. 28.5

SQ : 31.8. 29.5

CX : 32.3. 30.5

 

MH is cost competitive. Cost is NOT the problem. It is revenue.

 

No of staff per aircraft seat

SQ : 0.50

CX : 0.43

MH : 0.77

At a glance, MH is way over staffed. But..

 

Monthly wages

SQ : rm5251

CX : rm5991

MH : rm1228

You can't compare it like that. MAS, being an airline based in Malaysia where wages are low, the cost shouldn't be anywhere near those of SQ and CX. MAS is clearly overstaffed and that's a fact. These numbers clearly show that staffs productivity at MAS is very low.

 

 

MH is cost competitive. Cost is NOT the problem. It is revenue.

Cost is MAS' biggest problem, so is its revenue. If you check MAS air fares regularly, it's not that their air fares are any cheaper than some of its biggest rivals such as SIA and CX. It is also not that the average load on their flights are any lower than SQ/CX yet both SQ and CX are reporting billion of dollars in NET PROFIT almost every year while it is the other way around for MAS

Edited December 10, 2011 by Isaac

[BC Tam 2]

Back in the old days, it was honestly called government (financial) assistance

Then privatisation

Then re-nationalisation

Then WAU, BTP, BTP2, ......

But it seems nothing has worked, back at square one (if not worse)

 

Now we have this latest 'restructuring' which thankfully is devoid of any corny sounding acronym thus far. Unfortunately it is also equally devoid of any real substance, if the analysts' opinions is anything to go by. Their scepticism no doubt heightened by failures of aforementioned grand plans and I suspect too by presence on board now of MH's once greatest critic (if not, then certainly the most vocal), whom it must be remembered is still a business competitor

 

I wonder if the next instalment of this very painful saga will be the terminal winding up exercise But gut feel would be a management buy out by said 'competitor' in not too distant future, probably in name of consolidation

 

 

 

..... it's not that their air fares are any cheaper than some of its biggest rivals such as SIA and CX

MH sent me an email recently highlighting availability of KUL-LHR return in region of rm2.9k, albeit with some restrictions. Now, if that isn't 'scraping bottom of barrel' mentality ......

Edited December 10, 2011 by BC Tam

[Johan Z 0]

If you check MAS air fares regularly, it's not that their air fares are any cheaper than some of its biggest rivals such as SIA and CX.

 

Had a chat with my friend who works at a freight company in PEN recently, she said shipping goods using MAS is much more expensive than using KE or CX. Once, she had to use KE to ship an item from PEN to SIN because it was much cheaper than using MH (so the item went to ICN, then SIN). According to her, MH lost a lot of potential customers due to their higher charges (taxes etc).

[alberttky 0]

Cost is MAS' biggest problem, so is its revenue. If you check MAS air fares regularly, it's not that their air fares are any cheaper than some of its biggest rivals such as SIA and CX. It is also not that the average load on their flights are any lower than SQ/CX yet both SQ and CX are reporting billion of dollars in NET PROFIT almost every year while it is the other way around for MAS

 

Agreed. Just look at how many stations in Malaysia MH has to man to run their domestic operations. All these amount to $$$. They should have hived off their ground handling arm long time ago. Ground handling department (for airlines that still have them) are in most cases a cost centre rather than a profit centre.

 

CX and SQ only have one hub they've gotta deal with.

Edited December 10, 2011 by alberttky

[Mohd Azizul Ramli 2]

Saturday December 10, 2011

 

Analysts wonder what long-term plan can the airline conjure

By LEONG HUNG YEE

hungyee@thestar.com.my

http://biz.thestar.com.my/news/story.asp?file=/2011/12/10/business/10060480&sec=business

 

IT is undeniable that Malaysia Airlines (MAS) is facing a crisis and is in a dire state now. The carrier is having both cash and profit crisis for a while and may fail if it continues the way it is now. Realising this, the management introduced a new Business Plan 2012 on Wednesday hopefully to turn its fortune around. Many will be interested in the business plan and the details on how it will help steer MAS away from turbulence.

