New Business Transformation Plan

[Mohd Azizul Ramli 2]

The third example used by MAS was Chile's LAN, a regional airline that increased short-haul aircraft utilisation and the percentage of direct flights to nearly double its operating margin.

 

To be benchmarked against and emulating " three international airlines" : Aer Lingus! LAN Chile! Air Canada!!!

I found some info about LAN's performance in their 2007 financial year. Let see whether they are comparable to MH or not. Info are curteousy of RJ_Delta of airliners.net.

 

...

During 2007 LAN Airlines registered benefits for US$ 308,3 millions compared with the US$241,3 millions of 2006, increasing its utilities in a 44%.

 

LAN has achieved an strong operating performance during 2007, increasing its operational results from US$302,6 millions in 2006 to US$413,4 millions by the end of 2007. The Total Net Income increased 21,2% in passenger operations, 7,6 in cargo and 17,3% in "other incomes". The passenger operations represent 62,3% of the total operations and 32,7% belongs to cargo area.

 

According with each area of LAN, the financial results for 2007 are:

 

1 - Passengers: revenue increased by 24.9% during the quarter, mainly due to a 14.5% increase in capacity and an increase of 9.1% in revenue per unit in terms of ASK, because the yields has increased in 8,1%.

 

2- Cargo: The cargo revenue was 15.5% because the capacity was increased in 9,2% and 5.8% in revenues in terms of RATK.

 

3- Others Incomes: was a 17,3% more during 2007, from sales on board, aircraft leasing and maintenance services, warehousing and customs to others. Also LAN Airlines receives US$ 11,3 millions from Airbus Industries in compensation for the delay of the delivery and the problems registered in the A318 fleet.

 

4- Operational costs: increased 13.9% during the last year.

 

5- Salaries and employees benefits: increased by 10.5%, mainly due to the impact of inflation in the local money and the expansion of the LAN operations.

 

6- Travel Agencies: had no significant variation in the year 2007 compared with 2006.

 

7- Leasing and landing taxes: increased a 8,8% because the rise of landings fees and the growth of the LAN operations and flight in each country.

 

8- Passenger Services: Incomes increased in 28,1%, because the increased of the passenger carried during 2007.

 

9- Aircraft Leasing: the cost increase in 0.8% because the introduction of the 5th A340 (CC-CQG, ex AC) in July 2007.

 

10- Maintenance: the cost increased 35,7% because LAN expansion and a higher rate of utilization of the LAN fleet ( average 10- 12 hours per day).

 

11- Other operating costs: increased 14.9%

 

 

The reasons which explain the good results of LAN Airlines during 2007 are:

 

1- The introduction of the LASER model in short haul routes, which has forced to increase the demand in more 60%.

 

2- The addition of new aircrafts and the operation of a common fleet according with each route.

 

3- New strategies in the Cargo Area.

 

* * * * *

 

I will make the comparison once MH released its FY2007 results.

[Ken M. 0]

Ken, thank you for your excellent post which sums up MAS' problems. Likewise, I chose MAS in the past because of its excellent food and great seat pitch in economy. Its all going to change soon - as you said, no one will pay for MAS' 29 inch pitch and crap quality food, even if it is much cheaper than the competition.

 

Where are you in Scotland ...I was in Dundee for 5 years!

 

I live in Glasgow but know Dundee fairly well having lived in Dundee for 2 years as a student in the 1980's (also follow Dundee United Football Club).

Scotland tends to get quite a few Malaysians studying here.

My brother met a few years ago when doing his architecture degree at the University of Strathclyde in Glasgow.

There is a Malay restaurant/cafe in Glasgow which serves good food that I must try - supposed to very popular with Malay students.

 

I take the point made earlier by BC about good MH people losing their jobs. I've experienced redundancy due to job offshoring myself - not nice - and am still without work.

In a previous job I supported the I.T. being used to help build Royal Malaysian Navy frigates in a Glasgow shipyard. Hope the boats are still keeping the local pirates quiet

 

I just want MH to remain a class act. LCC's are OK for short journey's. Long distance is a different kettle of fish. 10 - 12 hours in a cramped sardine tin ain't going to make many friends and might put your passenger's health at risk. IJ has to realize that cutting seat pitch in Y is crazy. Bet he will end up with more empty seats. In this day and age surely passengers well being should be paramount. If you were entertaining at home you would give your guest nice food to eat. I was genuinely impressed by what MH gave me last time round. On MH2 going into LHR the fresh croissant and banana smoothie at breakfast time along with the other items were lovely. No idea what they serve these days.

