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MAS Restructuring Plan

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MAS to unveil turnaround plans

By Fauziah Ismail and Anna Maria Samsudin

 

 

Malaysia Airlines is expected to announce its much-awaited turnaround plans on Monday that may see it ceasing to fly to as many as 15 of 76 unprofitable international routes. Industry analysts said among the routes that may be cancelled are Buenos Aires, Manchester, Stockholm, Munich and Frankfurt.

 

Also expected to be axed are some key destinations in India which have seen losses, including Mumbai, Ahmedabad, New Delhi, Chennai and Hyderabad.

 

An analyst from a foreign-based research house said it was inevitable that MAS would have to reduce routes and cut back on frequencies to prevent further losses.

 

"We expect this to be done in phases as MAS will have to get the nod from the Government first.

 

"We believe they (MAS) will get the approval as they should be allowed to restructure the business accordingly," the analyst said.

 

An analyst from a local stockbroking house expects to see a significant restructuring of MAS’ Asian routes, especially to destinations in India.

 

He foresees a reduction in frequencies to India as MAS would not be able to compete with the stiff competition from India-based airlines such as Jet Airways.

 

"The presence of airlines such as Jet Airways will kill MAS. They (MAS) simply cannot compete in terms of pricing.

 

"The best thing to do is to restrategise their move and pull back (flights)," he added.

 

While MAS enjoys a high load factor on most international routes, it is generating very low yield.

 

This means that it is not getting as much revenue per passenger per kilometre as it should.

 

MAS has not been successful in getting its strategy right: to sell the right seat to the right type of customer at the right time and for the right price, analysts observed.

 

The key is to find a balance between selling discounted tickets in order to fill up a plane with many revenue-generating passengers and selling higher-priced, full-fare tickets but only filling up a portion of a plane.

 

MAS posted a net loss of RM280.7 million in its first quarter and RM368 million in the second quarter of 2005, bringing the total loss suffered by the national carrier to a whopping RM648 million in the first six months of its current financial year.

 

The airline is expected to hit the critical threshold in its cash crisis by March this year, resulting in a RM1.2 billion loss this year.

 

MAS managing director Idris Jala will announce details of the turnaround plans on Monday. He will brief MAS staff the next day.

 

Meanwhile, Singapore-based Standard & Poor’s aviation analyst Shukor Yusof said the MAS’ turnaround plan will have to be a full-scale restructuring if the national carrier wants to make it work.

 

For that, MAS must drastically trim its staff, undertake fleet replacement, embark on new jet fuel policies, alliances and partnerships, and maintain a moderate financial regiment.

 

Asset disposals and reductions in working capital would also help MAS improve its cashflow but it would only be a stopgap measure, he told Business Times.

 

"As a full-service carrier, MAS must address the need to find the right balance between high revenue generation (from a better mix and yield, entailing higher costs) and a cost structure that is able to resist the rising commoditisation of air travel and an increasingly price-sensitive customer base," he said.

 

Shukor also said it was imperative that MAS replaced its aging airplanes (A330-200/300s and 737-400s) with new, fuel-efficient aircraft to reduce costs and streamline its fleet.

 

"The arrival of the first A380 into MAS’ fleet in 2007 (MAS has six on order) will fully test the airline’s financial and operational capabilities under the new management," Shukor said.

 

MAS also has to address its staff strength of some 21,000, which is too large compared to its more profitable peers such as Singapore Airlines (14,000) and Cathay Pacific (15,000), he added.

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MAS to unveil turnaround plans

By Fauziah Ismail and Anna Maria Samsudin

Malaysia Airlines is expected to announce its much-awaited turnaround plans on Monday that may see it ceasing to fly to as many as 15 of 76 unprofitable international routes. Industry analysts said among the routes that may be cancelled are Buenos Aires, Manchester, Stockholm, Munich and Frankfurt.

 

OMG :o : FRA and MUC - that will be a big blow for the German market !!!

 

Do they expect the Germans to travel via AMS or VIE ???: don't think so :(

 

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Is MAS flying to Munich as well? That's news to me... If MAS is pulling out the Frankfurt service, I guess there won't be any 777 flying to KCH anymore...umm not so good news for KCH spotters >;-l

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Malaysia Airlines is expected to announce its much-awaited turnaround plans on Monday that may see it ceasing to fly to as many as 15 of 76 unprofitable international routes. Industry analysts said among the routes that may be cancelled are Buenos Aires, Manchester, Stockholm, Munich and Frankfurt.

