Dilbert@Malaysia

MAS, The Report Card

So, we finally come to have some closure on MAS. What did it take for people at Khazanah and EPU and MOF to understand the troubles of MAS? Can we say that Ramli ran the company into troubled waters in the 90s? Understatement of the decade? Who appointed Ramli there and allowed him to take such a big piece of MAS? Till today, we cannot fathom why his shares were bought back at much much higher prices than the prevailing market prices. What was that all about?

That was part one. We have to remember that Malaysia is part of the robust and vibrant emerging markets for airline travelers. I don't think there was any national airline in such disarray and management showing pathetic understanding of their business. It may not be a lucrative industry but growth was there despite the cut throat competition.

Then after a few years of aimless wandering into the wilderness, our decision makers got bamboozled by a group that brought forth the asset light strategy. Mind you, it is easy to wow the bland and slow minded. I mean, seriously, the asset light strategy was not something new or brilliant, it was adopted heavily by many telcos and some bigger airlines already. But we treat it as liposuction, look how slim and good looking the company is. WAU, widespread assets unbundling, ties in with the MAS kite logo, wow, that must have been the most brilliant part of the plan, coming up with the acronym - we are soooo goood coming up with fantastic acronyms and slogans.

Then the ones with the ideas moved further up the ladder. MAS despite being thinner, was still the fat slob at heart. No one seems to be willing to risk their glorious GLC management career by taking on MAS, sure fail one, why taint your resume? Finally persuaded Jala to step up. He improved as much as he could structurally, clear reporting lines, improved unit responsibilities, and as with any good Shell man, managed by numbers and data.

Again he was lauded for a brilliant management makeover and moved to some thing more important. 

My question is, if the WAU in 2005 was so critical and Jala's change management so important why then did MAS languish way below RM2.00, and now looked to finally meet its maker in the form of Fernandes? Which is to say, none of them did anything remotely EFFECTIVE in reviving MAS over the last 6 years.

To be fair, we have to ask if MAS was revivable in the first place? You mean out of 30m Malaysians there was not one person capable of turning it around. Many blame the numerous unprofitable routes MAS had to fly to, and to that I would say I have to agree. That is a legacy issue that NO ONE at decision making levels dare to tackle. NO ONE had the POLITICAL WILL or balls to address that. They say, its political suicide. Maybe it is, and we must ask who is holding the country to ransom. How did we ever get to that situation in the first place?

Even so, AirAsia has shown that all routes need not be unprofitable, its the way you manage the scheduling and costing. So, that point is almost moot. We can list numerous critical mismanagement factors: weaknesses in pricing and revenue management, sales and distribution, brand presence in foreign markets, and alliance base. Coupled with all that, MAS enjoys a much lower labour cost factor compared to most regional airlines, ask any MAS pilot, stewardess, crew, technician and customer service staff - and we still manage to fritter all that advantages away.

MAS case shows brilliantly that cost is just one management factor, in fact quite inconsequential. Yet we keep importing cheap labour on every front. Our work attitude is deplorable really - no initiative, shirking of responsibility, not my fault, do as little as necessary, never walk the extra mile, the lack of attention to detail ... not just at MAS but prevalent right across the country. 

Mind you Jala did try. Malaysia Airlines pared its domestic routes from 114 to 22, and also cancelled virtually all unprofitable international routes (such as Kuala Lumpur-Manchester, that required a 140% load factor to break even). Apart from that, Malaysia Airlines also rescheduled all of its flight timings and changed its operations model from point to point services to hub and spoke services. Additionally, the airline started Project Omega and Project Alpha to improve the company's network and revenue management. Emphasis has been placed on six areas: pricing, revenue management, network scheduling, opening storefronts, low season strategy and distribution management.

Knowing Jala, he would have also engaged consultants such as McKinsey to advise on business strategy. All that, with what to show??? My answer is again the ever perplexing but glaringly obvious killer of Malaysian GLC businesses: poor execution. You can do all the management matrix and have the best laid solutions, but poor execution will kill everything. I cite you just 2 examples: ask anyone who has traveled on MAS over the past 4 years globally, their top peeve is timeliness (never arrive on time, never take off on time); a most important contact point for any airlines is their website, just go and try to book a flight or hotel on MAS site, its so cumbersome, not user friendly and the navigation is pathetic. Just these two are but an indication of where everything went awry.

The mainstream media would be applauding the MAS-AirAsia thingee, but to the decision makers, that is a closure, tellingly, it says that they cannot solve MAS' woes, but did we learn anything??? We always seem to end up packaging our mistakes and shortcomings in a new fangled manner and expect everyone to forget what a pathetic job everyone involved had been doing for the past 15 years. Hey, what's next ... Felda?

I leave this tirade with two words: Accountability and Execution.