 

Must visit KL again as I'm still to walk the Skybridge at Petronas Towers.

On first visit to KL it wasn't open to the public yet and on the second visit it was closed for weekly maintenance (Mondays).

Have been up KL Menara Tower twice though. Great views.

[Nik H. 3]

Nice to have met you KK Lee. Sorry for the distraction as I had my Smart Car group sharing the table. Too bad no one else turned up.

[BC Tam 2]

Ken,

Too bad about your experience of redundancy - sorry, had no intention to bring up a sore subject ! However, you do have the 'security net' of the social service I presume ? Here it's quite different, once retrenched, you're on your own. If you were not aware of that before, perhaps it may shed a different light on MH's recent cost cutting approach ?

[Ken M. 0]

We have social security in the UK however it is means tested i.e. if you have personal savings over a certain amount (£16,000) you will only get minimum state benefit for a period of 6 months. After that you are on your own. I have supported myself for almost 2 years being unable to find suitably paid I.T. work.

 

Anyway back to the matter under discussion.

 

Why don't MH ditch F on long haul services and move some C seats there instead if very few are willing to pay for F?

Extra Y seats at the 34" pitch could also be added if MH are serious about targeting the long haul leisure market.

They really aught to play to their strengths when marketing their product. Freedom Of Space

The number of times you read unhappy travellers saying their Y class travel experience was uncomfortable when travelling on other carriers continues to grow.

 

 

 

 

 

[Pieter C. 5]

Why don't MH ditch F on long haul services and move some C seats there instead if very few are willing to pay for F?

Extra Y seats at the 34" pitch could also be added if MH are serious about targeting the long haul leisure market.

 

Excellent point there, Ken, and that's exactly what KLM did years back: overall F-class occupation was very bad, so it was decided to scrap Royal Class alltogether and replace them with additional C-class seats (almost doubled in capacity); needless to say, C-class is doing extremely well on KLM's long-haul fleet (occupancy that is), and that's where the money-maker is nowadays !!!

[KK Lee 5]

Why don't MH ditch F on long haul services and move some C seats there instead if very few are willing to pay for F?

 

In MH fleet, only 744 has F.

 

MH management travel in F and can’t expect them to remove or downgrade their own perk especially the chairman indulges the F service regularly to LHR.

 

 

Extra Y seats at the 34" pitch could also be added if MH are serious about targeting the long haul leisure market.

 

In BTP2, MH is looking at reducing seat pitch to reduce seat cost.

 

 

 

[Izanee 0]

I find the idea of reducing seat pitch very disturbing. As Ken said, read the airline reviews - MAS seat pitch has always been better than even SIA.

Pieter mentioned about increasing C class and scrapping F. If it works for their partner airline, why has MAS not looked into it?

 

 

[Walter Sim 1]

Is the soft copy available for download? like the first BTP?

 

If they do reduce seat pitch, there will be 1 lesser reason to fly MH. I recall that during a recent press ad there have stated out reasons to fly MH. 34 inch seat pitch and hot meals are few of the examples..

Edited February 3, 2008 by Walter Sim

[Ken M. 0]

In MH fleet, only 744 has F.

 

MH management travel in F and can’t expect them to remove or downgrade their own perk especially the chairman indulges the F service regularly to LHR.

In BTP2, MH is looking at reducing seat pitch to reduce seat cost.

 

 

And this is exactly why MH is in the mess it's in.

 

IJ aught to lead by example for the good of the business and travel in C after ditching F on the 747 fleet.

 

Decisions should be made for the good of the airline.

Freebies/junkets/perks, call them what you will, the bottom line is the airline really needs passengers paying for their travel.

MH have stated they can't attract F paying passengers. Then why waste the space on the 747 fleet day in day out? The mismanagement and indecision at MH beggars belief. The bigwigs & politicians will have to make do with C - not a bad product I've read.

Taking LHR-KUL-LHR as an example who is really going to pay £4700 or RM28700 to fly in F in the current economic climate?

With most people tightening their belts it really is a no-brainer.

 

Come on MH, get real pronto.

 

[BC Tam 2]

I find the idea of reducing seat pitch very disturbing. As Ken said, read the airline reviews - MAS seat pitch has always been better than even SIA.

Sigh, they're just emulating the market leader I suppose - gotta take the downs together with the ups !

