Dawn of a new era for MAS and AirAsia


  • Business
  • Wednesday, 29 Mar 2006

Excerpts from the joint press conference given by Malaysia Airlines and AirAsia officials on Tuesday. 

WILL there be a price limit for domestic air tickets? 

Jala: There is only one condition set by the Government - that a floor price would affect economy seats and it will not go any lower.  

We agreed that it will be appropriate to leave the buying decisions to the customers and the customers will make the choice. 

Fernandes: The key to the prices is market segmentation. Rather than compete for similar packages, we will segregate them through prices.  

 

Will AirAsia raise fares with the Supersaver plan out of the way?  

Fernandes: Our philosophy is not about raising fares, even on the routes we have a monopoly on some routes.  

We bank on volume, but we want to increase our yield, and have less free seats or RM9.99 fares. 

 

For MAS, will there be any fare increases for the 19 trunk routes? 

Jala: We are going through a period of transition right now. I cannot predict when we can do such things. But when we shift the routes over in Aug 1, you will see some changes, some differences in our fleet and how we manage our flights. 

 

MAS' statement indicated there would be 6,500 staff laid off. How many staff and aircraft will AirAsia absorb? 

Jala: We are still discussing with AirAsia. They have indicated that they will take some staff. But we have not finalised how many aircraft yet. 

Fernandes: For our domestic routes, we will need to expand, but it really depends on the final route structure and the final capacity. We can take six to eight aircraft, but we also have 100 Airbuses, so our capacity is okay. 

Jala: It is still too early to say. For what it is worth, we had 10 million domestic passengers last year and nine million international ones. We have about 23,000 staff.  

Since we need to take back the P&L, we have to right-size staff, and are working to determine precisely the quantity we need.  

In two weeks, we should be able to come up with the final numbers, and we will be able to see what aircraft AirAsia requires from us.  

It is also too premature to be precise about retrenchment numbers, but this mutual separation scheme has to come in full consultation with the unions and the staff, and done in a humane way.  

 

How much will the voluntary/mutual separation scheme (VSS) cost MAS, and who will foot the bill? 

Jala: The cost will depend on the formula of the VSS, which we are still working out with the union. The actual cost will depend on the take-up rate and the profiles of the employees that take the package.  

 

Will there be more retrenchment later? 

Jala: We have decided to relinquish the routes, so we need to downsize. We're pulling out of routes like Manchester, so we don't need people manning these networks. I have informed the staff which stations are closing and what we are doing with them.  

No airline has succeeded in undertaking a business turnaround plan without reducing its network.  

Delta, British Airways and Japan Airlines have reduced their routes because when airlines get greedy, they increase frequency and capacity, they end up bleeding and having to cut back.  

 

Will this domestic overhaul affect your forecast of a net loss of RM620mil for this year? 

Jala: I hope not. 

 

How many staff will MAS need to operate in its new network? 

Jala: If we trim our 23,000-strong staff by 6,500, we can work with that number. When we close some of our stations, we will convert them into offline stations that sell tickets, work with travel agents, but these are not in large numbers. There will be some international staff laid off, but the number is not large. 

 

What are MAS workers' unions saying about the VSS? 

Jala: We have to factor 19 routes and restructure. The Government has made the decision and we accept it and have to abide by it.  

I have asked the company to behave as a good corporate citizen, and we need to conduct VSS in a way that is deemed acceptable to the union and employees as we move forward. 

 

Will the 19 domestic routes affect MAS' turnaround plan for 2006 and 2007? 

Jala: When I put out the turnaround plan, much of it focused on international routes, so the impact would be minimal. But if we take back the P&L and not restructure our costs, it will have an effect on our results.  

In taking the 19 routes, it is important that we trim our costs to suit the revenue component.  

 

For MAS, is there a possibility to increase the frequency of the 19 routes?  

Jala: We both have the freedom to increase the frequency in these routes. If it comes to the point that it doesn't make business sense to uphold frequencies, we will need to drop some.  

Fernandes: The market will determine the frequencies, and we both agreed on that. 

 

If AirAsia takes six to eight aircraft, what happens to the rest? 

Jala: The majority of the planes are leased from PMB and we will leave it to them to dispose. 

 

How would AirAsia deal with MAS international passengers? 

Fernandes: I think the majority of the connecting passengers will be on the MAS network. They have 19 trunk routes; these passengers will be the bulk of their interconnecting traffic.  

For the remaining 5%-15% of connecting passengers, we will offer seamless travel.  

The LCC is pretty close to Terminal 3 in Subang. Other airlines like JetStar and Qantas are doing it, so with the right coordination, we can do it. 

 

For MAS, will this domestic overhaul affect your lucrative Kuala Lumpur-Singapore route? 

Jala: We have a code-share with SIA on this; it's an ongoing arrangement. I don't see any reason why we should discontinue that. We just want clearer definitions (of who does what) in the domestic sector. 

 

Jala, you had meetings in Amsterdam and France three weeks ago. What transpired there?  

Jala: I met KLM and spoke about us being able to extend code-share arrangements with them. It was positive and we both expressed willingness to look at ways on how to expand our arrangements.  

With regards to my meeting with the CEO of Air France, we were trying to find ways to be admitted into SkyTeam. It's a long process. If we wanted to join five years ago, it would be a walk in the park.  

Now, with all the member airlines ensconced in the “club”, joining is not an easy thing to do. But we are looking at opportunities and where it makes sense for us to go. We must work harder on our hub-and-spoke model, for greater code sharing and connectivity with airlines. 

 

Further plans for the international network?  

Jala: We have finished the work we need to do on the international network. We now know the routes we need to thicken frequencies in. This will be done in due course. 

Quotes of the Say 

“Not all the 19 routes are profitable but we can make them profitable, like our international routes’’ 

– MAS executive director Tengku Azmil Zahruddin Raja Abdul Aziz 

 

“It is a new dawn for us” 

– MAS managing director Idris Jala. 

 

“The coming together is something we had dreamed of’’ 

– AirAsia group chief executive officer Datuk Tony Fernandes 

 

“It is win-win as long as we can control capacity, frequency and fares.’’ 

– MAS commercial director Datuk Rashid Khan  

 

 

 

 

“We are not taking on too much, we are just increasing our frequency from where we are flying’’ 

– AirAsia deputy CEO Kamarudin Meranun 

 

MAS :  [Stock Watch]  [NewsAIRASIA :  [Stock Watch]  [News]

For latest Bursa Malaysia indices, charts and other information click here

 

Related Stories:MAS and AirAsia set to boost profits Win-win for MAS and AirAsia On the wings of changeFlying together Malacca to have fewer pigs MAS to offer VSS to 6,500 staffers MAS to share local flights with AirAsia MAS: 50 loopholes found in system 

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