CEO Outlook 2005: Air of confidence despite challenges


  • Business
  • Saturday, 01 Jan 2005

Malaysia Airlines managing director Datuk Fuaad Dahalan is confident that the tourism industry will recover in the short term, as various governments and the international community are focussed on rebuilding the affected territories damaged by the tsunami disaster. 

For 2005, the airline's network strategy will be focussed on developing regional dominance and growing the China, India and Asean markets. Fuaad also talks about some of the major challenges in 2004, and the continuing policies for this year. 

Boustead Properties Bhd has just opened The Curve retail centre in Mutiara Damansara and is pleased with the response. Executive director Datuk Ghazali Mohd Ali finds this an exciting year for retail. Boustead looks forward to launching its premier Mutiara Damansara homes and Mutiara Rini homes in Johor.  

Ghazali notes that good properties could be a hedge against some of the current uncertainties. 

 

 

DATUK AHMAD FUAAD DAHALAN 

Managing Director 

Malaysia Airlines 

 

What is your outlook for the economy in 2005? 

We believe that the key underlying fundamentals of the Malaysian economy remain strong and as announced in the Budget on Sept 10, Malaysia’s gross domestic product (GDP) is poised to grow by 6% in 2005. In addition, we remain optimistic on the outlook for the economies of our regional neighbours and of our global markets. The strength of the economy is important for Malaysia Airlines, as we will gain from trade and tourism-related activities.  

We hope to leverage on the strength of the economy and the consequent buoyant consumer demand to sustain current momentum for continued growth, which will allow us to improve our financial position and performance.  

We believe that barring further crises related to terrorism and diseases, the future outlook for the airline industry and travel demand remains bright. We also believe the recent tsunami disaster will not severely impact overall travel demand. We are confident the tourism industry will recover in the short term as various governments and the international community are working together and focused on rebuilding the affected territories. 

 

What are the prospects for your company in 2005? 

We are pleased with the progress we continue to make with the growth of our business.  

In 2005, our network strategy remains focused on developing our regional dominance, and growing our China, India and Asean market. In 2004, the strategy to strengthen our market presence in China was evidenced by the introduction of new air links between Chengdu and Kuala Lumpur, Shanghai and Kota Kinabalu, as well as Xiamen and Kuching via Kota Kinabalu. We intend to launch our services into the popular destinations of Kunming and Xian in January and March 2005 respectively. For India, in December 2004, weekly frequencies and capacity into existing destinations such as Bombay, Bangalore and Hyderabad were increased while additional capacity was injected into Chennai. We also launched services into Ahmedabad in December and will expand into Calcutta in January 2005. We are also planning to grow into other cities within China and India in 2005. 

We currently operate in excess of 50 narrow-body aircraft, which are used for our rural, domestic and regional routes. Our fleet planning takes into consideration the need to deploy the appropriate aircraft type into these markets. We are in discussions with aircraft manufacturers to replace and grow our narrow-body fleet, as it will allow us to capitalise on our opportunities within the region. In addition, it will allow us to improve on our passenger comfort and operational efficiencies 

We will continue to fortify and strengthen our competitive edge by introducing new and innovative product and service offerings to meet our customers’ expectations. A major enhancement to our inflight products and services would be our RM700mil investment to upgrade our 17 B777s and 15 B747s. The highlights of the upgrade in First/Business class include the roll-out of new “flatbed” seats while all classes will enjoy movies, music and interactive games on demand (i.e. AVOD) and SMS services.  

We also have implemented Project Relish, a food and beverage quality initiative to enhance and refresh our inflight meal offerings. The upgrade of our cabins and initiatives to improve inflight service offerings will improve our competitive position and grow our premium revenues. In addition, our customers can look forward to the delivery of the first of six Airbus A380s, our new flagship aircraft, in January 2007. The A380, the world’s first “double-decker” aircraft, will be the most advanced, biggest and spacious plane ever built and will maintain our position as a premier brand offering state-of-the-art products and services. In addition, it will offer improved operational efficiencies compared with today’s jetliners 

We will continue to develop our Internet booking facility, as it will allow us to achieve tremendous cost efficiencies. We are targeting to achieve 40% of sales through the online distribution platform in the next five years. 

Due to the high growth of the Asia-Pacific market, we expect cargo movement to become a significant business opportunity and we are well positioned to capitalise on growth opportunities with our freighter fleet and belly cargo. We expect delivery of two new Boeing 747 freighters in 2006 and will double the our cargo warehouse capacity at KLIA by 2007. We expect MASKargo to play an increasingly important role in contributing to our bottom line. 

In the domestic market, we compete based on offering reputable services with differentiated pricing to different market segments. Our special fares will continue, enabling our services to be accessible to a wider segment of the Malaysian traveling public while our Golden Holidays packages will continue to play its part in stimulating domestic tourism.  

While we expand and grow the business, we are also focusing on developing our human capital. To meet their learning needs, we will incorporate both internal and external teaching resources through close collaboration with local and international institutions. This will ensure that our employees are ready to deal with and manage the increasing complexities of the ever-changing environment, characterised by globalisation, cross-cultural issues, intense competition and constant evolution of technology. 

 

Corporate earnings have been generally robust in 2004. What are your expectations for 2005? 

