Malaysia Airlines has been in the centre of news of late. The shareholding tie-up with AirAsia, from which much was expected, has been dismantled and the airline continues to post losses albeit at a smaller scale when it announced a loss of RM171mil for its first quarter ended March 31 earlier in the week. StarBizWeek interviewed MAS group CEO Ahmad Jauhari Yahya (pic) on the latest developments in MAS. Below are the excerpts of his response.
SBW: The Finance Ministry will stand in as a backer to finance six Airbus A380 and two A330 aircraft worth RM5.3bil on behalf of MAS. This will be under a 20-year loan and here the Government is seen to be yet again bailing out MAS (though indirectly) by setting up a special purpose vehicle, why should the Government continue to bail out MAS?
Ahmad Jauhari: The funding plan and its components are commercial, market-based arrangements to deliver financing. MAS is taking all the risks associated with operating the aircraft, and will be obligated to service the financing from cash flow generated from the assets.
Is RM9bil the absolute amount of funding needed, or will there be more requirements in the next one to two years?
There will be additional funding required to support new aircraft deliveries in the future.
Who are the takers of the RM5.3bil and RM2.5bil bonds is it KWAP, EPF and other government institutions?
We are not able to disclose the investors. It is a matter of confidentiality and trust with our fund providers
You have been at the helm of MAS since September last year. What changes have you introduced thus far? What are the tangible results of these changes to the airline and its bottom line? When do you expect MAS to return to profitability?
In December 2011, we announced the business plan and rationalised our network with 12 route suspensions from January 2012 to reduce losses. The group registered a loss after tax of RM171mil for the first quarter ended March 31, 2012, a significant 29% reduction from the RM242mil loss for the same period last year despite higher jet fuel price averaging US$135 per barrel during the quarter compared with US$120 per barrel in the previous year.
The network rationalisation also ended direct costs like staff expenses, fuel, parking/landing charges etc at stations where we suspended operations. Apart from route suspensions, we also increased frequencies to a number of regional and medium haul routes in the Asia-Pacific region from March 25, 2012.
By suspending low-yielding routes, we were able to improve our cost management especially variable costs. We still have a way to go to lower fixed costs. We now have a funding plan in place that we announced on May 22. This was one of the recovery measures of our business plan. Our fleet renewal plan is also in place. We are optimistic this situation will change in the not too distant future.
From these Q1 results, we are confident of continuing improvements in performance, given that the initiatives from our business plan are bearing fruit.
What are the glaring miss-doings in the organisation that you have found since you came on-board?
Like in any organisation, miss-doings are a serious matter. MAS has a Whistle Blower policy in place and we encourage staff to use the whistle blower channel to alert us on leakages and provide proof of wrong-doing for further action. What is critical for MAS now is to build stronger teamwork between management and staff to further enhance cost efficiency and productivity for continuous operational improvement.
Are you re-negotiating each and every contract in MAS with your suppliers/contractors and how much of cost savings will that exercise result in, and when can you see the impact of that savings?
We are re-looking at all contracts. The priority will be to re-negotiate major contracts to ensure that MAS has a fair position and real value for our spend. We have a target of reducing costs by 10% or more. We hope to achieve between RM300mil to RM500mil savings from this initiative which is part of our structural cost reduction.
The other thing we look at when reviewing contracts is to ask ourselves if we can in-source the service that we normally seek external contractors to do through out-sourcing.
Apart from being able to reduce costs, if we can get our own people to do the job, ie the team who knows best the level of service demanded by our guests, doesn't it make sense for us to get our team to do the job? It's a great thing to redeploy more of our staff to important front-line positions because that's MAS' edge our service, be it to external or internal audiences.
How much will MAS save from successfully re-negotiating the catering contract with Brahim's? How much was the base line revenue that MAS was paying Brahim's every month?
After we suspended our low-yielding routes, we re-looked at our catering costs to ensure that our position is protected and reflects the current scenario. After negotiation, we have been able to arrive at a reduction of 16% from the minimum baseline revenue for the year 2012. And we are continuously reviewing arrangements with the caterer for similar savings in 2013 onwards, anchored on reasonable parameters in relation to the number of passengers we fly.
