Will RM6 billion in the kitty save MAS?

Syed Raisudin Syed Abdullah, Bernama

Malaysia Airlines (MAS) flies thousands of passengers daily with many opting for the airline to enjoy the typical “Malaysian hospitality”.

The airline has won many accolades, especially for its in-flight service, thus it is not surprising that it has been the number one choice for local and foreign travellers for years.

Having said that, there is another side to the story.

Over the last few years the airline has been struggling to stay afloat as it suffered hefty losses and to add to its woes, two tragedies involving its planes pushed the once high flying airline to the edge.

The national flag carrier posted record losses of RM2.5 billion in 2011 and the losses continued in 2012 and 2013 with analysts expecting the company to post operational losses up to RM2 billion this year.

MAS image too took a beating in 2014 with the loss of flight MH370 from Kuala Lumpur to Beijing on March 8 with the jetliner yet to be recovered till today and the tragic MH17 flight from Amsterdam to Kuala Lumpur that was shot down over Ukraine on July 17.

Flying into turbulence

MAS dark chapter goes back to the days when it was unsuccessfully privatised in the 1990s and subsequently taken back by the government.

The woes were compounded further by the unprecedented developments in the aviation industry in the 1990s. With the rise of low cost carriers in Indonesia, Singapore and even Malaysia, there was no longer a level playing field for the national flag carrier. The low cost carriers grabbed a big chunk of the passenger market that once solely belonged to the airline.

The airline’s dilemma seems never ending despite many attempts to benchmark its position against many of the reputed airlines of the world.

The headwinds were clearly against MAS as intense global competition and spiraling fuel cost reduced revenues and profit margins.

One should not forget that accumulated gains of the global airline industry over three decades (from 1970 to 2000) were wiped out within 10 years (2000 to 2010) due to the heavy losses suffered by the airlines.

Competition was stiff and was ever increasing, forcing many of the airlines to restructure their operations to ensure their survival.

Many of the renowned airlines, Cathay Pacific, SIA, and Japan Airlines (JAL) have undergone restructuring yet the outcome remains dismal.

Competition and price war push airlines to the edge

The airline industry has yet to see double digit growth, whatever has been achieved is no more than rudimentary growth. Studies indicate 50 to 70 per cent of the passenger load factor is driven by cheap tickets.

Therefore, the plane may fly with a full passenger load but the earnings are small. While the price war is to optimise the passenger load factor and returns, the profits are paltry.

The low cost carriers seem to have changed the rules of the game, this is the reality in the airline industry now. This is particularly so in the domestic sector, with low cost carriers having the monopoly of the passenger market wherever they operate.

The early part of the 21 century also witnessed many calamities and events that affected air travel. The 9/11 incident, the SARS, MEIRS, and now the EBOLA epidemic, the United States’ push in Iraq and Libya, and the recent attack in Gaza by Israel unleashed negative implications directly or indirectly on the airline industry.

And for MAS, the two unfortunate tragedies involving its aircraft is probably the straw that broke the camel’s back.

There is nothing to stop MAS

No matter what, MAS deserves praise because in spite of the adversity it had to face and the brickbats it received, it remained confident of turning around. The testament to this is the move by its management and its owner, Khazanah Nasional, to come up with a turnaround plan for the airline.

The turnaround plan is seen as a bitter pill to swallow, especially for its employees, but it promises that the “Malaysia Airlines” brand will remain flying proudly in the sky. The plan provides some assurance on the airline’s survival and its ability to compete and make the airline’s presence felt in the aviation world.

The turnaround plan should also be viewed from the viewpoint of practicality. The RM6 billion allocation is reasonable in restructuring the airline and reflects the strong political will behind the efforts to rejuvenate MAS.

The move to trim the airline’s workforce from 20,000 to 14,000 is seen appropriate as the rejuvenated airline needs a balanced workforce capacity and not over capacity.

This will help achieve a balanced human resource capital. All these are the steps in the right direction. MAS has to be helped and has to be given a morale boost so that the airline will continue to be a significant player in the nation’s aviation sector.

Give a chance to the turnaround plan

MAS has to be given a chance to come up with a new lease of life, with unparalleled credibility and integrity. In line with the government’s plan to strengthen MAS, it is proposed that the public should take on the role of observers and adjudicators in providing constructive and fair criticism on the airline.

Yet the fact remains the airline industry is full of challenges and pitfalls. The industry is vulnerable to global developments. Yet, the weaknesses within the organisation has to be viewed seriously.

At the same time the airline must set its priorities in line with its needs and the priorities should evolve with time. The priorities should be consistent with good management and best practices adopted by the reputable airlines of the world.

MAS must also ensure that there are mechanisms to monitor all its businesses so that everything is consistent and purposeful with its existence.

Finally, the turnaround plan will enable MAS to come up with compelling strategies and steps to take in improving its fortunes. The turn around plan provides determination for the national flag carrier to operate effectively and competitively with the destinations in Asia being its priority.

This turnaround plan promises a focused vision for MAS in flying high as hoped by all Malaysians.

Syed Raisudin Syed Abdullah has a PhD in International Business Management and is a consultant for Organisational Development