How Others View AirAsia & MAS

Its wonderful to see how we are perceived, corporate wise. We have such vested interest and then some more. Left on its own, imagine ten vest interests vying for the same pie - we get a detente, a war where nobody really wins because the country loses out on a roadmap to move forward, we loses on getting efficiency, we pay higher prices collectively, we use resources ineffectively, we keep cannabalising among ourselves, we do not allow consolidation and stifle competition, we remove ourselves from being able to compete. Our auto industry is a prime example, and we are stuttering with our airlines - only the spin doctors will tell you its a good thing.

Sydney Morning Herald: Australia is caught up in a battle between economic liberals and protectionists that is delaying the expansion of air services - and the reduction of airfares - between Australia and Malaysia.

The Malaysian government is siding with the protectionists who argue that the government-owned Malaysia Airlines has to be protected from aggressive new price competition from Air Asia X if it is to avoid the fate of Japan's national carrier, Japan Airlines, which has gone broke and is trading under bankruptcy protection.

AirAsia X's budget beds

AirAsia X has become the first low-cost carrier to introduce flatbed seats to its aircraft.

The government is blocking Air Asia X from starting new services from Kuala Lumpur to Sydney and Seoul - two of Malaysia Airlines' most lucrative routes.

By contrast, Air Asia X is about to increase services between Kuala Lumpur and Melbourne to twice daily, charging regularly available fares of A$600-A$800 return and sales fares as little as A$100 one-way.

Air Asia X, which also flies daily from Kuala Lumpur to Perth and the Gold Coast, was mainly responsible for a 25 per cent increase in travel between Australia and Malaysia last year.

"The complexity is that there's no one single position from the Malaysian Government," the CEO of Air Asia X, Azran Osman-Rani, says. "A lot of stakeholders in the government want to see us fly. The tourism ministry is right behind us because they see how we have stimulated tourism with our flights from Melbourne and Perth in 2009 when most markets shrank. The ministry of transport is equally supportive; they submitted the paper recommending that we be granted rights. A lot of ministers who we've met think it will be a plus for the economy.

"We've made many presentations to the prime minister and the economic council [of Malaysia]. We don't have anything in writing but the informal feedback we've received is not positive and I can only surmise that the conflict is related to Malaysia Airlines, which is owned by the Ministry of Finance and the National Sovereign Wealth Fund.''

Osman-Rani says that two new 377-seat Airbus A330 aircraft arriving in June and July that would have operated the Sydney service now have to be allocated to other routes, including new daily flights the carrier is about to start to Delhi and Mumbai in India.

They will also be used to increase the Melbourne frequency to twice daily on all days of the week, Osman-Rani says.

The carrier has also begun swapping its premium economy seats for lie-flat beds with a pitch of 60 inches, which the carrier will be selling for as little as A$1000 return on the Melbourne-Kuala Lumpur route, Osman-Rani says.

However, the carrier is persisting with nine-abreast economy seats of 31 inches, which are just 16.5 inches wide - half an inch less than the standard 737/767 seat or 1½ inches less than the 18-inch-wide economy seat in the A330 in standard eight-abreast configuration.

MAS - Hitting The Nail On The Head (Finally)

As reported in the New Straits Times today, Malaysia Airlines has invited employees to report corruption, security risks and other bad practices at the national carrier under a new "whistle-blower" policy. The airline's new managing director Idris Jala has encouraged employees to report any knowledge of graft, negligence, safety and security issues or abuse of power to an independent committee. "This policy is being introduced to provide a safe and acceptable way for you to raise your concerns about malpractice affecting MAS without fear or repercussions," Jala said in a circular to the staff. "It allows you to raise matters in an independent and unbiased manner," said Idris. Idris said employees would not be expected to prove their allegations, and vowed to protect those who passed on information. "Any attempt to retaliate against, victimise or intimidate a whistle-blower making a good-faith report is a serious violation and shall be dealt with by way of disciplinary action," he said.

Idris has been tasked with turning around the airline, which ended 2005 in a troubled state after two consecutive quarters of losses which triggered calls for costs to be slashed. Even though I have often trashed MAS, its because of the "unhealthy corporate practices" that abound and seemingly allowed by previous management. Before everyone start jumping on the bandwagon to trample on MAS based on very bad financials for its last 2 quarters - the bulk of the losses came from not managing their fuel oil exposure well enough. Operationally, MAS still rank well in airline/cabin crew surveys. So, all is not that bad, nobody will focus on the "wrong doings and thievery" in MAS if they hedged their fuel properly.

I think Jala has hit the nail on its head. MAS looks to be a splendid recovery play. The items noted in Jala's speech indicates that he understands the crux of MAS' problems. The rest should just fall into place if the graft, abuse of power, negligence, safety & security issues are being addressed. Just hope that Jala has the management vision and political will to push through the needed changes. If I was Jala, that's what I would do immediately, not that he doesn't know what is "wrong" with certain corporate practices - he does, but by using this method, he avoids pulling the trigger himself and can collectively gather muscle and political will to make the necessary changes. The other big thing which dragged MAS down was fuel oil exposure, and that's probably the main reason he was scouted from Shell. Giving him the benefit of doubt, he is on the right path. Political will is on his side too as everyone is putting in their two sen worth on how to run MAS and on what is wrong with MAS. The powers to be no longer see MAS as a "plaything", it has become political and those concerned will NOT be willing to protect their turf to stop MAS from proper restructuring.

