Business

Saturday April 18, 2009

MD feels MAS needs to tailor packages to suit customers’ wallets

By TEE LIN SAY


DURING the Wednesday launch of Malaysia Airlines’ (MAS) Stimulus Package, which offers travellers nine deals, managing director Datuk Seri Idris Jala walked into the room carrying a briefcase similar to the kind our prime ministers use when they unveil important plans to the nation.

Like Malaysia’s economic stimulus packages, the promotion is meant to spur growth in this depressed environment, except that it is the sales of the airline that we are talking about.

This is a tiny evidence of MAS exhibiting innovation and showing its innate nature for seeing the bright side of things, even when the economy is going through one of its roughest times in history.

Jala is looking to put new meaning to the word value. Many are betting on his ability to transform MAS into a five-star value carrier, that is, an airline that offers five-star products and services at affordable prices. After all, he rescued the national carrier when it was at the brink of bankcruptcy four years ago.

When he first took over at MAS in December 2005, the airline was grappling with defective yield management, an inefficient network and poor cost control. Buckling under all that pressure, it posted an embarrassing RM1.7bil loss that year.

Datuk Seri Idris Jala says customers know how to define value for themselves.

Jala’s three-year turnaround plan targeted a profit of RM500mil. But the airline made RM851mil in 2007 – a year earlier, exceeding the mark by 70%. Yields have also improved by 60% in three years.

For Jala, the more something seems unobtainable, the more he relishes pulling it off.

With innovation being a key driver at MAS, the market perhaps was not surprised when MAS launched the Stimulus Package, which offers something for everyone – with nine deals covering first, business and economy-class travel.

While Jala has no targeted profit for this package, he says he is encouraged so far by what he has seen. Furthermore, he sees no downside to the deal.

“In just slightly over a month, sales for Grab-A-Deal and Balik Kampung have hit more than RM17.5mil. That was revenue MAS never had before. For the MATTA fair recently, our revenue increased three times to RM11.7mil from RM3.4mil. That’s significant considering we are in an economic crisis,” he says.

He feels that all the airline needs to do is to tailor packages according to the different sizes of the customer’s wallets.

“We assume that our customers are clever people. They know how to define value for themselves. We merely look for the different needs of the consumers within the different segments. If we know what the customers want, we can find that sweet spot,” he explains.

By now, most people would be familiar with Jala’s “laboratory” strategy in driving the carrier. It creates “laboratories”, with each of them studying, repairing and ultimately figuring out how to increase the profitability of routes.

Today, MAS treats each of its 110,000 flights as individual profit and loss account, hence adopting a microscopic approach in making key decisions.

For instance, over the five years before Jala’s arrival at MAS, the management could not resolve an internal debate over a proposal to free up space for cargo.

“There’s been this ongoing argument between the safety and cargo people. The cargo people want to remove the crew bunk for some of the short flights as they feel there is no need for the crew to sleep during such flights. The safety people say the bunks need to be there (because the planes may be used for long-haul trips),” he says.

“We put these people together in the lab, and within a week, the problem is resolved. They collectively agreed to reserve certain aircraft for short flights, and the crew bunk is removed from these planes. Almost immediately revenue comes in after that!”

If anybody were to say MAS was still inefficient or still had the “GLC mentality”, Jala would be the first to to refute. He says that with the transformation of MAS, there is now an environment where everybody is forced to innovate.

“In difficult times such as these, all we can do is to do our best. If it doesn’t work, it doesn’t matter because we have tried our best,” says Jala, who is a strong believer of divine intervention.

He acknowledges that out of 10 ideas for innovation, only two to three will work. An example of one of the airline’s innovations that have worked is its box meal idea.

“By packing our meals in boxes rather serving them on plates, we save five minutes in our turnaround time. Now five minutes may be a small deal to many, but when we fly eight flights per day over a year, this gives us an extra RM50mil in revenue,” he says.

MAS today continues to look at increasing efficiencies by automating, simplifying, getting rid and standardising processes.

When asked on MAS’ hedging policy, which has seen it hedge 64% of its requirements at US$100 per barrel, Jala says this is simply because MAS has adopted a competitive hedge policy.

“We are in the business of selling airline tickets and creating that demand for travel, not of hedging oil prices. Our strategy is to hedge our requirements based on what the other players are doing. I have seen many airlines go belly up because they concentrated too much on hedging. It becomes such an expensive exercise,” he says.

Hence, during this downturn, Jala is more concerned with tackling issues that MAS wouldn’t normally do under normal conditions – for instance, looking out for new business values that arise because of the economic recession. This is a huge reason for the preference for conserving its cash pile of RM3.57bil.

“These are the fundamental things we ask ourselves. And I think, it is these issues that separate the leaders from the followers,” he says.

For its fourth quarter ended Dec 31, 2008, MAS’ revenue was down 6.14% to RM3.87bil, while net profit dropped almost five-fold to RM46.18mil. For its full financial year, revenue was down 1.78% to RM15.5bil, while net profit was down four-fold to RM244.31mil from RM851.42mil previously.

 
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