New Business Transformation Plan

[Derek Puah 0]

By the way MAS is running the business now. I will call MAS Malaysian Airline Sh*t. From my previous experience with MAS last year compare with SQ experience. I can tell you I will give MAS a ditch. The food is horrible, aircraft is old and dirty, seat pitch is good but the seat itself is almost falling apart. I live in Sydney with family still in KL. I would rather fly SQ to Sin and get a connection flight like Tiger or AK to KUL and give MAS a run of its money.

 

I travel a lot for business, I would rather get a connection flight in Changi than in KUL. KUL is a desert town while Changi is lively and so many things you can do. I am not sure what the management is thinking when try to run MAS is LCC. They should expand Firefly to fly more destinations while upgrade MAS products. IJ really need to visit MalaysianWings more often to get the opinions from the street than sit inside his office. Customer is the KING. It is not like running petroleum company. IJ you better wake up if not MAS will be forever sleep.

[BC Tam 2]

..... better wake up if not MAS will be forever sleep

Can I refer you here where it is categorically declared that our national airline will not be allowed to fail ?

 

Ah well, I guess I will be contributing to MH's coffers, whether I choose to fly with them or not

Edited February 6, 2008 by BC Tam

[Ignatius 4]

Why should we care if MAS have a BTP or not, its their problem if they survive or not, don't give a damn about it, what we care is service... which carrier provide efficient reliable and affordable service wins my hard earn cash,.. and 5-s#1t airline with LCC cost?? what are they trying to pull by saying s#1t like that?? I had lost hope on MAS because it's been run by idiots who is more interested in cashing out money from MAS from themselves rather than cashing in cash for the airlines.

With all the bashing targetted at MH, welll one word suits them, PADAN MUKA (Serve them right), its really sad because alot of good pilots haveto continue work wth them!!! Eventually, the bashing will stop until customers are happy, for now, keep bashing and make MH realise they are way behind everyone else!!

[BC Tam 2]

Why should we care if MAS have a BTP or not, its their problem if they survive or not, .....

Yes Iggy, you and I and every Malaysian citizen should be concerned ! MAS' survival is a matter of national pride, and we have heard from very good authority that it will NOT be allowed to fail. In essence, it basically means that even if MAS is to lose money to point of bankruptcy, money will have to be made available somehow or other to keep it afloat

 

If you remember, it's not too long ago when it was declared that MAS was pitifully unprofitable and had something like a few months or so before it ran out of cash ? Well, from that very, very dire situation, it is now making near record profits, quarter after quarter - all within a very short space of time and operating in increasingly competitive environment and sky rocketing fuel prices. Spectacular turnaround, and all credit to one man and his BTP (as our Malaysian media would like us to believe)

 

Only history will tell if this miraculous turnaround in fortune will be made compulsory case study material for MBA courses - simply because people like to learn about success in business. Miraculous because apparently the feat was achieved without any financial assistance from the Malaysian government (basically, that means you and I lah, contributors to Lembaga Hasil Dalam Negeri - that is assuming you are paying tax nowadays) No bail-out. What to do ? Take it at face value loh, despite some quite spectacular and profitable deals between MAS and government-controlled entities having since been reported widely in the media anyway

 

Fundamental question is whether these profits can be sustained over long term. Say 1 year, 2 years, 5 years down the road ? Without further government financial assistance ?

 

So, what about BTP2 ? Most if not all accounts, both by Malaysians and foreigners, do not cast a very bright future for MAS. There has already been so much said in this very forum, no need to be repeated again. And if the airline does not do well (eg. losing customer loyalty and paying customers) losses will make a return, perhaps in even more spectacular fashion than before. And if this should happen, well, we'll just have to help out financially again I suppose. Perhaps this time round, we could hope for some hint of grace in acknowledging instead of denying assistance rendered

[Guest Michael]

I have received emails from Idris saying he is determined to make the BTP2 work to the full extent.

[BC Tam 2]

I have received emails from Idris saying he is determined to make the BTP2 work to the full extent.