Operationally, analysts are not impressed with your numbers and sales are not as great as it should have been. What efforts are in place to push sales and have you found someone to head sales?
Whilst clearly we have a lot of work to do to re-establish MAS into profitability, the Q1 results show some encouraging signs. Average yield per passenger is up 12% year-on-year, revenue per available seat km (RASK) is up 8%. It is very encouraging to the team, and we expect to build to drive better and sustained performance from here on. You can't run away from the numbers, and our focus going forward is about increasing revenue to cover our costs.
Otherwise, MAS would never by sustainable. The journey ahead is long and we expect turbulence. But I am encouraged by the feedback I have received from our staff who understand the challenges better now and are sharing the challenges, twists and turns. With regard to sales, MAS has been attempting to recruit a head of sales for some time as the importance of this role cannot be under-estimated. I am hopeful that we will soon be able to find the right person to shift this key position into high gear. Revenue is a key lever to our future success.
Are there plans to turn Firefly into a regional airline like SIA's SilkAir so that MAS can continue to operate long haul flights?
At this point of time, all options are available and we will decide on Firefly's future business plan based on our strengths, market feasibility and traffic demand. For the moment, Firefly is best focused on the turbo-prop operations.
There is already overcapacity in the market place. How are you going to steer MAS to get a slice of the premium market with your A380 when rivals like SIA and Cathay Pacific, even Emirates, have such a stronghold on the premium market in this region?
The introduction of our A380 into service will see a continuation of our brand campaign which commenced in March 2011. This will be supplemented with tactical advertising and promotion, both above and below the line, to encourage passengers to travel with us on your revamped product (which clearly includes areas such as onboard but also areas such as our airport lounges). The objective will be to position ourselves as a premium carrier, so that the market chooses us over others.
It is a known fact that MAS is over-staffed with 20,600 people. Is right-sizing the way forward? MAS offered unpaid leave for up to two years recently - how many staff will take that offer up and how much can MAS save from that exercise?
Over the years, the company has grown to a large staff strength. Numbers aside, what is important is to ensure that every person is contributing to the whole MAS engine so that we can meet the current demand of our passengers.
Whether you are in the frontline interfacing with customers or a part of that important support group behind the scenes, productivity needs to be heightened. It's about sweating our assets. In the case of our staff, the team talks about long experience and expertise. I am adding a third element to this description increased productivity.
There is a whole lot of pride amongst our staff for the glory days of MAS. More so than our passengers and external parties, we want the same for this company in the future, and the team knows that we have only ourselves to do it.
In every staff engagement, I talk about change and doing so fast because of the competition out there. The recent staff engagement series I had with our team was insightful. In smaller teams, more staff were open about their feelings, asking questions on areas that mattered in their work, to the big picture of our company. Many shared ideas and feedback and their frustrations. I am very encouraged because I know that many staff want that change too, to speak proudly of belonging to a great company.
On the voluntary leave programme, staff have a deadline until June 30 2012 to submit their applications. The company will then decide how many can be released. Savings to the company can be derived only after completion of the exercise.
Is a voluntary separation scheme on the cards to trim down your workforce, when will it be offered? We have just rolled out the voluntary leave programme as an option for staff. We have not decided on other schemes yet. Natural attrition through staff retirement and expiry of staff contracts will also assist in the right-sizing of the workforce.
What is the ideal workforce number for MAS?
There are a number of business operations that have been outsourced for some time in Malaysia. Now that we are reviewing manpower needs, the company is looking at in-sourcing such jobs once the contracts expire. When outsourced jobs are assigned to our own staff, we will have a better overall picture of the right size of manpower needed to run our operations at an optimum. We need to sweat all our assets and resources be it aircraft and even our staff.
I am pushing for an increase in employee productivity, which is more important and impactful than just cutting numbers for the sake of it. We have to sweat our assets and get to that optimum level in our operations.
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