MAS maintains a steady course

[Naim 6]

Thursday January 3, 2008

The STAR

 

MAS maintains a steady course

 

2008 CEO Outlook

 

Malaysia Airlines would rise further on the flight path of its business turnaround plan this year. Its costs would be reduced by RM1bil in the next financial year, said chief financial officer Tengku Azmil Zahruddin.

 

 

TENGKU AZMIL ZAHRUDDIN

 

Executive Director/ Chief Financial Officer

 

Malaysia Airlines

 

 

 

Please review your group's performance since the GLC revamp

 

Tengku Azmil Zahruddin

 

 

The government-linked company (GLC) revamp is part of an ongoing effort by the Government to drive development and grow the economy. In the 2006/2007 annual survey by Malaysian Business, Corporate Malaysia fared much better compared with the previous period. Of the top 10 performers, eight were GLCs.

 

We were at No. Six, having posted a turnover growth of 46.9%, mainly driven by higher passenger revenue and effective implementation of our business turnaround plan (BTP) involving an extensive operational overhaul that brought us out from near insolvency.

 

This translated to a stronger bottom line growth. For FY2006, we registered a net loss of RM133.7mil, an improvement of 89.3% from a net loss of RM1.25bil previously. This year, for three quarters only, we hit a net profit of RM610mil, the highest in our 60-year history, even before the end of FY2007.

 

 

What else are you looking at beyond Key Performance Indicator (KPI)?

 

As early as 2005, Malaysia Airlines was one of the two GLCs chosen for a pilot project on KPI implementation. On March 22, 2006, we were among the first GLCs to officially announce a robust set of KPIs to track and measure our success, declaring that the performance of the company as well as myself and the leadership team will be assessed using a KPI scorecard.

 

I am pleased to inform that we have fared exceptionally well against the scorecard. Through a carefully structured performance-based reward system, we mobilised our workforce to achieve the best financial performance in the company's 60-year history, even beating our target for 2008.

 

Now we are moving on towards the realisation of another dream – Five-Star Airline @ LCC cost. We have already made radical changes to our operations, simplifying processes to reduce expenses whilst investing in enhancements to our product and services. We now have 426 ongoing initiatives for improving our products and services in order to improve customer experience.

 

We also aim to further bring down our costs across the network by another 10% by the next financial year that will translate into a cost saving of RM1bil. This will give us greater flexibility and options to grow, build and expand our business.

 

 

 

Does your share price reflect the progress charted by your group?

 

At the start of 2006, MAS' share price was trading at RM2.84, which is equivalent to RM2.56 after taking into account of the capital exercise we carried out earlier this year.

 

Since then, our share price has doubled, having achieved a high of RM5.50 (post-rights issue).

 

Today, MAS remains among the airlines that offer the best value to investors, trading at a historical price-earnings (PE) ratio of 9.5 times.

 

We believe that while there has been significant progress from the turnaround and MAS exceeded the KPIs it outlined in the BTP, our PE ratio is below average for the airline industry and therefore, there may be further upside for investors, especially as we roll out the BTP2 in the new year.

 

 

What is the next big move that you are planning that will bring more excitement to investors?

 

We have to build a ship that can weather the storm – in our case, the increasing liberalisation in the industry coupled with the imminent overcapacity in the market.

 

According to Airbus and Boeing data, some 800-plus new aircraft would be coming to Asia Pacific, South Asia and Middle East in the next two years. This overcapacity, the proliferation of LCCs and the liberalisation of Asean skies, will lead to erosion in prices and margins. To remain a key player, we need to become more competitive – hence, the idea of Five Star Airline @ LCC cost (FSLCC).

 

There are three phases in the BTP - financial survival in 2006, profit generation in 2007 and profitable growth in 2008. Now that we have achieved the target of profit generation, we will shift our focus to profitable growth by transforming MAS into a FSLCC.

