MAS in recovery mode

WHEN Peter Bellew asked to meet at an ordinary cafe in Sri Hartamas for an interview, it was in some ways a reflection of the job he is doing at Malaysia Airlines Bhd (MAS).

There is little need for fanfare and glitz. It is about getting on with the job, which he has been doing with his sleeves rolled up and trying to fix the many problems at the national airline.

There are no airs about this man and he is very much about getting the job done.

When Bellew took over the top post at MAS on July 1 last year, MAS was still a work in progress. All was not well, but there was some momentum with the business.

There was a lack of oomph, or a sales push, as he puts it.

His retort to that challenge was “we will fix it.’’ But the fixing of a battered airline was not just in its balance sheet. It was about putting people on the seats of its planes, and over the subsequent quarters, MAS, in airline terms, was taxiing on the runway.

The ambers of optimism are there. MAS is eking out a profit, albeit a small one, but it is still early days. With recovery mode in its business well underway, there are grounds for Bellew to feel that the problems at MAS are being fixed.

From virtually empty planes at the end of 2014, months after MAS suffered two air disasters, the airline recorded its best month for passenger loads at 91% in December. That was the first time in more than five years that its planes were filled to such an extent, although the month of December is generally good for airlines.

“At 91%, our loads in that month were higher than some of the other airlines such as Singapore Airlines (SIA), Garuda, Thai Airways and even British Airways,’’ Bellew tells StarBizWeek.

Ending 2016 with 13.9 million passengers from 13 million a year earlier, Bellew is gunning for 15 million passengers this year and loads of over 80%. As at end-2016, its loads were 74% from 70% a year earlier.

From flying near-empty planes after the twin disasters to one where most airlines would love, demand for travel on the airline has created a new problem, which shows that it is taking steps towards recovery.

Bellew recognised a need for more planes to cater for growth in several markets such as China, India, Japan, Taiwan, Korea and Asean. He needs wide-body aircraft so the airline can carry more passengers to capitalise on ballooning demand. The bulk of the current fleet is narrow-body that seats 160 passengers, while the wide-body planes can shuttle 284 people on a flight.

MAS’ fleet comprises 54 B737 narrow-body aircraft, 15 wide-body aircraft and six A380 that seats 486.

“To restore the wide-body on the routes is not a huge risk, as we have many of the routes operating well over 80% loads. We have more bookings than we can fly, forward bookings are very strong,’’ he says.

Bellew says the airline has 50% more forward bookings from February to July this year from 2016, and business class demand has doubled.

While South-East Asia is an area of tough competition, Bellew does not intend to cut prices on the fares MAS charges. It is a departure from past practices when it needed to fill its planes at the expense of yields.

The one reason for improvement is the turnaround of its biggest problem. The MH370 tragedy saw passengers from the China market dry up, but now, they have returned to fly with MAS.

A marketing blitz there has helped and MAS is selling more seats on the routes to China and is adding a second flight to Shanghai and other destinations such as Haikou, Nanjing, Wuhan and Fuzhou.

“They love to fly with us, as the minute they get on board they feel they are in Malaysia. The China business is fantastic and we wish we had 10 more planes,’’ he says.

There are several options for new planes, but he would rather wait till a “good deal” comes around. But by the end of this year, MAS will have its additional planes and is taking delivery of the A350 that will be used for the London route. The A380 that is used on the route now will be retrofitted to cater for Umrah and Haj flights.

“We need six more wide-body aircraft, the A330 or the B787, but lately, the B777 is emerging and we could look at it too,’’ he adds.

But over the next three to four years, MAS needs to get 35-36 wide-body aircraft to reduce its dependence on narrow-body aircraft.

“It would be cheaper to operate the wide-body and we can either buy or lease them. Leasing allows us to jumpstart to speed without financial risks. There are many routes like Hong Kong, Bali and India where we can add seats,’’ Bellew says.

Going forward, he is talking about adding a touch of “luxury to the airline.’’ He is also talking about MAS being “cool, fun and exciting.’’ He wants MAS to scale the Skytrax ratings charts again as he positions the airline as “a five-star premium airline’’ over the next 12-18 months.

Can MAS do all that when its rivals such as SIA and Cathay Pacific are facing tough times?

Still in the red

After six months on the job, Bellew says MAS turned in a profit for the final quarter of 2016. However, the airline feels a full-year profit will come in 2018 and thereafter it will be listed in early 2019.

It was the second time last year the airline reported a profit. The first was in February 2016 with RM14mil and in the last quarter of the year. There are no numbers available for the last quarter, only that it saved RM130mil in cost savings.

“The airline finished 49% ahead of our budgeted loss for the year 2016,’’ he says.

Revenue-wise, MAS is said to have made RM8.5bil in 2016.

“The reasons for the change is that we drove cost savings harder and our commercial strategy changed, all this worked. The visibility of the brand increased in the second half of 2016,’’ he says.

MAS’ last full-year results reported were in 2013 when its revenue was at RM15.1bil and total expenditure at RM16.3bil, hence reporting a net loss of RM1.1bil. It flew 20.7 million passengers with passenger loads of 76.7%. For the first nine months of 2014, MAS posted a net loss of RM1.32bil and was de-listed on Dec 31 the same year. Then, it was a much bigger airline than now.

From 2001 to June 2014, MAS chalked up cumulative net adjusted losses of RM8.4bil. From 2011-2013, a total of RM17.4bil has been funded by the Government to save the airline.

