Monthly Archives: February 2014

Restructuring Malaysia Airlines (MAS)

Restructuring MAS in picture.

Restructuring MAS in picture.

To begin with, there aren’t many government-owned national airlines in the world. There is none in U.S. and such entities are becoming rarer in Europe. Sooner or later, that trend will spread to Asia, inevitably to Malaysia. Maybe only in the Gulf countries such airlines can exist. It simply because many government-owned companies (in this case airline) often waste money because it is not too concerned about the profit on its expenditure. Why should they care since it’s not their money.

People especially the taxpayers have plenty of reasons to be mad at the loss-making GLC’s since there is no genuine excuse for their losses. MAS is one of the blue-blooded Malaysia GLC’s that put prestige far above profit.

For the last 7 years, the national carrier has made three cash call exercise for the amount of RM7 billion only to accumulate losses RM4.1 billion in three years’ time.

Should the company file for bankruptcy then operate under a new company and with the same name just what Japan Airlines (JAL) and American Airlines did?

Well, everyone has their own recovery model and certainly bankruptcy is one of the fastest ways to turn it around. But it is not as easy as it sounds. When the JAL filed for bankruptcy, It has shed all its jumbos, slashed its number of routes, reduced staff by a third, persuaded its unionised pilots and staff to take big pay cuts, and slashed its pension payouts by up to half.

Given the current weak government at helm, obviously this is not an option as far as political backlash is concerned. In fact MAS has the glaring disadvantage of having several unions which can hold the company to ransom. Do you expect these unions to be happy if they are being told that the destruction of their jobs will be good for the company in the long term? How do you tell a man being devoured by a tiger that he is really helping to preserve a treasured species?

They can even force the government to rescind the share-swap agreement.

Therefore it is the only right thing for MAS to have a more gradual and sustainable recovery model by harnessing the assets and keeping the people that they have.

Well how do you that? When a business is faced with stiff competition particularly a low-cost airline and its cost reduces its profits, it can either increase prices or reduce cost. However price can only be increased to a certain extent. MAS can’t price itself more than Emirates and SIA because if they do then, no one will fly with them.

In fact MAS has to dump its fare so it will not be out of race. Already their market share in KLIA is slashed by half from 54% to 28%and they are not the No 1 carrier in their home country.

It is far better to reduce cost and minimise the increase in price. All its cost can be examined to determine which are truly necessary, which cost can be reduced, which service can be curtailed or modified etc. etc.

Some might say MAS is overstaffed. MAS with about 100 aircraft has 20,000 employees while AirAsia with 300 planes has only 9,000 staff. Obviously the number of pilots and cabin crew can’t be the same since the work rules are different. It is very clear that AirAsia, Emirates and SIA have no unions.

Some of these airlines outsource their front end services and engineering works but MAS do most of them and that is why the headcount gets big. But essentially, it is about getting maximum output from 20,000 people.

This is the interesting part where we can gauge MAS current management in increasing productivity.

In 2013, the pilots are flying more and the planes are flying 12 hours daily from eight previously. MAS achieved its best ever load numbers (81%), even beating rival SIA. MAS flew additional 4 million passengers last year making the total passengers of 16 million. Etihad Airways flew 19 million passengers in the same year.

So they have added 20% more capacity and passengers whilst using the same number of aircraft and people, and therefore the staff productivity is up by 20%.

People might questioned MAS ‘load active, yield passive’ strategy but again, considering such competitive market for aviation sector last year where the profit margin is only at 1%, MAS has little choice.

But can MAS do more to increase its yield? Or even profit? They can.

First they can consider to expand its revenue by exploring on ancillary income. They can provide services for a fee ranging from seat selection, lounge comfort to wifi on board. Already some of national carriers in Europe derive its income from this services.

Secondly- the most radical yet sensible approach is to split up MAS to two entities. Currently Firefly is not a serious competitor to AirAsia. Unless Firefly is transformed from a mere community operator into a formidable low cost carrier with large fleets and huge connectivity, then MAS can consider splitting itself into a hybrid domestic airline like Malindo Air and a premium regional/international airline.

We should appreciate that Malaysia’s air transport premier market is very small because we are a developing country with a huge middle class income. This explains why the domestic market is very price sensitive. There is no way that MAS can compete against AirAsia. While it may be true AirAsia enable more people to fly but it does at the expense of MAS passengers.

The ‘split-up’ move is necessary because you can’t have two cost structures under one business entity and it is unwise to have different brand proposition in one brand. To some extent splitting up MAS means to splitting up the unions.

Imagine a hybrid low-cost domestic airline that flies within three-hour radius destination together with MAS hospitality and experiences to compete with AirAsia. After all, isn’t what Tony Fernandes asked for? A competition.

And this hybrid airline can become a feeder airline to the premium regional/international airline. Since both airlines are flying from KLIA and soon-to-be KLIA2, the possibility is endless.

Lastly, on the issue of lopsided procurement contracts- obviously referring to the catering contract, well, you should ask (sack) the MAS advisor. Neither personal nor family matter, it just business.

MatRodi

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Corporate Ethics 101

Malaysia Airlines (MAS) continues to bleed with RM1 Bil loss for 2013. That is not news.

The news is when Air Asia’s Head Honcho Tony Fernandes criticised MAS for still losing money despite of 16% cost saving.

It’s not because he doesn’t have the right to criticise MAS (since he is a taxpayer.) Even if his criticism is justified, he should remember that he is running AirAsia- a direct competitor to MAS.

Therefore we should ask- where is your corporate ethics Tan Sri Tony?

