Moving Malaysia Airlines skywards

In less than six months time, Malaysia Airlines would be 40 years old. Still synonym with MAS (short of Malaysia Airlines System), the national carrier saw tumbling roller coaster rides from its initial six B737-200s and six Fokker Friendship F27s which were left from the division of the Malaysia-Singapore Airlines. Serving the nation as the premier aviation logistic provider, was utmost priority.

MAS painfully but progressively reclaimed its position in the skies for the nation. International destinations include Tokyo and Sydney, on top the regional destinations and Hong Kong (which then was still operating from the ultra dangerous Kai Tak). Then B707-200s were introduced, which saw the MH carrier operate London Heathrow and Frankfurt Am-Main. Melbourne was added.

Malaysia Airlines System's first wide body, the McDonald Douglass DC-10-30

In 1976 MAS main a bold move by going into the wide body carrier club. The first McDonald Douglass DC-10-30 was ‘tepung tawared’ at Subang, then still known as KUL. In 1979, MAS received its first Airbus, A300-B4 and started operating to destinations such as Perth. By April 1982, MAS received its first Rolls Royces powered RB211 engine B747-200 and soon, destinations such as Paris and Amsterdam were added. The aging B707s slowly were phased out.

In 1986 MAS moved into another market when the Jalur Gemilang started flying into Americas when a GE powered B747-300 was introduced, which enabled the sector from Tokyo-Narita to Los Angeles in a single hop. After the listing in KLSE, Malaysia Airlines Systems is known as Malaysia Airlines.

Malaysia Airlines System Rolls Royce RB211 powered B747-200, acquired in 1982 to ply the 'Kangaroo Route' (LHR-KUL-SYD)

In 1989, the first B747-400 was introduced and MH started serving European sector in a single hop, by passing the traditional West Asia technical stop, Dubaii or Kuwait. New routes also include Auckland. The delivery of MH’s workhorse CFM-56 powered B737-400s started and Jalur Gemilang was a major player in the region.

More European routes were introduced there on, on top of Johannesburg and Cape Town in South Africa. Zurich, Vienna, Rome, Madrid, Munich and Honolulu. Malaysia Airlines also started to fly to Vancouver. Malaysia Airlines also begin to operate to the Buenos Aries-Cape Town sector, as an extension from the initial Kuala Lumpur-Johannesburd-Cape Town highly popular route.

High service standards is one of the important scoring points for Malaysia Airlines.

After Malaysia Airlines went under the control of cellular phone pioneer Tan Sri Tajudin Ramli in 1994, orders were placed in Rolls Royce Trent 892 powered B777-200s. After the new KUL home moved to KLIA in mid 1997, introduction of the new fuel efficient airliners started to see Malaysia Airlines serving Sarajevo and New York (via Newark). Manchester was added as the second UK destination for Malaysia Airlines.

During and post sian financial crisis of 1997-8, Malaysia Airlines was hit by the escalating cost and loss due to forex. This is on top of increasing fuel cost. The uptrend profitability track started to dip.

Malaysia Airlines System workhorse, B737-200

Even though Malaysia Airlines was an uptrend beat of building international routes and market, on top of an extension to Malaysia Boleh’s commercial and diplomatic relations, its responsibility serving the needs of Malaysians were never neglected nor exempted. The national carrier was ever very committed to full its CSR duties, with the steadfast Rural Air Service (RAS).At the height, Malaysia Airlines had 17 B747-400s, 17 B777-200s, 6 B747-200s (cargo), 11 A330-300s, 3 A330-200s, 39 B737-400s and streams of F50 and DHC-6 Twin Otter props (for the RAS). Malaysia Airlines diligently flew the Jalur Gemilang to over 100 destinations in six continents, rain or shine, every day in the year.

Today, Malaysia Airlines is plagues with a series of problems. First, the financial. The last year’s financial report shocked the nation. Malaysia Airlines has bled before and now still bleeding. Operations are still costly, even though efforts being made to optimize revenue.

The workhorse of the RAS, DeHavilland Canada DHC-6 Twin Otter

One of Malaysia Airlines’ major issue of revenue is because the fell against the close competitors within the same market. The business model should be focused on the business travelers segment, instead the tourist sector. The argument is straight forward; the operating cost per seat of the Business Class is slightly higher Vs the Economy Class. And yet, revenue per seat is at least four times more.