 

How can we do this? There are five key steps:

 

Step 1: We will continue to maintain high quality products and services (Five Star);

 

Step 2:: We must structurally reduce our costs;

 

Step 3: With a lower cost base, we will be able to offer even lower and more competitive fares to our customers, and still be able to make a profit;

 

Step 4: With high quality products and services at low/competitive fares, more passengers will fly on MAS and this translates to more revenue;

 

Step 5:With more revenue and profit, we can invest in growing our network and building our capacity.

 

The five steps are repeated until we get an upward spiral – we call it the virtuous cycle of profitable growth. Details will be announced in our business transformation plan, which will be launched this month.

 

 

Are there new challenges that you foresee and would that affect your revamp plans?

 

There are two challenges. Firstly, the high oil price is an industry challenge. The price of oil is already at the highest levels ever seen.

 

Secondly, overcapacity, which will lead to margin erosion. However, we are ready for the challenges as we are positioning ourselves for profitable growth through transforming ourselves into a FSLCC .

 

To achieve this, we will push our quality, improve our product and service, and at the same time, radically reduce our cost.

 

 

 

Is it time to chart new directions for GLCs?

 

The GLC Transformation success story in our case came about through focused empowerment. Apart from some external appointments to senior management, the performance improvements have been largely achieved with existing employees. With the right culture, motivation and empowerment, we have been able to get the best out of our people.

 

Other GLCs too have institutionalised professionalism, hard work, integrity and a deep sense of loyalty and responsibility among their workforce.

 

Now that a culture of excellence and high performance has been introduced into GLCs, the momentum of transformation has been initiated and there is no turning back.

 

There is a need to chart new and bold steps to take this positive culture to greater heights that will be able to withstand the challenges of globalisation and shine as respected and worthy icons of Malaysia in the international business fraternity.

 

 

http://biz.thestar.com.my/news/story.asp?f...mp;sec=business

[Radzi 2]

Please review your group's performance since the GLC revamp

 

 

 

What else are you looking at beyond Key Performance Indicator (KPI)?

 

As early as 2005, Malaysia Airlines was one of the two GLCs chosen for a pilot project on KPI implementation. On March 22, 2006, we were among the first GLCs to officially announce a robust set of KPIs to track and measure our success, declaring that the performance of the company as well as myself and the leadership team will be assessed using a KPI scorecard.

 

I am pleased to inform that we have fared exceptionally well against the scorecard. Through a carefully structured performance-based reward system, we mobilised our workforce to achieve the best financial performance in the company's 60-year history, even beating our target for 2008.

 

This KPI will be the thing that bring down the company in the long run.

 

Unless they manage to run on robots...

Edited January 3, 2008 by Radzi

[Naim 6]

More 'FSLCC' spin ...

 

===

02-01-2008: MAS set to rise above competition

by Tamimi Omar

Email us your feedback at fd@bizedge.com

 

KUALA LUMPUR: Malaysian Airline System Bhd (MAS) is confident of successfully taking on its competitors in an increasingly tough operating environment by using a two-pronged strategy of tight fiscal management and unique products, its executive director and chief financial officer Tengku Azmil Zahruddin said.

 

He said the challenges in the next few years would come from the influx of more than 800 new aircraft in the Asia-Pacific, South Asia and the Middle East regions.

 

The over capacity created by the additional aircraft coupled with the rise of low-cost carriers (LCCs) and the liberalisation of Asean air traffic in 2009 would lead to price-cutting and margin erosion, he added.

 

“The next few years are going to be tough, with the high fuel price and intense competition,” Tengku Azmil told The Edge Financial Daily via email. “(However), we are very optimistic with the growth potential of MAS based on what we have seen so far. The future of MAS is very bright and exciting.”

 

He said airlines had to do one of two things to succeed: either reduce costs drastically to remain profitable, or pitch its products in such a way they are unique and distinctly attractive to a lot of customers.

 

“In MAS, we are positioning ourselves to do both, offering premium products and services and reducing cost at the same time. We have a new charter in Malaysia Airlines. The new charter is to transform ourselves into a five-star airline at LCC cost (FSLCC) to grow profitably,” Tengku Azmil said.