It would be very unusual to hear any CEO to slam their business rival. I can’t remember any nasty remarks from CEO of Perodua on Proton when the national car maker registered losses for years.  Nor should we expect CEO of Emirates, Qatar Airways or Malindo Air to take a swipe at MAS.

Admittedly Air Asia has become a very successful low cost airline in the world but that doesn’t mean Tan Sri Tony has a free hand  (or tongue?) to say anything that he wants. Not only MAS, he also lambasted MAHB for being a sole player in managing airports in Malaysia.

But luckily Tony’s vicious comment backfires. Now we know Air Asia receives biggest part of incentives despite it not contributing highest number of passengers or revenue to MAHB. Is it a modern story of ‘bite the hand that feeds you?’

If Tony doesn’t have anything good to say about MAS, at least please exercise restraint. You must understand MAS is different from AirAsia. MAS has unions whereas AirAsia don’t. MAS is also doing a great national service (and be responsibly) by not laying off anyone just to cut cost.

It should be noted currently Qantas has announced a loss of USD300 million (very much like MAS) and they are mulling to slash more than 2000 workers. MAS can do the same but they don’t and still keeping the current bloated organization instead.

As a cost-sensitive businessman, Tan Sri Tony should understand this. But why he still making comments like someone who is ignorant?

MatRodi

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Social Anarchy

anarki

Democracy is not the easiest way to govern a country. More often than not it fails to bring about stability, much less prosperity. It is disruptive because it tends to encourage sudden changes in policies and directions with each change in Government will result to wholesale adjustments by the people and the administrative machinery. In other words, it is disruptions in the life of almost all. But surprisingly for more than 50 years democracy has worked and served us very well.

They were a time when a democratically elected Government in Malaysia was respected by the people. Being a ‘Yang Berhormat’ was truly an honorable position in the eyes of society. What more to become a minister. Whatever policies that have been made will be carried out without hesitation. Even though it may faced protests from some minority groups, but more often than not this opposition will not undermine the credibility of the Government.

The courts appear to be above criticism. They can still hand out judgements. Even the security force can do their work effectively in safeguard country’s security. Religious bodies from both Federal and States were  having a free hand to protect Islam’s sanctity. It seems everyone has agreed to stay out from each other’s religious business.

But today everything has changed. A weak Government who lost two-third majority is practically has become an ineffective Government.

They are ineffective because they are afraid of the opposition. Admittedly opposition in Malaysia has become stronger and bolder. But why do they need to dance to the tune of their political nemesis? When the opposition wants ISA to be abolished because it was perceived as an infringement of human rights, the Government was proudly repealed the law. Far from being credited for the effort, now the Opposition is lambasting the Government for the lack of safety in Malaysia.

The Cabinet has become a laughingstock for Malaysians. They can freely spit vulgarities against their own leader/ministers.  The Prime Minister’s remark of kangkung has gone viral and people publicly mocking him. One low-class ADUN even staged a ‘Kangkung Flash Mob’ where he was stuffing kangkung into an effigy resembling the PM. Clearly the government has its credibility. and become weak.

A weak government is unable to act decisively. Pressure on the Government can be imposed by anyone, not only the Opposition. What we are seeing today is a fruit of mob-rule culture. What was once an unaccepted behavior is now becoming a mainstream. The Government is powerless to do anything to the country because whatever they do will be opposed. Just look at the number of demonstrations- be it from the supporter of ruling parties or opposition parties.

The police can’t do anything to prevent them.  What is evident is that the rule of law cannot be imposed because those responsible for enforcing law are afraid for being accused of abusing its power. They better exercise restraint even the provocateur run riot. Sooner or later, the police will also lost its credibility.

The judiciary too are under attack now. Previously when there are some parties who were not respecting court’s decision, they will be charged for contempt of court. But today one archbishop from Selangor can publicly ask his fellow members to defy the court order. Interestingly, the people who is gullible, support his action.

When the religious authority has to act accordance to the law, they were being touted as oppressive. The media who has no sympathy to the Government and the judiciary played up the issue in the interest of their owner. When the authority investigate them, they hide behind the excuse of  ‘media freedom’.

People especially politicians try to stir up public hatred towards  the government, judiciary, police and any authorities by making a political satire. Doesn’t really matter if the video was shown during the festival. Another idiot update his FB status just to insinuate a religious body for prohibiting Muslims to celebrate Valentine’s day. But who cares? Police won’t do anything.

The most unthinkable is when some people repudiate  the call by Yang DiPertuan Agong- the head of the country and Islam to adhere country’s law and order by claiming this a secular country and the YDPA has no power and business to tell them this and that.

Indeed we have more freedom than ever. But there must be a limit to any kind of freedom. The extreme degree of freedom in people’s behaviour will lead to social anarchy. Anarchy, even in a limited area of human activity is bad for the society and members of the society,

Therefore, there must be someone to determine when the limit has been reached and to take action to stop it. What better authority than an elected Government to determine and to enforce the limit.

Understandably, Malaysians will argue the same freedom has existed in many liberal democracy countries and yet they are modern and developed. They are wrong. In most of these countries, Government has fallen without being able to improve the lot of the people only to be replaced by new government which are equally powerless to fix the nation. Their government is so afraid to the media, the people and why a country should spend so much money to elect a non-government is a mystery.

This explain why this trend is unhealthy especially to a multiracial country like Malaysia. It is not about the current ruling party is weak. Even if the Opposition manage to be the government, they will also face the same difficulty if there is no respect to the government or authorities.

MatRodi

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