That is nice of him, and reassuring. But then one would not have expected him to say otherwise would we ?

Also, I'm assuming it's Datuk Idris Jala we're referring to here ?

[jani 0]

Ask him not to reduce seat pitch though

[Rozhan 0]

Even if one doesn't pay taxes directly, they still contribute indirectly to the gov by paying excise duties and taxes on things they buy..... tobacco, alcohol, imported shampoos, imported toys, nasi kandar (service tax) etc etc.

 

Malaysia could use some funds for other more important purposes. For example many, many schools are in dire need of additional buildings. I know of some which don't have enough classrooms such that classes become 'float class' or kelas terapung, having lessons taught at school canteens, school halls... wherever there is space. Many have had their art classrooms, libraries and resource centres (pusat sumber) converted to classrooms but still can't cope with local population growth.

 

Millions of Malaysians deserve a better living, not just for a company with only 16k employees and a few thousand dependants. Thank you.

[Ignatius 4]

Well, I'd wish to be optimistic here, but with the Malaysian Govt style attitute, were are always loosing altitude on everything... I prefer shutting up, see whether they're can deliver good service to us "TAXPAYERS" or not... mean while IJ should get his promised word worked out, talk can be sweet, we want results, save the praises later...

Good luck MAS on your BTP gen2, things that should never have started at all in the first place if those DINOSAURS extinct earlier!!! Those are the real LOSERS

 

[jani 0]

Don't worry guys, one day I will be head of MAS and I will not disappoint you

[Ignatius 4]

Don't worry guys, one day I will be head of MAS and I will not disappoint you

Now that is so much convincing to hear than from IJ kakakaka goood one...

[Guest Michael]

For MAS to become 5 star premier value, it will require a lot of hard work I say.

[Radzi 2]

From The Edge Daily.

 

11 Feb 2008: Cover Story: Bracing for the storm

Stories by M Shanmugam and Doreen Leong

Email us your feedback at fd@bizedge.com

 

 

Achieving the impossible seems to be something Datuk Seri Idris Jala, the managing director of Malaysian Airline System Bhd (MAS), is adept at. In the past three years, he has produced results that have made critics take their hats off to him.

But the mother of impossible missions for Idris is undoubtedly the implementation of the business transformation plan (BTP) 2 — the sequel to the first plan unveiled two years ago, which he carried out in far less time than envisaged.

But even with one BTP under his belt, and achieved in good time too, not everyone is confident Idris can pull it off again — a profit of at least RM1.5 billion by 2012 is certainly no easy target.

But first, BTP1.

Two years ago, the airline was bleeding red ink, had a cash-flow crisis and stared at the ignominy of conceding defeat to the rapidly expanding low-cost carriers (LCCs), particularly AirAsia, which was eating into MAS' market share.

Characteristically, Idris came up with a rescue plan within a month of assuming the post of managing director-cum-CEO in December 2005, galvanising and getting a bloated workforce behind him. He managed to work out an agreement with MAS' union in no time.

Unlike other government-linked company (GLC) transformation plans, where processes and cost-cutting were put in place in the hope that they would somehow bring about an improvement in the balance sheet, Idris' turnaround plan was targeted simultaneously at the balance sheet and the profit and loss (P&L) account.

Improving yields by price increases and adjustments, rescheduling aircraft, shedding loss-making routes and cutting cost to the bone were key parts of his strategy. He attacked on many fronts with top speed. Getting cash flow in and stopping the flow of red ink counted more than anything else.

In what easily ranks as the best turnaround story in Malaysia, the end-result was a fairy-tale revival in less than 18 months, against the expectation of even the most optimistic of analysts. From a loss of RM1.7 billion in 2005, BTP1 put MAS firmly on track for a record profit of over RM600 million in 2007.

For the first nine months ended September 2007, MAS registered a net profit of RM610 million, and is set for a record profit for the full year just ended. Its previous high was in FY2004 ended March, when it recorded a net profit of RM461 million.