 

To achieve this, he said MAS would implement five key steps, beginning with maintaining high quality products and services and structurally reduce its costs.

 

“With a lower cost base, we will be able to offer even lower and more competitive fares to our customers, and still be able to make a profit. With high quality products and services at low/competitive fares, more passengers will fly on MAS and this translates to more revenue.

 

“Lastly, with more revenue and profit, we can invest in growing our network and building our capacity,” he said.

 

Tengku Azmil said MAS would repeat these steps until they turn into what it calls “the virtuous cycle of profitable growth”.

 

Details of the programme would be announced in MAS’ Business Transformation Plan to be launched later this month, he said.

 

Meanwhile, Khazanah Nasional Nasional Bhd managing director Datuk Azman Mokhtar said Malaysia was “happy to compete” with its neighbours in the airline business, but it wanted to do so on good terms.

 

On the Asean Open Sky policy that Malaysia and Singapore have agreed to implement a year ahead of schedule yesterday, he said MAS had to be ruthless and focused.

 

“I think MAS is well placed but it is a tough industry. The long and the short of it is, in that kind of competition that we expect, (we have to see) how good you are at yield management, load management, how adept are you at doing alliances and alliances can come in many forms, for example the B-to-B (business-to-business) merger that KLIM and Air France have done. They have done very well.

 

“On the other side, you have to be really ruthless and focused without eating away on the revenue side. MAS will have to find an equilibrium as we move from managing for survival to managing for growth,” he told The Edge Financial Daily recently.

 

Azman said MAS still had room to improve itself despite being one of the five airlines in the world with a five-star status in terms of superior products and service.

 

“While MAS continues to do very well on things like cabin crew service, there are other areas that it could do better – on time performance and ground service – for example,” he said.

 

Azman said MAS had an opportunity to truly become a global contender, as there were still no clear dominating players in the global industry.

 

“When you are in turnaround mode, you have to worry about your cash flow but when you are managing for growth and cementing yourself in a certain position… In how many industries can we be a significant player globally? Plantations is one of them, oil and gas is one of them. I would submit airlines is another area because the western airlines are not particularly strong.

 

“Our service is world class. For MAS, our financial management was bad, but it had improved tremendously,” he said.

 

http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_3862fe21-cb73c03a-39060b00-4f46723a

 

 

 

 

[Azri M. 0]

"Our service is world class"

 

I think the correct tense is "OUR SERVICE WAS WORLD CLASS."

[Rozhan 0]

As long as MAS doesn't continue to ask for alms (minta sedekah) from the taxpayers via the gov, they can do whatever they like. Untold billions have been pumped for the airline for years and years.

 

 

[Izanee 0]

unique products??? what the hell...

 

maybe they were referring to the snakbox and their 'sandwic' - cos i haven't seen anything quite like it!

[KK Lee 5]

 

A friend was booked on J from MLE to KUL recently. When he check in at MLE, found his seat was taken by someone from KUL to CMB. He had no choice but to travel EY from MLE to CMB then retook his J seat from CMB to KUL. MH at MLE claimed this is the work of KUL, they couldn’t do anything and didn’t even offer to compensate him.

 

Another friend wanted to travel from KUL/BKI last weekend, called MH and was told all flights on all classes were full. However, when he called a well connected travel agency in BKI, seats were available.

 

Little has changed since 019’s era, little empires still exist in MH, if you know the right person, wonder can happen.

 

 

[Guest Michael]

MAS is doing better now coming in and out of PER than it was a year ago apparently, so a lot of Aussies will continue to fly with the airline.

[Keith T 2]

Another friend wanted to travel from KUL/BKI last weekend, called MH and was told all flights on all classes were full. However, when he called a well connected travel agency in BKI, seats were available.

 

TAs have a habit of making block bookings, which are then released or forcibly canceled when left unticketed.

[affendi osman 0]

agreed with keith t...

no wonder MH won't be giving any commission to TA-