 

 

Come on MH, get real pronto

Come on Ken, get real - they've had three decades trying. No point in rushing things now !

Edited February 3, 2008 by BC Tam

[Izanee 0]

hahahah...well - brings a whole new meaning to the word 'benchmarking'. you're supposed to audit or benchmark against the best, not against your cut throat rival.

[BC Tam 2]

Taking LHR-KUL-LHR as an example who is really going to pay £4700 or RM28700 to fly in F in the current economic climate?

Cannot comment on LHR-KUL-LHR directly, but there must be people willing to fork out that sort of money; for both SQ and EK to justify investments into their premium front cabins. It was reported that SQ's suites are "selling well" too

Admittedly some of these F pax will be upgrades. But then the customers' business would already have been locked in by travel in other classes, more importantly, money already earned from them. Sort of like dangling a carrot - but still a justification for hosting F class !

[Mohd Azizul Ramli 2]

From my agent.

 

Subject: FARE INCREASE ON MAS

 

To All Supporting Clients,

 

Please be informed that there will be an increase of air fare by Malaysia Airlines effective for ticket issue on 7th February 2008 onwards.

 

In order to enjoy the present quoted fare, please finalize your outstanding flight booking for ticket issuance by latest 6th February 2007 before 10am, otherwise new fare to be apply.

 

Trust the above is clear. Please feel free to contact us should you need further clarification on this matter.

 

Thanks & regards,

 

Emily Tan

Holiday Tours & Travel Sdn Bhd

[Rozhan 0]

Good Raise the fare....the higher the better. They are '5 Star' after all.

[Izanee 0]

From NST: Agree with everything he has to say. Benchmarking my ass.

 

NST Online » Letters

2008/02/04

 

MALAYSIA AIRLINES: A lot of work for MAS to get RM1b

P. GEORGE, Johor Baru

 

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MALAYSIA Airlines' management should be praised for targeting a profit of RM1 billion this year and a profit of RM1.5 billion in 2012 ("MAS sets new profit goals" -- NST, Jan 31). These are ambitious targets.

 

However, the jury is still out as to whether MAS can succeed in executing its business turnaround plan after being in the doldrums for several years. Already, one aviation analyst with an international rating agency has labelled this target as being "too ambitious".

 

Whether MAS' management likes it or not, the airline will always be compared against its erstwhile sibling, Singapore Airlines (SIA), both of which had a common parent in Malaysia-Singapore Airlines up to 1972.

 

SIA has gone on to become one of the best airlines in the world and one of the most consistently profitable. It is also one of the most valuable airlines in the world in terms of market capitalisation.

 

MAS' current management should be benchmarking the airline against SIA in terms of revenue, profit, route network, customer service, inflight service and ground handling.

 

For the financial year ending on March 31 last year, SIA achieved an operating profit of S$1.3 billion (about RM2.9 billion) on a volume of 18 million passengers and a load factor of 79.2 per cent. SIA is making more profit now than what MAS hopes to achieve in 2012.

 

SIA also gets about 50 per cent of its profit from its premium First Class and Business Class services, propelled by Singapore being a regional hub for foreign banks and multinational corporations.

 

SIA also has a much bigger fleet of aircraft than MAS, in terms of what is currently in operation and what is on order. In fact, a comparison of the two airlines' fleets shows that MAS is short of new-generation fuel-efficient medium- and long-haul aircraft. To put it bluntly, MAS has an ageing fleet of aircraft.

 

MAS has no choice but to accelerate its acquisition of new aircraft if it wants to compete with the "big boys" like SIA and Emirates, or even Cathay Pacific, British Airways and Qantas. It must look again at its route network and increase frequencies to the most important countries and developing cities.

 

MAS also has to revamp its service from ground up. There's no point in having the best cabin crew in the world if the airline is being let down time and again by bad customer service on the ground, from reservations handling, check-in, passenger lounges and baggage handling to following up on passenger complaints.

 

This should be a top priority for MAS' management as dissatisfied or disgruntled passengers have a wealth of choices out there -- even to the extent of taking a low-cost flight to Changi Airport and then taking a SIA flight to their destination.

 

MAS has to boost its profits by strict cost control and by attracting more full-fare and premium passengers to fly with it. It has to retain its good staff against poaching by competitors, while swiftly terminating the services of those who are under-performing.

 

Please, let there be no talk of MAS having to do "national service". The choice is between having a leading world-class airline or none at all.