Compare this with the target — a net profit of RM50 million for 2007 and RM500 million for 2008. The 2008 target was met a year and three months ahead of time. Consider this: This massive turnaround took place with Idris less than two years at the helm of MAS.

Despite his track record, when Idris unveiled BTP2 two weeks ago, many aviation analysts were not impressed. But then, none has dared to write him off this time round.

Chris Eng, an analyst at OSK Research, says BTP2 is not comprehensive enough to understand the processes that MAS needs to take to drive down cost.

"There is also no firm indication of the fleet replacement plan and future strategic alliances. However, I am giving MAS the benefit of the doubt that it will be able to pull this through. Based on their track record, I believe Idris and his team can achieve a number of initiatives under BTP2," he says.

Another analyst says there are uncertainties as to how much benefit the airline can reap from the various initiatives under BTP2.

"The RM1 billion cost savings target is not ambitious and can be achieved. The RM1.5 billion earnings target, which assumes a 15% net margin, is realistic. While it is good that MAS is trying to reduce cost further, it is important to emphasise growing its revenue because revenue is yield accretive," says the analyst.

Under BTP2, which is a five-year plan to transform MAS into a five-star value carrier (FSVC), Idris is looking at shaping MAS into a carrier that will be able to withstand turbulence in the aviation industry.

A firm believer in the view that the aviation sector will be hit by overcapacity, a problem that will be compounded by the Asean-wide liberalisation of the sector on Jan 1, 2009, Idris says without BTP2, MAS will fall back into an abyss and this time, its fortunes will be irreversible.

"The threats of overcapacity and liberalisation of Asean's skies are real. If MAS does nothing to prepare for this threat, it stands to lose RM650 million in the best-case scenario and as high as RM1 billion. This time, there will be no turning back for us," he says.

 

Lowering the breakeven point

Like the first BTP, BTP2, put in a nutshell, is quite simple — cut cost and increase yield. But in the first BTP, the focus was enhancing yield through a revenue enhancement programme (REP) and realigning the routes through a route profitability programme (RPP).

In BTP2, the emphasis is improving yield and reducing cost, which will contribute to improvement in seat load factor. Apart from that, MAS has embarked on a massive hospitality campaign, called "MH" (the acronym for Malaysian hospitality), which underscores its efforts to improve service and make travel easy for its customers.

Led by Idris, the MH campaign is targeted at making travel hassle-free for customers of MAS. Some 500 initiatives were identified under the campaign as at the end of last year, which cut across customers' touch points with MAS. The objective is to improve product offerings and services to ensure customers are charmed by the travel experience, to the extent that they will frequent the airline even if fares are slightly more expensive than those charged by the LCCs.

The initiatives to improve the P&L have the goals of:

 

Reducing structural cost by RM1 billion and lowering the cost per available seat kilometre (CASK), a measure of the cost per seat, by 20% from 17.5 sen per ASK to 14 sen. The biggest reduction will be seen in the operations, engineering and maintenance division, which is targeted to cut costs by RM476 million for FY2008 ending Dec 31. The second largest cost reduction will come from distribution, with MAS aspiring for Internet bookings to make up 50% to 60% of sales by 2010;

 

Increasing revenue by between RM550 million and RM700 million per annum by offering competitive fares, tighter inventory control of seats and better fare distribution, which means MAS will have more tickets and a large pool of travel agents, thus resulting in better yields. At the moment, 60% of MAS' tickets are distributed through a few agents, which causes a suppression in yields as agents try to maintain their margins. Only 35% of its tickets are distributed in the highly fragmented market, where it is a free-for-all and yields are high. In the longer term, the idea is to shift most of the distribution of tickets to an environment where there are many agents and other channels. MAS expect yields to improve by another three to four sen with the improvement in the fare distribution strategy. At present, yields are 26.3 sen per ASK.

 

Increasing revenue by between RM70 million and RM100 million through the maximisation of value from the interlining and code-share agreements. In this respect, MAS is looking at extracting benefits from the review of current special pro-rate agreement (SPAs) and code-share agreements.

