Saturday July 2, 2011

MAS on the path of transformation

We refer to the article, ‘Tough times for MAS’ in StarBizWeek dated, June 11 2011 and are pleased to share our response.

Malaysia Airlines (MAS) is clear and focused in terms of its direction and strategy moving forward, especially in terms of maximising revenue, sustainable profitability and sound operations. On track with the Business Transformation Plan 2 (BTP2) , we are continuing with our product enhancement plans and cost efficiency exercises, targeted at being operationally sound, with a focus on safety and customer experience at the core.

To be clear, our focus is on the full service market, and although there is encroachment from the low-cost carriers (LCCs), the very price sensitive traveller is not our target market segment.

We have begun our fleet renewal process, with the new B737-800 and A330-300 aircraft being delivered. The product we have on both the new fleets is a big improvement on our existing aircraft and demonstrate our commitment to high quality experience for our guests.

We have improved many aspects of our service elements, such as the food on board and in our lounges. We introduced a new check-in experience for our First and Business Class customers in KL International Airport. For First Class and Enrich Platinum passengers, we have Chef on Call, which provides them with a diverse menu selection that includes items such as lobster and caviar as well as local favourites such as nasi lemak and roti canai.

Tengku Azmil: ‘We have begun our fleet renewal process, with the new B737-800 and A330-300 aircraft being delivered.’

We have improved our service on the ground, such as at our check-in counters, incorporating elements of training from our world renowned cabin crew.

New on the table is the introduction of a concerted branding campaign aimed at being a preferred brand among the airline’s target segments. While this is being done externally, an internal customer-oriented culture is being nurtured among all our 19,500 employees to maintain our unique service delivery to our customers. A series of training and motivational programmes are being rolled out to achieve this aim.

At MAS we aspire to be the No. 1 Airline in Asia by 2015. We want to be the preferred carrier in Asia in terms of products and services, and we are not far off to achieve this – we already have the World’s Best Cabin Crew and would have one of the youngest fleets in the world by then. Being No. 1 here is not in terms of size. We do not aspire to be the biggest airline in Asia, but one of the most successful.

We have indeed come a long way. We are on track with our BTP2 initiatives and have embarked on an internal transformation exercise and an external brand building campaign.

The turnaround plan was focused on short-term measures which gave quick results but were not necessarily sustainable. Our focus in the transformation plan is to put in place initiatives that may take longer to execute but which will have a more sustained impact to the company.

Being perhaps one of the few truly international business entities in Malaysia, MAS is impacted by most global events, more so than any Malaysian carrier.

Let’s look at the numbers for the first quarter (Q1) of 2011. Capacity was planned for 11% increase at a time when the fuel costs were US$90 per barrel. When we planned the capacity increase last year, we had planned for a fuel price increase, but the Middle-East crisis raised the fuel costs unexpectedly to US$130 per barrel. Foreign currency movements, which accounts for more than 60% of MAS’ revenue, had impacted our top line. Despite all these factors, our non-fuel unit cost was down by 6%.

Our commitment to improve efficiency and eliminate wastage continues and without this, we would not have been able to reduce our unit costs to this extent.

As capacity increases, the new capacity introduced will take time to mature and fulfil its potential. In the short term, load factors and/or yield for the additional capacity will be lower than average but will improve over time.

Despite this 11% capacity increase, our unit revenues were stable with a small 1% drop. However, given the significant increase in fuel prices, we were badly impacted.

Revenue management is an important area for us, and our efforts to improve this area continue. One of our key initiatives is to introduce a new method of doing revenue management (origin and destination revenue management) which is expected to boost revenue by over 1% per annum.

Given that our annual revenue is over RM10bil per year, a 1% boost is significant. This method is being used by many carriers such as Lufthansa, Singapore Airlines and Cathay Pacific and we are implementing this in 2011.

The airline has in recent years pushed the envelope which resulted in us achieving many technological innovation “firsts” such as the MHmobile (which allows booking and checking using a 2D barcode and Enrich status enquiries among others) and MHBuddy (the first social media application that allows on-line bookings and check in on Facebook, as well as sharing travel itinerary with friends).