 

But surely many will ask ... doesn’t MAS have enough business plans already? Over the past decade, the flag carrier has undergone several business plans including the Widespread Asset Bundling (WAU), Business Turnaround Plan 1 (BTP1) and Business Transformation Plan 2. Some of these initiatives have produced some promising results but the momentum was not sustained, nor did it steer MAS from further turbulence.

 

Ten years on, it is back to square one. For the first nine months to Sept 30, 2011, MAS posted a net loss of RM1.24bil against a net profit of RM8.55mil a year ago. Its cash and cash equivalent have depleted to RM968.5mil as at Sept 30 compared with RM1.92bil a year ago.

 

 

Some analysts are saying the new business plan was basically a new plan with the same story they have been seeing over the years. Analysts tracking the airline concur that its history, both financially and operationally, is an eventful one, especially since its low-cost counterpart AirAsia Bhd has now become a substantial shareholder in MAS. Ironically, AirAsia is celebrating its 10th year of success this year.

 

“The carrier (MAS) has faced strong financial challenges over time. Yet, it has managed to survive them. It’s interesting in the sense that one day it was flying high and the next thing you know, it has hit bottom but it has, through it all, managed to turn around,” says an analyst.

 

Basically, the business plan will see MAS turning itself around by cutting capacity, wooing back its customers, enhancing costs, and focusing in its core business.

 

“This business plan outlines our near-term recovery plan to move us to profitability by 2013, as well as a set of ‘game changers’ to sustain our performance and create a platform for continued growth for MAS’ future,” group CEO Ahmad Jauhari Yahya says.

 

He adds that MAS needs to make “hard and unpopular” decisions simply to survive and realise the airline’s vision.

 

A decade ago, MAS suffered high losses due to high fuel prices. The Government took control of the airline in 2000, but failed to turn it around. MAS had lost much of its core competencies in many areas of operations and was burdened by route and fleet expansion programme.

 

MAS reported an operating loss of RM776.6mil and a net loss of RM835.6mil for the year ended March 31, 2002.

 

In the same year, MAS underwent the famous WAU revamp to restructure the whole group. The WAU exercise wowed many with the almost instant result of turning around MAS.

 

Penerbangan Malaysia Bhd (PMB) was set up in 2002 as a wholly-owned subsidiary of the Minister of Finance Inc following the restructuring of MAS.

 

Under WAU, 73 aircraft of MAS (which were tagged with a value of RM5.1bil) as well as an associated RM7bil in debt were taken over by PMB.

 

The shortfall of RM1.9bil was made up by issuing additional MAS shares to PMB at RM3.85 each.

 

The aircraft were then leased back to MAS to enable the carrier to focus on operational efficiency.

 

With no aircraft assets on its balance sheet, MAS essentially became a marketing entity and operator of leased passenger and cargo capacity on international routes.

 

One of the immediate effects was that the restructuring transformed MAS’ gearing ratio of 700% as at March 21, 2002 to a net cash position, thus creating an “asset-light” airline.

 

The restructuring was successfully executed by Nov 6, 2002 over a record duration of 8.5 months.

 

The success of the WAU exercise speaks for itself. In the following year, MAS posted a significant improvement after its restructuring exercise. MAS narrowed its operating loss to RM47mil in 2003. It turned around in 2004 with an operating profit of RM195.6mil and RM317.7mil in 2005.

 

Not only did MAS manage to turn around its operation, the carrier also saw its share price increased from RM3.06 on Nov 5, 2002 upon shareholder approval of the WAU restructuring and reached a high of RM5.60 on March 31, 2004.

 

However, the momentum was not sustained. MAS continued to be in a precarious state despite having had all its debts transferred and seeing some improvements operationally and financially. High jet fuel prices were a serious concern, and a big factor in pushing it from a newly turnaround company into the red again was high oil prices in 2005.