 

MAS also has to learn to work well with low-cost carriers and Malaysia Airports in the pursuit of another national goal to make KL International Airport the premier air hub in the region.

 

Is MAS up to all of the above?

Edited February 4, 2008 by Izanee

[Keno Omar 0]

My 2 cents on the BTP

 

I recall discussing with my dad few years ago if Malaysia really still needs MAS after all, particularly when it had consistently failed to make any profit for years AND continue to be subsidized by the tax payers to cover their abysmal financial performance (in the form of PMB, Petronas, civil service etc). AirAsia back then was and still continue to provide excellent connectivity domestically and within ASEAN. We have SQ just a short hop away which offers world-class service to a huge number of longhaul destinations, not to mention there's also EK whose growth seems unstoppable and consistantly remain among the cheapest options to fly to Europe. It seems that there was not much reason that we needed MAS back then, not at the expense of rakyat's money to cover their incompetence. SQ could instead have a real shuttle service every 30 mins to KUL to ferry passengers to connect via Changi and we could consider it as Malaysia's air hub in a foreign land (just like in days of MSA & earlier).

 

Personally, I wouldn't be disturbed if MAS someday decides to transform itself into a full-blown Aer Lingus and ditch its original conventional airline model. If that's what it takes for MAS to survive and stop sucking in rakyat's money, then so be it. I sincerely hope that it will not come to that. The problem with MAS's earlier BTP, and this new one in particular, is the lack of clear strategy - this "Five star value carrier" notion itself is the problem. I strongly believe that this not not the right path to explore - not because of its apparent downgrade from the existing premium status, but because of the contradictory nature of the concept. A strategy can only achieve its full intention if the final objective is clearly defined in simple terms to be understood by the entire organization, regardless of the explaination outlined in the official BTP2 documentation. The bottom line is, this oxymoron is confusing and I don't see it materializing very well.

 

There must be a number of difficult trade-offs that MAS has to face in order to succeed. One thing that's certain, you just can't have everything. Five star quality at a low cost just doesn't work because quality costs money (replacing "LCC" with "value carrier" is itself an embarrassment!). MAS could either stop pretending to be in the same league as other real 5-star carriers like SQ & CX and strictly follow the footsteps of KLM & Aer Lingus (at least they made money!), OR fight back to regain its past glory as a world-class airline by serious cost cutting exercise at the right places (national luggage, politically-motivated routes, politically-linked expensive suppliers, low staff turnover etc). "Five star value carrier" seems to be a mix of the opposite end of the spectrum - more of a "neither here nor there", mid-point approach. Again, you can't have everything.

 

In order for a strategy to succeed, a company must evaluate its core competencies and see if they fit in the intended overall strategy. Trying to compete head on with the likes of AK with MAS' existing business model just does not, and will never work. AK is and will continue to offer significantly lower fares because of its cost structure, something that MAS does not current have, nor is it able to fully transform its business practice in the future either. MAS is failing miserably in the price war with AK in the domestic and regional sector, soon they have to compete with AK-X even to their flagship route to London. MAS core competencies lies with its excellent cabin service and premium classes - playing down the importance of this invaluable market advantage for the sake of fighting head-on with LCCs, is simply a waste when all other airlines are aspiring to achieve this level. Even at this stage MAS has started to make the wrong trade off as we already seeing the effect of "snekboks"; people do not mind paying more for extra service but nobody could tolerate a product that does not represent the true value of the fare.

 

Then there is also a problem with the "five star" concept as if it would remain forever. May I remind IJ that this is merely a status given by Skytrax, whose results are often questionable, which led to SQ and CX of hardly (or never?) recognizing their 5 star status. With the path that MAS is seem to be heading, there is a very good chance that they will break the record as being the first 5 star airline that has its status revoked. Could we still use the term "five star value carrier" then?

 

If I were given a chance to formulate the BTP, I would probably call it "world-class carrier with exceptional cost management". The objective must be crystal clear and not just a catchphrase or media propaganda because the core values and goal must be clearly communicated and understood to all levels of the organization in order to guarantee the success of a strategy. As the saying goes, failure to plan is a plan for failure - a contradicting and confusing plan is nearly as bad as no plan at all.

[Izanee 0]

well said Keno - you summed up what a lot of people here think in an articulate and clear fashion. FSVC is a contradiction in terms. So is Five star@low cost.