The industry has rebounded strongly after SARS and is projected to achieve strong growth for 2005. The outlook for the airline industry and travel demand remains bright. The International Air Transport Association (Iata) recently released cargo and passenger traffic forecasts for 2004-2008 indicating 6% growth annually for international passengers as well as international cargo tonnage. 

We are well positioned to capitalise on growth opportunities and expect that the key underlying trends in both our passenger and cargo operations will continue to improve in the current year.  

 

How will rising oil prices affect your group's business strategies? 

Volatile fuel prices will have an impact on the bottom line. We have already adopted various strategies to manage and deal with this issue and will continue to adapt these strategies to the market situation. We have our panel of experts who will continue to provide advice and we will ensure that we continue to do what is appropriate to mitigate our exposure.  

 

What were some of the challenges faced by the group in 2004? How did your group tackle these challenges? 

Some of the biggest challenges we faced in 2004 were managing the volatile fuel prices and competition from our regional peers for the intra-Asia traffic.  

In terms of managing volatile fuel prices, we believe the policies we have put in place are consistent with other international airlines. We imposed a fuel surcharge on all international passengers on June 10, 2004. In addition, we have made our fuel hedging policy more flexible, which will ensure that we adapt to market conditions better. We have also taken other proactive measures to manage the escalating fuel prices, which include establishing a high-level task force to review areas for revenue generation and cost reduction. In addition, we have implemented a fuel conservation policy, which was developed even before oil prices started rising. This policy ensures that we continue to optimise the quantity of fuel uplift on every flight, without jeopardising operational continuity and safety. Other actions include reviewing flight plans for minimum fuel burn-off and keeping every aircraft and engine in the best state of mechanical health and condition to achieve optimum fuel efficiency.  

We will continue to manage the competition for the intra-Asia traffic from our regional peers by enhancing our product and service offerings and ensuring that we provide the appropriate capacity and frequency levels to maximise market demand. At the same time, we will ensure that our airfares remain competitive by intensifying measures to enhance efficiencies, lower costs and reduce complexities within our entire operations. 

 

 

DATUK GHAZALI MOHD ALI  

Executive Director 

Boustead Properties Bhd 

 

What is your outlook for the economy in 2005? 

Judging from the performance of the economy in 2004, this year should be even better. Growth has been forecast at between 5.5% and 6% for Malaysia. 

Although we will be affected by the uncertainties created by rising oil prices, Malaysia, as a developing country with vast resources and a diversified economy, should do well. 

 

What are the prospects for Boustead Properties in 2005? 

We have just opened the Curve in Mutiara Damansara in December and are very pleased to report that response from the public has been overwhelming. 

The retail industry in Malaysia is a very exciting one to be in at this moment and we are told that we made the right decision in venturing into this industry at this point in time. We see a huge potential for this industry in Malaysia as there is a growing population of young and affluent Malaysians. 

We will continue to launch our premier Mutiara Damansara homes throughout 2005 as well as our Mutiara Rini homes in Johor. 

Apart from property development, the group has seven oil palm estates throughout Malaysia and with the strong commodity prices, the group’s prospects are upbeat for 2005. 

 

Corporate earnings have been generally robust in 2004. What are your expectations for 2005? 

Every year brings with it new challenges and higher targets for us. We expect 2005 to be a good year as economic forecasts for the country are very positive with the economists predicting between 5.5% and 6% growth for 2005. This, together with increased tourist arrivals, augurs well for our Royale Bintang Hotel and the Curve

Our property development projects in Taman Mutiara Rini, Johor, and Mutiara Damansara will continue to draw purchasers as a result of our branding. In addition, our reputation as a responsible and innovative developer will continue to contribute substantially to Boustead Properties’ earnings. 

 

How will rising oil prices affect Boustead Properties’ business strategies? 

Oil is not the only commodity that has been rising in price. Property prices on the whole have also seen a marked appreciation. I am glad to note that we have experienced this significantly at Mutiara Damansara. 

Whilst we will be affected by persistent uncertainties caused by rising oil prices, Malaysians are constantly on the lookout for investment opportunities and Mutiara Damansara provides them with a great opportunity to hedge against uncertainties given that our products are among the best for asset allocation. 

To a certain extent, the effect of high oil prices will be felt but Malaysia has positioned itself well to cushion the effects of inflation through its diversified economy, relatively low foreign debt and tight controls over all sectors of the economy.In addition, the impact is also being cushioned by the Government’s subsidy on oil prices. 

To counter the effect of rising oil prices and its impact on the cost of building materials, we are constantly looking at ways to improve our products through innovative designs and finishing. We are also constantly looking at ways to improve efficiency and expedite the delivery process. 

 

What were some of the challenges faced by Boustead Properties; how did your group tackle these challenges? 

Though the introduction of new regulations at federal or state level is needed to protect consumers against unscrupulous developers, further restrictions on all those participating in the property development sector may not necessarily bode well for the good developers, given that they will create difficulty for the industry to expand and compete in a more productive manner.  

The merger of the PNB Property companies and on-going acknowledgement of the top property developers in the country will also ensure that house buyers are not short-changed by non-competitive developers. 

Started over 175 years ago as a modest trading entity, the Boustead group has grown to comprise more than 80 subsidiary and associated companies, with substantial interests in various sectors of the Malaysian economy. The group’s operations are focused on five key areas: plantations, finance & investment, property, manufacturing and trading, and the service industry. The group’s combined paid-up capital is currently RM289mil while shareholders’ funds stand at RM1.8bil.  

 

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