 

For the period from April to December 2005, MAS’ losses amounted to RM1.3bil, shocking the market with its worst results since the WAU exercise.

 

Again, the company needed a restructuring plan to turn the company around – one more time. This time around, the Government appointed Datuk Seri Idris Jala as new CEO on Dec 1, 2005 to steer the company out of turbulence. Within three months, he came up with a BTP1 where he played a key role in helping MAS return to the black.

 

 

The success of the BTP1 saw the airline reporting record net profit of RM851mil for the financial year ended Dec 31, 2007 from a loss of RM1.3bil in 2005.

 

Jala launched BTP2, a five-year plan to transform MAS into a five-star value carrier and turn in profit of at least RM1.5bil in 2010 according to the plan. MAS posted a net profit of RM234.5mil for the financial year ended Dec 31, 2010.

 

MAS has managed to return to profitability within a short period. Route rationalising was one of the major contributors to the airline’s return to profitability.

 

Sustaining momentum

 

However, like in previous plans, the momentum could not be sustained. MAS continued to be in a bad position. One of the contributing factors for the massive losses was fuel costs. Another factor for the losses was high operating costs. MAS substantially lagged its peers on yields.

 

Some analysts say it was unfair to say the WAU and BTP have failed. The plans have managed to turn MAS to become an asset light carrier as well as to improve efficiency. Albeit a short period, the plans have also helped MAS to recover from unprofitability.

 

“If those plans did not take place, the airline would essentially be bankrupt by now. It may not even have survived the subprime mortgage crisis in 2008,” an analyst says.

 

Post WAU and BTP, MAS has taken all the necessary steps to improve its operations and efficiency. Now, it is time for them to look at ways to reduce their operational cost, an analyst says.

 

“As for routes, I think it had already stopped servicing unprofitable routes during the BTP days. What it should look at right now is on the capacity. It will also need to win back some of its customers,” an analyst says, adding that the national carrier’s biggest problem is in managing its cost.

 

Going forward, MAS’ network will include routes where its premium travellers will want to go, and where we can win in terms of competitive position and home advantage.

 

Maybank Investment Bank applauds the move that MAS would cut capacity or available seat per km (ASK) by 12% in 2012 on loss-making routes such as Buenos Aires, Dubai, Cape Town and Johannesburg.

 

“The move was overdue for decades as these routes have no chance to make money. This move is also a confidence booster because it shows that the management is bold and clear-minded in its cost-cutting approach,” says Maybank IB.

 

MIDF Research says MAS will deploy the resources to profitable routes by increasing frequency and the ASK is expected to increase by 3% over those routes. Hence, there will be a net reduction of 2% in ASK. The estimated impact will be RM220mil to RM302mil to core airline profit.

 

MAS currently leases its aircraft from PMB and will eventually return the aircraft to the latter when the lease expires.

 

As its fleet replacement programme shifts gear, MAS will have the youngest fleet in the region by 2015. Under its fleet renewal exercise, MAS could potentially own an additional 56 aircraft by 2016 excluding options for twenty B737-800 and ten A330-300. The aircraft deliveries are scheduled up to 2016.

 

“We will take delivery of 23 aircraft in 2012, each with state-of-the-art passenger amenities. As we introduce these products, we must also reinvigorate our sales and marketing functions,” MAS says in its Business Plan 2012.

 

MAS adds that it needs to “win back the hard-earned loyalty of customers”, especially those in Malaysia, and convince them of the superior value of our enhanced services. It also need to optimise our revenue management to enhance yields.

 

MIDF Research says MAS will accelerate the return of 36 older lease aircraft to PMB. “We believe that this will bring significant cost savings as the newer aircraft will be more fuel efficient.

 

Also, it will install state-of-the-art passenger amenities for better product offering and optimise yields through better revenue management. Impact is estimated to be RM394mil to RM477mil.”