But before everyone starts waving flags for a heroic Jala, the whistle-blower policy is almost exactly like the one imposed by the new GLC-sanctioned-Khazanah-approved "Kristal" memo to all Telekom Malaysia staffers back in October 2004. So, this is not the brainchild of Jala, but at least he is borrowing the right stuff to use.

KUL-SIN - Why Are We (Still) Subsidising The Two Airlines???

Malaysia announced yesterday that it will not allow more Kuala Lumpur-Singapore shuttle flights ahead of the Asean "open skies" policy which will come into effect in 2008. As reported in The New Straits Times (6/12/05). Malaysia is not in favour because the benefits accruing to MAS from liberalising the route will be limited, according to the authorities.

"SIA and possibly SilkAir will be able to fly to Kuala Lumpur and several other destinations in Malaysia when all present restrictions on passenger flights between Asean capital cities are lifted by 2008.

"But for MAS, Singapore will remain just one destination. The benefits derived from liberalisation will not be the same.

"Under the circumstances, Malaysia has no choice but to stick to the present schedule of the KL-Singapore shuttle flight," said a transport ministry official here.

MAS operates 14 flights a day, and SIA, which operates 12 flights, will sustain the virtual joint monopoly to account for 182 of the 213 weekly flights. That's 85% of the market share for the KL-Singapore route. We don't really care about the open skies thing. This monopoly has been going on for way too long. Even toll bridges have an expiry date for collecting tolls. Nowadays, fares for flying to Bangkok, Bali, Phuket are even cheaper than flying between the two countries. Where is the justification?? Already Malaysia and Singapore are among the two places on earth that prices cars most expensively (I'm sure we are in top 10 if not the top 5 countries).

Both airlines operate a total of 26 flights a day. The pricing is dampening real demand. If we were to liberalise the market, we could see return fares plummeting to RM250 at least - the drop would be more than compensated by the jump in traffic. At RM250 return, I think the daily traffic should easily triple on conservative estimates (just have a look at the number of buses traveling to-and-fro between the two countries on a daily basis).

If the Transport Ministry say that there is no real benefits accruing to MAS, what about the benefits for Malaysians in general? You can still keep the monopoly, but just agree to price it cheaper, say RM350 return - its more than a fair price as the load factors for the KUL-SIN almost surpass 90% for every flight anyway!!! Certainly we cannot save the red ink for MAS just from the subsidy of this KUL-SIN sector!!??

Ipoh to the rescue. As reported in The Star today (7/12/05), the under-used Sultan Azlan Shah Airport here is set to be a low-cost carrier hub with AirAsia introducing flights from Senai to here in February. Datuk Tony Fernandez said the airline would begin operations on Feb 1, with 4 Senai-Ipoh flights a week. “We will increase to a daily flight frequency when we take delivery of our A320 Airbus by the end of March,” he said, adding that the Boeing 737 aircraft would initially be used for the sector. Fernandez said flights to the airport would boost economic development in the city and its surrounding areas. “We also believe that with the help of the minister and the mentri besar, the airport can be developed into a northern low-cost hub complementing the KL International Airport,” he said, adding that the flights would attract more tourists to the city. To a question, Fernandez said AirAsia may fly to Indonesia, Thailand, Sabah and Sarawak from Ipoh.

“We are considering a state proposal to turn the airport into a low-cost hub,” said Chan, who is also MCA deputy president. On calls to increase facilities at the airport, Chan said it would depend on the routes AirAsia wanted to create. Tajol Rosli said AirAsia would “breathe some life” back into the airport.

Concluding Comments - I think this is a brilliant idea. Ipoh's airport has been way under-utilised due to the popularity of the Nort-South Expressway. By making it the low cost carrier hub, it will generate enormous traffic. As it is, it takes a KL person about 1 hour - 1.5 hours to get to KLIA, a bit faster if they take the KLIA Express train. It takes 2 hours to get to Ipoh. Let's be smart here and make parking at Ipoh airport free, that way travellers can leave their cars in Ipoh and travel to wherever they want without incurring high parking charges. Ipoh is an ideal catchment area for people from Penang and even KL.

The move should be a highly successful one for all concerned (except MAS) and would also prove a trigger to accelerate the opening up of routes for all carriers. Hey, KL-Sin is still at RM650 return, I think RM200 return Ipoh-Senai would be highly attractive, plus I can get a taste of the the good food in Ipoh before embarking on my flight... that's Malaysia... Truly Asia!