MAS must win back customers it lost to other carriers due to price competition

  • Business
  • Saturday, 23 Jun 2012

Yesterday must have been a busy day for those at Malaysia Airlines (MAS). They were once again briefed on yet another business plan to chart its journey ahead.

To some, the new plan was no different from the one crafted in December, and it lacked details on the implementation.

The reality is, there is a slight difference in the sense that the return to profitability timeline has been pushed a year later to 2014 and the airline will continue to operate its long and short-haul business under one roof instead of separately.

This new plan which MAS group CEO Ahmad Jauhari Yahya says is a “renewed plan'' is about cost cuts and revenue generation. MAS has come to realise that it needs to sweat its assets and earn more as it cannot be on life support forever.

There is a 6.3 sen gap between its revenue per seat km and cost per available seat per km. Its revenue per seat km basis is 18.5 sen, as per its 2011 annual report, and its cost per available seat km is 24.8 sen. With the new plan, MAS hopes to rev up revenue and cost on a per-seat-km basis by 10% and 20% (or 5 sen) respectively.

The question is, can it generate the revenue it needs and bring cost down when its cost are somewhat fixed?

Jauhari told his people the strategy is to win back customers. That would involve the need to revamp MAS commercial team (though parts of it is already in process), review its sales and distribution efforts, fix corporate travel, revamp the internet booking engine, enhance branding and grow ancillary income like excess baggage fees.

From the operational side, he wants to realign the network based on demand and profitability, and increase aircraft utilisation. Staff productivity levels should then go up, which will then increase the airline's efficiency. Other measures include a review and revamp of legacy process, as the decision-making process currently involves several layers. If work can be done in-house, there would be less reliance on vendors. The airline also plans to overhaul procurement and fine comb each and every contract that has been inked.

These were some of the suggestions the MAS unions and associations gave management to turnaround the airline.

MAS is often said to have a bloated workforce and cost cuts should ideally involved jobs cuts. But Jauhari is steering clear of this sensitive topic. MAS has 20,477 employees and its staff cost is its third largest expenditure after fuel and other cost. Those familiar with the matter claim that eventually there will be “some alignment; it is a question of timing.”

But for now, the need to rev up revenues is critical. In order to to do that, MAS wants to expand its network instead of shrinking it. Asia remains its playground and MAS will fly to new destinations and add more frequencies to existing routes. Increasing frequencies is necessary with MAS becoming a One-World member by year end as it would need to feed traffic, says a source.

It is learnt that MAS will expand further into Japan, China, India, South Asia, and Asean. Those in the know claim that MAS may form a code share though it is still in talks with Air Mauritius to offer connectivity into Johannesburg and Cape Town, as it had earlier pulled out of these stops.

The new points it is looking to add include Sapparo, Haneda (it is not known how MAS is going to get rights for this and why it wants to reinstate this route when it axed it earlier this year), Chengdu, Wuhan, Ahmedabad, Kochi and even Calcutta. It may add frequencies to Jakarta, Manila, and to points in Laos and Vietnam, among others, those in the know say.

“MAS also plans to mount flights into Katmandu in Nepal in December this year,'' they say.

Apart from optimising its aircraft usage, especially the B737, it is learnt that MAS plans to limit aircraft used to three, namely A380, A330 and B737-800. It will return the other aircraft types including the B777 provided it can be modelled after the A330, to carry more fuel to do the 12-hour flying radius instead of the existing nine hours. With that, it can be used for the European sector, they say.

Winning customers

MAS' end game - boost sales to bring in the income.

That job is now in the hands of Duncan Bureau, the new head of sales. Early indications are that he is “savvy and knows the industry well.” It is a positive but the challenge is to “price it right” as for now, experts say MAS has “priced (its fares) out of the market.”

“It has to benchmark itself against carriers like Emirates, Etihad, Qatar Airways and even Singapore Airlines. MAS has to win back some of its customer that have gone to these carriers because of fare pricing.

“If you are in trouble and want to rev up revenue, you have to be in the competition and fill the aircraft instead of sticking to high fares. The emphasis going forward should be to fill the aircraft and generate as much revenue as possible, as it is better to get something rather than not get anything at all. People not on corporate travel are more price conscious and they do not mind waiting two to four hours at the airport in order to save on fare.

“Being premium does not mean that you can price yourself out of the market,” says the expert.

The fare strategy aside, some are wondering why MAS is not riding on the A380 to communicate to travellers the selling proposition of this new beauty.

“We are baffled with their communications strategy. The A380 commercial flight is on July 1 but it is not shouting the good things about its A380, where the flat beds are much bigger than its competitors, the virtually noise free headphones, its in-flight entertainment, its service and its glorious food,” says an expert.

“MAS should, by now, be drumming home the differences between their A380 and that of their competitors, namely, SIA, the Emirates and Qatar Airways. Why not highlight the pluses and get the market excited,” he adds.

Those in the know claim that MAS' load factor for the A380 for the first month is more than 90% due to the summer holidays, the Euro 2012, and the fact that traditionally, this is a busy period.

MAS, which recently took delivery of its first A380, returned it to Toulouse, France to get its economy seats re-configured from four to three seaters. That in itself has got some people wondering why the fit-out was not done prior to taking delivery, which is the industry norm. However, those in the know claim that there was a late booking for the seats, which resulted in the delay. Hence, the aircraft had to be re-configured. That exercise involves the burning of extra fuel at a time when the airline is trying to keep cost down.

That aside, those in the know claim that MAS may get its second A380 ahead of schedule from end-August to mid-August. MAS could be using the second A380 for its London route too, making it a daily service compared to the current thrice weekly schedule.

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