 

Analysts say proper execution will be key risk factor to making that sure its MAS’ Business Plan come true and will be able to sustain for future growth.

 

“The execution of MAS’ business plan is important, as it will prove MAS’ ability to turn around and compete. It is for this turnaround story that MAS will be more significant for investors,” a local bank-backed analyst says.

 

Another analyst says that with all the building blocks in place, MAS may provide investors with a turnaround story. “It is not a new story but will be an interesting one considering its ups and downs. However, the results will only start showing in the next couple of years,” he adds.

[Isaac 0]

MH sent me an email recently highlighting availability of KUL-LHR return in region of rm2.9k, albeit with some restrictions. Now, if that isn't 'scraping bottom of barrel' mentality ......

I received the same email, i believe. It's for travel around christmas and the return trip must be after 10 Jan, if my memory serves me correctly. I guess they just want to fill up the plane to minimize on the losses

 

Anyway, SQ offered an even lower fare for a round-trip ticket between KUL and LHR whenever they are having a sale. All-in for just RM2,600

[Cheng Long 0]

If the airline keeps making "hard and unpopular decisions", then it's no wonder it's losing customers..

 

Why not some popular decisions? For instance, they talked about reviewing the seats on the new planes, now no news also.. Plus why not increase frequency to routes that have potential to make money. Good frequency in itself is an attraction.. Why not improve the website (especially enrich)? If they really want to make "hard and unpopular decisions", then why not make "hard and unpopular decisions" to cronies by removing them and renegotiating lop-sided contracts?

 

So the new management has not impressed me a bit.

[leon t 0]

the govt shd just shutd own MAS totally - and then have a local jv but truly commercial MNC start a New MAS - this is the only way that can stop MH from bleeding billions of lost ringgit through the years and in coming years.

In fact even having older planes is not a disadvantaged as the costs have been written down and if theseplanes are given a complete D check and life-extension retrofits - its just as good altho its costs more in fuel consumption but it costs next to nothing to pay for the aircraft - in fact thats how many upstart airlines are doing - always buying or leasing older aircrafts till they are financially steady just like AK - and even CX have bought SQ's old 744s pax planes too, even though CX is a very profitable company.

[flee 5]

That may be true in the past - but with aviation fuel prices now well above US$ 100 per barrel, the reduced capital cost of old planes is no longer an advantage. The markets have also changed, with new generations of travellers who are more savvy and wish to try out the latest technology airliners when they fly.

[leon t 0]

That may be true in the past - but with aviation fuel prices now well above US$ 100 per barrel, the reduced capital cost of old planes is no longer an advantage. The markets have also changed, with new generations of travellers who are more savvy and wish to try out the latest technology airliners when they fly.

its still ok to fly older planes - as even now many first tier airlines r still doing that like CX,QF, BA, UA n many others r still flying their 744s, 767s for at least next 5 yrs and considering there are still thousands of 734s, 735s,and even the older A330s. Even SQ new medium/long budget carrier will be using ex-SQs 772s which are abt 12 yrs old. While fuel price is high, but if the loads are good above 80%, even flying a older written off cost aircraft will bring in decent earnings. The very high costs of a new WB aircraft is still very prohibitive.

[Isaac 0]

its still ok to fly older planes - as even now many first tier airlines r still doing that like CX,QF, BA, UA n many others r still flying their 744s,

That is so true! But i won't be using UA as an example though

 

Anyway, the bottom line is, many airlines out there that still fly 744 and 772ER (KE, OZ, NH > 744D/772/772ER) make tons of money every year. MAS' excuse that their aging, not so fuel efficient aircraft is to blamed is just lame! It doesn't explain why other airlines having the same aircraft types that MAS keeps saying is no longer competitive nowadays still can make money but MAS can't. KE even ordered a few more 772ER two or three years ago and they took delivery of the last one last year or sometime this year. The 772ER may not be able to deliver the economics of the 333 on flights up to 8 hours but it doesn't mean the 772ER will make you lose money. Last time i checked, SQ still have more than 30x 772ER in service and they are profitable almost every quarters

[Pieter C. 5]

Malaysia Airlines unveils plan to regain profitability

 

December 12, 2011

 

Malaysia Airlines (MH) unveiled a plan to return to profitability by 2013 that includes launching a new regional premium airline, shrinking its network, focusing on costs and making aggressive efforts to win back customers.

