MALAYSIA Airlines Bhd (MAB) will have to undergo a “harsh” turnaround plan over the next three years before the national carrier reclaims its position as a leading airline in the region.
Chief executive officer Christoph Mueller acknowledged that the company, which officially commenced business yesterday, was “technically bankrupt”, and the current focus was to stop the bleeding.
“That will be the more painful exercise. There’s overcapacity in the market. We have to prune our network, frequency pattern and aircraft size accordingly, and eliminate losses.
“The headcount rightsizing is happening today,” he said, referring to the issuance of retrenchment letters to 6,000 staff throughout the group.
Mueller said key contracts that previously ate into the airline’s profits were also being renegotiated. It recently concluded a fresh deal with its main caterer, Brahim’s, on more favourable terms.
“The most important factor in our turnaround plan is cost structure. We assume that our costs are 20 per cent too high,” he said, adding that this was also due to an inefficient procurement process. “At last count, we have about 20,000 suppliers. An airline of our size should get along with just 2,000 to 2,500 suppliers”.
Mueller, whose track record of successful turnarounds includes Ireland’s Aer Lingus and Lufthansa, was speaking at a media briefing here yesterday on the way forward for the new Malaysia Airlines.
The briefing was held in what will be MAB’s new corporate headquarters here.
“Today, Malaysia Airlines, as we know it, is leaving its cruising altitude and is about to prepare the cabin for a very safe landing. At the same time, the new Malaysia Airlines is preparing for the first flight and it’s getting ready to take off,” he said.
Mueller said more than 40 projects had been identified to transform Malaysia Airlines into a sustainable operation. These would be implemented in stages, beginning this year.
For example, there needs to be a new manpower and rostering system to better manage human resources in the operational units.
“We either have too many people and they are idle, or not enough and then incur high overtime costs. A human brain cannot do that any longer in an entity this size. There are IT solutions available that can help us,” he said.
Other improvement projects include better pricing yield management (offering a wider range of prices to cater for different passenger needs), paperless cockpits (pilots currently carry up to 15kg of manuals and documentation on flights) and streamlining catering (consistency in quality throughout flights and in premium lounges).
The new MAB group will have at least 12 subsidiaries spread out over three main activities — operations; support functions; and learning and development. This structure could potentially generate enormous third party revenues for the new entity.
“The entrepreneurial spirit was slightly curbed previously because these different units were residing as divisions in the airline. For example, we operate a set of simulators for flight training. It can be a business in its own right. We can train pilots of other airlines,” Mueller said.
He said there would be minor changes in the network in the next few months, but there would not be any capacity reduction in domestic routes. On the contrary, flights to Sabah and Sarawak may be increased, and MASwings may be utilised entirely for rural air services.
“It is an important element of our mission, to connect remote parts of the country to the world. Air travel is an enabler to the economy, and, as a national carrier, we have to provide people with cheap travel to make the gross domestic product grow.”
Talks with aircraft leasing companies are ongoing, and their outcome could determine the final make up of the company’s fleet, which comprise Airbus (A380, A330 and A330 freighters), Boeing (B777, B737 and B747 freighters) and Viking (ATR and Twin Otter) aircraft.
Mueller said future plans, included refurbishing the business class on all planes in the fleet, upgrading the in-flight entertainment system and a new online booking engine and mobile app. The group’s information technology infrastructure would also be overhauled to incorporate new advances and streamline overall operations.
“We will do the best we can without any disruption to the customers,” he said.
On the possibility of tie-ups with other companies, Mueller said there were areas where the company could benefit from firms with more expertise, such as in maintenance, repair and overhaul, and ground handling, but it needed to get its house in order first.
Mueller said while brand loyalty towards Malaysia Airlines remained strong domestically, in important overseas markets — Australia, China and Europe particularly — it has suffered badly due to the overexposure of the flights MH370 and MH17 incidents in the media.
“Our responsibility is to embark on discussions with shareholders, the public, tour operators and others on how we want to position the new Malaysia Airlines. Under no circumstances can we lose the loyalty of our home market, but we have to do something about it in foreign markets.”
Mueller said the final phase of the turnaround plan in 2017/18 will see a new airline emerge that is a leader in Southeast Asia, and regain market share through improved network, competitive cost and revenue management, and industry-leading technology.