All the numbers are based on the price of oil, which constitutes a major portion of operating costs, being at US$100 per barrel. If it is below this, MAS stands to gain and vice versa if oil starts to climb again.

Game plan

Idris' game plan for MAS, in view of the competitive environment, is simple. The carrier must reduce its breakeven cost and load factor to a level where it can drop prices when there is a need to do so without impacting the bottom line.

"Essentially, we must be ready to drop prices and yet be profitable. At the end of the day, the tendency is for customers to compare prices," Idris says.

Under BTP2, the objective is to lower the resilience curve, which captures the trade-off between yields and the seat factor, whereby the revenue per ASK (RASK) is equal to the CASK. By lowering the curve, MAS is essentially lowering its breakeven point, whereby even if the passenger load drops to less than 70%, it will still be profitable.

Previously, MAS used to concentrate on filling up the planes, even at the expense of losing money. Its control of seats and pricing of fares left much to be desired. This resulted in a high load factor yet unprofitable flights. For instance, in 2005, the seat factor was 71.8% but the yield was 20.5 sen. MAS was in the red to the tune of RM1.3 billion (see Chart 3).

However, yields improved steadily through the initiation of the revenue and route enhancement programmes. In BTP2, MAS has Project Omega and Alpha to continue with the revenue enhancement initiatives (see Chart 4).

Idris says if they continue with BTP2, yields will continue to improve, which is something analysts dare not discount.

 

The Idris factor

But can implementing BTP2 alone tide MAS over? What will its greatest challenges be? Will it be able to bring down costs and increase yields as planned? More importantly, will Idris be around to lead the charge?

Without doubt, there will be a number of obstacles for MAS in meeting its targets under BTP2. For instance, its CASK is already low, at 17.5 sen per km. In comparison, Singapore Airlines averages 7.9 Singapore cents. Some regional LCCs, such as Jetstar Asia, the LCC of Qantas, is said to have a CASK that is almost similar to MAS'.

But then, AirAsia has a much lower cost structure, which means MAS can achieve its 14 sen per km target, as both airlines operate in the same low-cost environment.

As for improving yields, there is ample potential that MAS can tap. BTP2 has outlined how MAS can increase revenue from measures ranging from the distribution of tickets to increasing seat density and maximising value from code-share agreements.

But the single most important factor to make it all work is the human element. This is even more crucial in BTP2 than in BTP1, which, in essence, trains the spotlight on Idris.

Considering his past successes, certainly, investors will be comforted if Idris stays on to see BTP2 through. His contract runs until the end of the year, which means there is a lot he can do. And as long as Idris is at the helm, investors can rest assured that this seasoned hand from Shell will see to it that the targets are met. His perseverance and patience in sticking to the plan are well known.

As Kenneth Chan, the aerospace analyst for Frost and Sullivan, puts it: "All factors considered, if MAS continues to sustain the momentum carried from the first BTP, the future looks positive for the airline."

[Guest Michael]

I am coming up for a holiday in April for 8 days and look forward to meeting with you all and discussing the future of MAS.

[KK Lee 5]

Due to restriction of hard points at galley and toilet, if maintaining 9 abreast, to shrink from 34” to 32” EY seat pitch can add 22 to 26 more seats to MH 772.

 

During off peak season, load is not full, these additional seats won’t bring in extra revenue but more fuel burn from heavier weight.

 

During peak season, these seats should bring in 11% more revenue. However, this gain can be achieved by more responsive yield management without reducing seat pitch.

 

Increasing number of seats will reduce (improve) CASK. However, RASK will need substantial improvement in load and yield to maintain or improve. Believe lowering CASK is one of MH management’s KPI and they will just ignore RASK.

 

Apart from cc, there is little else MH can boost in marketing. Bet my 2 cents, MH will enter another vicious downward spiral of poor product, poor load, low price and low yield. Low CASK without sufficient load or yield is just another ratio for analyst.