 

The plan targets a net loss of MYR165 million ($55 million) in 2012, which would be a substantial improvement over MH's net loss of MYR527 millionfor just the 2011 second quarter, and estimates a potential 2013 net profit of MYR1.18 billion-MYR1.51 billion.

 

“Malaysia Airlines needs to make hard and unpopular decisions simply to survive in order for it to then have the possibility to thrive and realize the airline’s vision,” CEO Ahmad Jauhari Yahya said.

 

MH said that a new regional premium airline will be launched by the second half of 2012 to connect Malaysia to ASEAN destinations and key cities in South Asia and Greater China. The new airline will use a fleet of Boeing 737-800s. In the longer-term, it will fly all of the domestic and regional routes serviced by MH.

 

MH said it will suspend loss-making routes, including services to/from Cape Town, Johannesburg and Buenos Aires. ASKs will be cut by 12%. But it will also introduce 23 new aircraft in 2012 equipped with state-of-the-art passenger amenities that should drive revenue gains.

 

MH will also spin off some ancillary businesses, including its aerospace engineering, pilot training, cargo and ground services units, for an expected gain of MYR255 million-MYR337 million.

[BC Tam 2]

MAS' excuse that their aging, not so fuel efficient aircraft is to blamed is just lame!

It actually proves that there are some quite creative minds within MAS itself - to be able to come up with different excuses (albeit variations on a common theme) year in year out for the flood of red ink

Well, either that or they are sufficiently thick faced enough .......

[S V Choong 4]

You can't compare it like that. MAS, being an airline based in Malaysia where wages are low, the cost shouldn't be anywhere near those of SQ and CX. MAS is clearly overstaffed and that's a fact. These numbers clearly show that staffs productivity at MAS is very low.

 

"LIKE"

 

I guess the person who initiated this discussion had failed to realized that both Singapore and Hong Kong has significantly higher income and living standards than Malaysia. Hong Kong is again, higher than Singapore.

 

Deep down, these numbers is irrelevant. We should all know by now what is the real factor(s) that drove the airline downwards......

 

It actually proves that there are some quite creative minds within MAS itself - to be able to come up with different excuses (albeit variations on a common theme) year in year out for the flood of red ink

Well, either that or they are sufficiently thick faced enough .......

Hehe.. another "LIKE" for the cheeky Mr. Tam.

[Izanee 0]

BC Tam and SV Choong ...another LIKE for your comments!

[Kee Hooi Yen 0]

Just to highlight a point especially to those who are calling for cost cuts and headcount reduction.

 

Revenue ASK          Cost ASK

MH : 20.0.                25.6

TG : 26.1.                    25.0

EK : 29.4.                  28.5

SQ : 31.8.                    29.5

CX : 32.3.                  30.5

 

MH is cost competitive. Cost is NOT the problem. It is revenue. 

 

 

Is the cost ASK an average of all three classes ? If yes then it is not compairing apple to apple. I believe airlines like SQ & EK provide far superior F & J products hence higher cost. However, in return, that gives the airlines higher revenue ASK too. Another factor needs to be considered is F / J to Y ratio. I believe SQ has more F/J seats compare to MH's, hence it explains the higher cost ASK too. Of course, the biggest contributing factor to cost ASK is the staff salary scale where MH has the biggest advantage but as many pointed out above, it lacks of efficiency if compares with others.

 

Yes, MH has a lower cost ASK but it is based on its less superior premium products compared with its competitor. Is MH cost competitive ? Mmmm...I believe there is still a large room for MH for the improvement ....