Essentially, MAS has spent more than it makes and under a massive remake of the national airline, it shed 6,000 jobs and cut 30% of its routes to become a regional carrier, with London being its only long-haul route.

Although it has made spurts of operating profit, 2016 was yet another year of losses. Profit might come next year, but the ringgit’s strength will determine if it makes a marginal profit this year. A stronger ringgit will help as 63% of its fuel, a big cost for airlines, is hedged at US$60 a barrel. To offset the dollar’s strength, MAS is looking at RM400mil in cost savings for this year.

When MAS did its budget in November last year, the ringgit was at RM4.1 against the dollar, but now it is at about RM4.45. That means its budget is higher by about RM400mil as it stands now.

Cost cuts are his priority, even though MAS is done with the bigger-cost items. Now, it is pretty much the nitty-gritty.

Doing that is part of what Bellew is trained for. He hails from Ryanair - Europe’s biggest low-cost airline - and has a nose for saving cost. He is so accustomed to checking everything and when one purchase order came by last week, he rejected it.

“It came across my desk and I asked why we needed it. We are not buying any more rubber stamp chops even if you get promoted,” he says of one example.

“I go through everything and that is the only way to ensure we are keeping a check on cost. Hopefully, in 12 to 18 months, everyone would have got the message that we need to be cost-conscious all the time. It is all about paying attention to details and discipline.”

He adds that “our unit cost is getting down, it can get lower, but without impacting our customers,’’ he adds.

A touch of luxury

One of the biggest reasons why MAS is getting back traffic even after two big hits is the amount of improvement it has done to its products, and how much it has pushed for brand visibility. Another plus is that its fares are seen to be reasonable.

“I would rather fly with them, as it is all-inclusive fares and you arrive at a decent time in a city,’’ says an avid traveller.

But all that did not come without a shake-up at the sales and marketing units.

Bellew had to change the way they sold their tickets and says, “The sales and marketing teams are working quicker with the support of travel agents in Malaysia, Asean and London, and there is recovery on all the routes.

“That is a significant difference, but I had to personally apologise to several travel agents because of the way they were treated in the past. I told them we will work with them and they are being offered the same rates as our online rates,’’ Bellew says.

There is more visibility to its branding, and as he believes, the traditional way of selling themselves via advertisements - press, digital, outdoor, etc - has brought recovery.

He is appointing a new sales head soon and but does say that “a big part was actually the great support he got from the media, be it locally, regionally and internationally, and that helped regain ground.’’

Though he was criticised by some for opting to sponsor the Liverpool Football Club last year, the MAS brand does appear in millions of homes every time Liverpool plays a home match.

“The Liverpool partnership had a bigger impact than I expected. It raised awareness on MAS and has done quite a bit of repair on the brand in the UK,’’ he says.

He says the additional revenues generated from the UK market, where it has seen a recovery of its London flights, have more than paid for the cost of sponsorship for Liverpool.

Market share-wise, MAS has gained on the London route from about 45% May last year to about 61%-62% now.

MAS during its worst times flew virtually empty planes to London in an aircraft that can seat 486 people, but now has seen better days. Passenger loads on the London route has improved to about 80% now.

It had also lost a lot of traffic to Singapore, as people preferred to fly via Singapore to London and other destinations, including those in Asia.

“We won all that (London traffic via Singapore) back and are picking up quite a bit of business from Singapore for those travelling to Europe on others places in Asia,’’ he says.

He adds that “we have seen an incredible recovery in our Asean flights, Bangkok, Vietnam and many others and the fact that we achieved 90% loads in December proves one thing - there is nothing wrong with the brand name. I am convinced nothing is wrong with the brand, its name and nothing wrong with our proposition, though there was a debate going on last year to change the brand”.

The Australian market, which MAS has been often blamed for dropping fares, has seen traffic recovery, but he cautions that the second half of 2017 would be a tough period.

“We see a very difficult second half, as Malindo Air is trying to get slots to fly to Sydney and Melbourne. We have more than 50% of our passengers connecting to KL going all around the place, but (the entry of another player) will still dilute the overall market even though it is great news for consumers,’’ he says.

He feels there will be significant overcapacity on the Sydney and Melbourne routes, but MAS will keep clear of the fare war and foresees fares falling by RM100. Even if MAS does drop its fares, it will still be somewhat affected.

“Competition will be in all markets, in some overcapacity exists, but we will maintain our fares and not drop fares. We don’t have extra charges, so we believe we offer good value,’’ he says.

As at the fourth quarter of 2016, its average fare was RM484 per passenger.

Globally, many premium players are also unbundling fares, selling seats, food and other things separately to boost ancillary income. He wants to boost ancillary income but not by unbundling fares.

“Our proposition is all-inclusive fares. We will not unbundle, but are trying to make the experience nicer and put luxury back. That is the push in the next 12 months,’’ he says.

His to-do list for this year is pretty long and he is talking about creating something that is sustainable beyond 2017-18 and beyond.

“We have to be much better and put more focus on customers. We also want to improve service levels, punctuality, and the ratio of delivery of bags. We are also working with Brahim’s Group (their food caterer) on the quality of food and they need to move faster,’’ he says.

The airline will also emphasise on greater flexibility in processes and simplify them, and empower the front-end of his team to be able to fix things immediately. A lab has been created to bring back the “cool, fun and exciting’’ buzz for MAS travellers.

But he knows the biggest challenge for him and his team is MAS losing its focus and becoming complacent. “We do not want to lose taxpayers’ money,’’ he says.

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