 

Also expected to be axed are some key destinations in India which have seen losses, including Mumbai, Ahmedabad, New Delhi, Chennai and Hyderabad.

:o :o Many unexpected destionations are listed here as "non-profitable" routes such as MAN, FRA, BOM, MAA and DEL. In our neighbour national airline's :rolleyes: book, these cities are among the most profitable destinations for them (even they have such a high operating cost ;) :rolleyes: ). Privatise it ! :lol: :lol:

 

 

"The presence of airlines such as Jet Airways will kill MAS. They (MAS) simply cannot compete in terms of pricing.

But SQ can. What a big surprise huh ?

 

Anyways, hope Mr. Jala can bring MAS back to profitability. Otherwise the next thing MH have to do is to privatise it !

 

All the best, my favorite airline :)

 

 

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India is unprofitable too..........wah I thought MAS has advantages over India and China :blink: . I just can't believe MAS can't survive, I hope MH join one world so that they can get more money from transit passengers instead of OD passengers..... :)

All the best to MAS

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I hope MH join one world

 

or Skyteam...why does it work for AMS and not for FRA: LH is competing and KL is cooperating/code-sharing ;)

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these so-called 'analysts' seem to be spewing utter bollocks.... FRA, ARN, DEL, BOM, MAA to be axed?????

all the airlines the world over want to fly to india.....and MH can't make a profit?

there must be another way....

get rid of the big 'bleeders' at the top....

 

 

 

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:) WELCOME TO THE NET YEN :)

 

 

Thank you, Seth !

 

Back to topic, I think MAS should seriously look at its overhead (i.e. reduce its staff though i know this is not favorable )

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If ARN does get axed, we can assume EWR will go the same way ?

 

If what info available so far can be relied upon, it doesn't quite add up. Slashing 'unprofitable' routes mean scaling back operations, meaning less work to go around within the airline. If redundancies, unpleasant it may be, do not happen, then you have the same number of people doing less and presumably paid the same. Going in the wrong direction perhaps ?!

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i find this report to be somewhat controversial..i mean think bout it MAA being unprofitable??? they practically listed down 5 cities in india to be axed and i dont think thats gonna happen they continue to enjoy good load from the india bound pax especially those connecting from places like LAX or EWR....Jet Airways isnt really killing MAS as reported ...thats not true...

 

and by the way..MUNICH????? it was axed long time back....this might juz be another case of reporters over exaggerating a story

 

 

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Another few more hours and the much anticipated 'restructuring' plan will be due. So, last call for speculations before we get to assess Mr Jala's 'halatuju' !

 

As with all such 'restructuring' of essentially what is an economically non-viable enterprise, someone somewhere is likely going to be hurt and unhappy with it. Be it a board room casualty or baggage handler. Perhaps a wage cut, worse still retrenchment. Sad, but all part and parcel of reality I suppose.

 

On profitability and viability of routes, I doubt very much if it is at all possible to be so precise in deciding whether flying from point A to B vv makes money for the airline. Unless that is the only route flown by said airline.

 

For example, it is often quoted EM operations bleed MH big time (true or not, this has been discussed elsewhere on this forum and other sites) I wonder if the bean counters have taken into consideration the value of the routes feeding passengers unto MH's more lucrative international routes.

 

But surprise surprise indeed, we now hear there are also 'unprofitable' international routes, with the Kangaroo hops (and all of India too ?!) being mentioned in the same breathe ! It then begs the question - what does it take for the airline to make money ??

 

I'm quite sure many of us will be trying to get hold of the first few snippets of Mr Jala's announcement tomorrow - none more so than one Datuk TF I reckon ! To Mr Jala - good luck and our best wishes for success.

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Its always a speculation for all these to-be-announced news.

 

Here is my few cents worth :-

 

Reduction or suspension in services to these routes :-

 

NRT

FUK

NGO

DEL

CCU

AMD

CTU

VIE

FCO

MAN

ARN

EWR

LAX

EZE

CPT

 

and many more........but lets hope they can come up with some plan to sustain these routes to retain a world class airline with great profits!!!!