Similar enhancements using various channels and social media tools were also introduced for better customer experience such as augmented reality applications, MHdeals and Going Places (the monthly in-flight magazine) on the iPad.

We are proud to have been given rave reviews for more than just our cabin crew. Among the recent ones were the “World’s Leading Airline to Asia”, “Asia’s Leading Airline” and “Asia’s Leading Business Class Airline” awards by World Travel Awards 2010, United Kingdom. However, we are focused not so much on awards but on the overall experience for our customers.

We were recently invited to join the acclaimed oneworld alliance, and are now a member-elect. Oneworld does not have as many members as some of the other alliances, but is more selective and emphasises quality rather than quantity of members. We expect this alliance membership to bring significant benefits to MAS and also to the country as a whole.

From a customer standpoint, there will be more seamless connections to destinations where MAS does not fly and foreign customers can connect on MAS’ flights more easily. This will encourage more travel on MAS.

Oneworld customers will get frequent flier points on MAS as well as other member airlines. The same applies to Enrich members, who will get points while travelling on any oneworld airline.

Thai Airways and Singapore Airlines who are already part of an alliance have been using their member airlines to bring in foreign tourists into their countries. With the oneworld alliance membership of MAS, tourism into Malaysia will be enhanced and Kuala Lumpur will be considered more as a hub.

Market share increases

Firefly was more of a strategic move. While MAS is focused on the full service segment, the introduction of the jet service for Firefly is intended to give the group a foothold on the price sensitive segment of the market.

Firefly already has a good franchise in Malaysia and although it is competitively priced, it provides a good customer experience for this segment of the market. It is growing quickly and gaining a lot of momentum.

As the market develops, we will see Firefly gaining more market share at the expense of the incumbents, including MAS. What is important for us is that the group’s market share increases, and since Firefly jet operations started in January, we have seen that steadily happen.

From a group perspective, MAS concentrates on a more premium segment whereas Firefly covers the price sensitive segment.

We were clear from the beginning that the operational management of Firefly is done separately so that MAS is not trying to do both and that both brands are clear on which sectors they are targeting.

MAS has clearly stated that it is aiming to be the preferred airline of its customers by 2015. This target is aimed at being No. 1 in the hearts and minds of our customers, not in terms of market share or the largest fleet.

In its quest to become a preferred brand, MAS has embarked on studies to understand its customer segmentation and focus on their needs.

This move enables us to focus on delivering many advantages to our target segments. In this way, not only are we able to please our target segments, we become more efficient and focused, while maintaining our own unique identity.

As for sustainable profits, the airline is on track with its strategies to transform the airline to become consistently profitable. In the background, many transformations are taking place.

Enhancing IT systems, reviewing processes and introducing structural changes will slowly but surely strengthen the airline’s operations and people.

In the short term, we are reviewing our capacity and our sales and revenue management strategies in order to return to profitability.

The difference between turnaround and transformation is that turnaround is fast but does not last. A transformation takes more time to implement, but it either leaves a lasting impact or creates a lasting change. Therefore, the latter is harder to do, takes more time but creates more impact in the long run.

There are many suggestions out there on what MAS should do or is not doing. We appreciate suggestions and it demonstrates the extent to which Malaysians care about MAS. Here are the facts:

·MAS is focused on carrying out the BTP2 plan. Re-fleeting and alliance is part of the transformation plan

·MAS and Firefly jet operations target different segments. As a group, our market share in domestic travel has increased since the jet operations started in Firefly. This is at the expense of other airlines in the domestic market.

·Capacity and route planning is long-term as the airlines sell pre-loads at least 6 to 12 months earlier than travel time. We are subject to shocks such as the Middle-east crisis, which has unexpectedly driven fuel prices up. We adapt, but due to the lead times, results are not instantaneous.

·Cost reduction – MAS has already reduced its unit operating cost by 6% for Q1 2011. We are more than confident that our target of a cumulative 15% reduction by 2015 is achievable.

Thank you,

Tengku Datuk Seri Azmil Zahruddin

Managing Director/

Chief Executive Officer

Malaysia Airlines

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