When Malaysia Airlines stopped investing into new aircrafts and products after the Asian financial crisis 15 years ago, the airline is unable to provide the market with competitive newer products. She is up against other competitors which invested a lot on new aircrafts and products.

The Wide Asset Unbundling (WAU) solution by Binafikir Sdn. Bhd. ten years ago did manage to plug the financial leak, short term. However, Malaysia Airlines lost out when the airline no longer hold assets and lessors are very sticky and stingy with investing on new aircrafts and features.

The acquisition of A380-800s was supposed to alleviate the issue of high operating cost per seat amidst the ultra high Jet A1 aviation kerosene price that is a plague to the international carrier market. However, the three years delay did hurt the company. Airbus did pay compensation for the delays. However, the opportunity cost in terms of a rebranding exercise for Malaysia Airlines new products and services have been impaired gravely.

Malaysia Airlines must plan for the replacement of the B777-200s, seen here in the 'Freedom of Space' livery

The A380-800s could undertake the operation of the current fleet of B747-400s. However, some of the B777-200s must be replaced too. Malaysia Airlines should consider leasing a fleet of B777-300s full cover for the needs of the ultra long range sector used to be served by the fuel-guzzler B747-400s, as new orders are placed, tailored to the planned future market and operations.

Then there is the 9 August 2011 announcement of the ‘share swap’ with Air Asia. Khazanah Holdings Bhd relinquished 20% holdings in Malaysia Airlines for 10% holdings in the Tune Group. Part of the deal is the Comprehensive Collaboration Framework (CCF) between the two airlines, as representatives of both companies are cross-appointed in each BODs. Both airlines could benefit from common co-operation, in terms of synergy and even resources. After all, the two companies must prepare themselves ahead of the ASEAN Open Skies policy, which comes into effect by 2015.

Malaysia Airlines only acquisition during Tengku Azmel's tenure, the A330-300s

However, till present day the CCF has not been fully ironed out, to the best of both airlines.

Some of the common collaboration can already comes into place. For instance, Malaysia Airlines have managed to develop a matured Maintenance, Repair and Overhaul (MRO) facility. AirAsia could service their aircrafts instead of sending it overseas, especially Singapore.

The acquisition of aircrafts, should also be rationalize. The CCF should provide the power to negotiate for better rates and terms for both airlines, even though the acquisitions are for different types. The example of the advantage AirAsia’s acquisition of 100 A320 Neos could be a factor for Malaysia Airlines’ discount for the acquisition of A330-300s, as the replacement for some of the aging B777-200s.

Then there is the catering facility. Even though AirAsia’s catering needs is not as complex as Malaysia Airlines, never the less they could benefit from the ultra large complex which have already been privatized.

Training of pilots, cabin crew and engineering could also be rationalized. The matured facility in Malaysia Airlines could cater for the needs of AirAsia, at commercial rates and in return, the low cost carrier need not invest for the same CAPEX. Third party business should also be in the agenda.

The most important asset which Malaysia Airlines have at hand and always been there, is the people. They high service standards provided by majority of the staff, earned numerous accolades over and over again. It is what made Malaysia Airlines stand out, against some of its closest competitors. There are awards to prove those achievements, known simply as Malaysian Hospitality.

Moving Malaysia Airlines forward needs a bit of tweaking. The premium airline travelers market is definitely growing and Asia, especially East Asia, South Asia and South East Asia are the new growth areas. Steps must be taken besides ‘plugging the leak’. When competitors are expanding in exponential rate, the growth must be apparent. Malaysia Airlines must seize the moment and plan for this.

It is, part of ‘Going Beyond Expectations’. Imagine, where would Malaysia Airlines be had post WAU 2002, all of these new assets were acquired, products and services upgraded and improvements introduced and more importantly, things that they were exemplary at, were maintained.

Published in: on April 22, 2012 at 21:30  Comments (10)  

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10 CommentsLeave a comment

  1. this is exactly what AirAsia wants. i don’t think we should call it ‘share-swap’. how about piggyback? it’s a nice term anyway. you should probably be in contact with MAS employees before writing this article, only then you will understand what this ‘share-swap’ has done to firefly jet fleet.