 

 

:p :p

 

 

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If MAS cuts these routes, there are not many destinations left to make the profits to nurse it back to financial health. I only see cuts for variable cost, not fixed cost that must be adressed as well. Very strange plan... but lets see whats in store in the next few hours from now when the announcement is made.

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Every route MAS flies to seem not profitable based on the thread, might as well stop flying. Don't get me wrong, I am a MAS patriot but MAS just keep dissapointing.

.

Slight out of topic but on Feb 19-24, I flew MAS Business Class to Penang for a week long business trip.

During the flight, I asked the lead stewardess that I wanted to buy the Hisbiscus B747 which is advertised in the catalogue. She came back minutes later and said this can only be puchased by 'mail order'. Then when arrived in KL transitting to Penang, when to MGB, same s#1t was told. So, I thought well that's fine. Will try my luck on return trip. Probably all of you guess it, can only be ordered via 'mail order'.

.

I asked why do I have to fork out extra expense on postage when I am now here to buy it personally? The lead stewardess kept apologising!!!

.

In brief, I bought one some months back and received broken and this is under another thread. So, although I must admit MAS Business Class is fantastic and good looking chics but not impressed with inflight sales.

 

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The following is contained in a report by the Straits Times correspondent in KUL published on 25 Feb:

 

Quote

 

The routes expected to be axed are likely to include two or three European cities. MAS currently flies to seven European destinations.

 

Rome in Italy is one of the cities MAS could stop flying to. Buenos Aires in Argentina and Adelaide in Australia are also being considered for cancellation, the sources said.

 

They added that the deal to buy six A380 aircraft, signed three years ago, would be reviewed as it would cost the airline more than US$1 billion (S$1.6 billion).

 

Unquote

 

I must say that the only one that isn't a surprise is Buenos Aires, a clearly unprofitable and long route that MAS has maintained for much too long. From the earlier posts, I am personally very surprised by the inclusion of cities such as Frankfurt, Sydney and cities in India in the list of destinations facing the axe.

 

FRA is a key city in Europe which along with London and Paris must generate a fair proportion of higher yield business traffic. MAS should also have to re-think its plans for New York - it is currently competing head on against services by SIA, Thai and Emirates (yes these are all 1-stop ex-KUL but operate dedicated customised ultra longhaul aircraft offering inflight services and amenities tailored to the specific needs of such a route).

 

India is a surpsied though! The entire world's airlines are knocking on India's doors and MAS has already got itself into the living room . . . it would be a grave mistake in the longer term to try and re-enter some of the markets (should it choose to drop some of these in the announcement later today). This is a market of more than a billion people who are only just becoming more mobile).

 

A cut must certainly be made . . . and I can only hope that the right cuts are made. The wrong cuts could certainly impact on KUL's hub status too. MAS has tremendous difficulties raising yield - perhaps due to its previous strategy of competing with one and all based on unsustainable low fares. In many markets, it is recognised as a good airline (and it certainly is) with cheap fares (which it should not be based on the product it offers vis-a-vis its competitors from Europe and elsewhere).

 

The cabin upgrade that was rolled out in "An Experience Redefined" does not seem to have been positively received with some features facing maintenance reliability problems. As the launch, MAS was quoted as wanting yield to rise by as much as 25% as a result of these improvements - but these do not leap-frog over that offered by competing airlines. They merely were an attempt to play catch-up.

 

I find it surprising that so many years after blaming a faulty fuel hedging policy as the cause for losses (or losses of potentially higher profits), MAS is still suffering from this shortcoming. With fuel prices going only in one general direction, MAS must surely look at using fuel hedging as a tool to cushion it against uncontrolled fuel cost escalations.

 

With an ex-Petronas man at the helm, hopefully this problem could be eradicated once and for all.

 

KC Sim

 

 

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With an ex-Petronas man at the helm, hopefully this problem could be eradicated once and for all.

 

 

ex-shell (malaysia) :)

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Sad sad news.....but FRA should remain and so should ADL.

If its true that FRA is to be dropped, then LH may make it big here.

As for ADL, it may give way to EK to start that route, after months

of rumours about the route.

 

I forgot to mention that there may be a revamp in the domestic routes and operations.

 

 

 

:(

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