[BC Tam 2]

..... It seems that there was not much reason that we needed MAS back then, not at the expense of rakyat's money to cover their incompetence. SQ could instead have a real shuttle service every 30 mins to KUL to ferry passengers to connect via Changi and we could consider it as Malaysia's air hub in a foreign land (just like in days of MSA & earlier) .....

Wow, you do realize that could be bordering on national treason there ?!

Heck, even if slightest whiff of that gets out to the press, you'll probably see a lot more of the kris kissing/waving episodes

[Guest Michael]

Of course, we all want MAS to succeed and become a winner, and everybody must push and hope for the best in MAS.

[KK Lee 5]

My 2 cents on the BTP

 

Well said

 

[S. Huang 0]

Poor management and lack of foresight led MH to compete itself against a mere LCC and I seriously don't know why they feel they would need to compete with AK when MH itself has so much to offer as a legacy carrier. When SQ recognised the threat of LCC encroaching into their turf, what did they do? Instead of competing with them, they upped their game. Made sure that everyone knew that they were of a different league. With that, they targeted the group that really mattered... passengers who can afford to pay top dollars for top service. That, coupled with good route planning, new aircrafts, good inflight service, efficient ground service, and excellent hub infrastructure, earned them loyal followings from the very people who would contribute to their yield. SQ knew that it couldn't lower itself to the likes of AK, TR by competing for this group of people who felt that only price mattered and lacked product loyalty. It is with this strategy that SQ continually differentiates itself from LCCs. It's quite unthinkable for me, as someone who was bred and worked under SQ's policies, to think that MH would want to bring itself down to LCC level when it should be upping its game. While SQ was very clear right from day 1 what its value proposition was, MH appears to be struggling to find its identity still.

 

I really wonder how much blame one should heap on MH for getting itself into the state that it is currently. While I would blame poor management, too much national service and dismal route/brand management for its present state, I personally feel that it only addresses half the picture.

 

KUL as a city has to bear some of the blame. Why is SQ able to continually reap profits despite having such a small population size? Is Singapore's population able to sustain SQ? The obvious answer is no. As such, SQ deploys its hub and spokes strategy to draw passenger from all over the world to feed its flights, and at the same time cultivate a growing group of high networth customers who would only fly SQ and nothing less. SQ managed to do it because of Singapore's status as a financial hub. Singapore didn't become a financial hub by accident. It was a deliberate effort to become one. Government policies were designed to attract value to Singapore, and this directly translates to increased passengers and cargo passing through Singapore. SQ wouldn't have survived this long if there was nothing in Singapore to draw businessmen, tourists, cargo here. Same for CX and EK... what do all of them have in common with SQ? Dubai and Hong Kong have positioned themselves to become important cities, financial hubs, gateway to the Middle East and China... Cities that are a must go to for MNCs, top businessmen, traders, regional HQs etc etc... It's a joint effort between the government and the airline to grow their homebase.

 

In this light, I would have to ask the Malaysian members here this... apart from having a larger population to fill MH's aircrafts, what else is there? Why are there significantly less carriers operating to KUL compared to SIN? Simply because airlines can't see the sustainability of the route. There just aren't enough buzz in Malaysia to draw high yield traffic to KUL. And despite having prolonged and regular Visit Malaysia Year campaigns, everyone knows that tourist aren't exactly 'high yield'. MH's strategy when it first broke off from MSA was to concentrate on its domestic market... while SQ's sights were set on the international market. When MH realised that it needed to go international in order to survive, they were already many years too late.

 

With BTP and the vision to become a 5 star carrier providing great value, MH is basically alienating itself further away from the true 5 star carriers that it aspires to become. So what if it eventually manages to hit its target KPIs? By then, all damage would have been done, and MH would end up competing solely based on price with AK, and fighting for the group of people who had no brand loyalty whatsoever. It would then take MH probably another decade to undo all the damage it has done before potential customers who have the paying power to respect them as a 5 star carrier in the same league as SQ and CX, would want to fly them again. By then, who knows what the airline industry would have become. There could be another set of challenge that MH would have to tackle...

 

Just my 2 sen worth...

Edited February 5, 2008 by S. Huang

[Izanee 0]

you've hit the nail on the head huang... well said!

[KK Lee 5]

Just my 2 sen worth...

 

Concur with you.

 

 

 

[Sing Yew 1]

you've hit the nail on the head huang... well said!

 

 

Concur with you.

 

 

Well said.