  2. Selamat Pagi…
    Apa yg ditulis telah menunjukkan apa sebenarnya CCF ini DIWUJUDKAN…Mungkin saudara KURANG PASTI apa sebenarnya yg sedang berlaku…MAS hanyalah sebuah GLC yg bernaung dibawah KHAZANAH yg merupakan GLIC..Apa yg berlaku pada MAS bukan hanya terletak pada STAFF MAS shj tetapi ianya melibatkan kerajaan secara langsung..Semu tahu yg MAS banyak membuat Penerbangan yg merugikan hanya utk memastikan INTEGRASI NASIONAL SENTIASA WUJUD dikalangan negeri2 di Malaysia..
    Tetapi apa yg berlaku sekarang ini ADA DIANTARA MEREKA2 DIATAS sedang cuba menggunakan GLC/GLIC utk menyelamatkan sebuah SYARIKAT SWASTA iaitu AIRASIA yg sedang tersepit teruk dengan MASALAH YANG SEDANG MENDATANG..
    375 BUAH KAPALTERBANG A320 DAN >30 KAPALTERBANG WIDEBODY yang harganya berjumlah RM110 Billion didalam masa 14 tahun ini menjadikan TONY FERNANDEZ SUDAH TIDAK KERUAN..
    MENGIKUT SEORG PENGANALISIS EKONOMI AIRASIA bermula pada tahun ini telah harus membuat keuntungan sebanyak RM5 Billion utk menampung hutang yg mendatang jikalau tidak mereka akan JATUH BANGKRAP KURANG DARI 5 TAHUN DARI SEKARANG..Utk pengetahuan penulis TIADA SYARIKAT PENERBANGAN YG TELAH MELAKUKANNYA MALAH SYARIKAT PENERBANGAN EMIRATES PUN TIDAK MAMPU..
    Apa pula akan jadi kepada BANK2 PEMINJAM KEPADA AIRASIA..Bila-bila masa MOODYS/MORGAN STANLEY/STANDARD POORS akan menurunkan rating bank2 ini akibat dari KESAN NPL AIRASIA..Saya percaya SAUDARA NAZIR DARI CIMB sendiri tidak mahu ianya berlaku..

    • Good money chasing bad money?

    • Akin to bailing out before the non performing loan disaster happens. Look at the EU ecomomies especially the so called PIGS i.e Portugal, Ireland, Greece and Spain had to be saved through bail outs on account of the mess created by the private sector. So it is quite apparent AirAsia had to be bailed out at the expense of MAS and its employees. That’s a bad choice in decision making.

  3. Biggie,

    Its obvious that you could hv the CCF for what ever ‘rationalization’ reason, even the ASEAN Open Sky policy, WITHOUT the need of the ‘share swap’.

    Khazanah did fail to put in investments, to drive the company forward. They just put in money whenever there is a ‘leakage’. Just more & more cash as working capital. No new acquisitions!

    No ‘share swap’ means Tony Fernandes & Din Lanun need not to be appointed onboard. Most importantly, Danny “Nanny Upgrader” Yusoff don’t hv to be made ED & Deputy CEO.

    Terminate the ‘share swap’ & get rid of all these AirAsia ppl whether at BOD level, senior management & middle managers. Get those within Malaysia Airlines to do their job.

    Don’t tell us in 40 years, Malaysia Airlines don’t hv enough personalities that could be the core group to drive the company forward?

    Bring Bashir Ahmad in. That shall do the trick! Tony can’t stand the sight of him!

    AJ must be realistic on where he wants to go & how he wants to get there. The Malaysia Airlines loyalist could be part of his core team.

  4. […] The combination of the revenue for both airlines is in the neighbourhood of RM 20 billion per annum. As has been said before, a lot of components of how the two companies running their different business model for different ma…. […]

  5. […] of mutual interest and benefit to both airlines, could be forged and worked together. Definitely, Malaysia Airlines tend to gain the most as it has the mature facilities and […]

  6. […] Airlines (MSA). Now that the share swap reversal is firmly left in the pages of history, Malaysia Airlines management have made positive steps towards the airline’s business […]

  7. […] is time to move forward. Malaysia Airlines has to move away from all its legacy issues and change its ways of doing things. […]

  8. Look like MH already started to move forwards… With 6 new a380, 25 new a330-300ex and 55 new 737-800 plus 30 new atr72-600 and 6 new twin otter series 400 they ordered for maswings and firefly, i believe that MH can be a better airlines in term of their fleet size, served route, service quality, operational efficiency, social responsibility and their finance…

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