Some people opined that zuraidi is a lame duck and the top echelons asked for him to walk
Lame duck or not, MAS is certainly going about with a limp. Here ia an article from The Star :
By P Gunasegaram, The Star
ALL is not well with Malaysia Airlines (MAS) (see our cover story this week). While the situation is dire, it is not impossible for the airline to recover its fortunes but it needs some nifty strategic changes and deft execution.
While key officials say they want the airline to be Asia’s top one by 2015, they don’t say clearly in terms of what. MAS is already among the best in the world in terms of service but that does not spell profit with the airline slipping into an operating loss of RM267mil for the first quarter of this year.
This airline has been through tough times, slipping into massive losses at several points during its history. With help it has come back from the brink of failure but it has not been able to show the kind of sustained profitability that other airlines such as Singapore Airlines have exhibited.
MAS’ fortunes have deteriorated so much that low-cost carrier AirAsia overtook it in terms of market value earlier this year (see chart) and seems set to widen its lead as it made a profit in the latest quarter while MAS reported a substantial loss.
MAS has a good product going by the continuing rave reviews for its cabin services. That alone is not enough to make it profitable. As with any business, you arrive at a profit or loss after subtracting costs from revenue.
For an airline, the revenue is dependent on capacity and how much it grows or reduces its routes, the load factor which is a measure of capacity utilisation, and the crucial pricing through which you maximise revenues.
This is to be juxtaposed with costs, of which the major and most volatile one is oil prices on which the jet fuel price depends. Sometimes, your cost savings justify a cutback in routes but a prudent airline will also consider the long-term impact of such a move because you don’t want to constrain future growth.
Because airlines are so dependent on oil costs, they try to hedge their positions to cap their costs but when wrongly or improperly done, this can wipe out airlines.
In fact in 2009 MAS had to provide a massive RM3.95bil in provisions for it’s hedging which nearly oblitereated its shareholders’ funds, requiring it to ask an exemption from de-listing procedures under Bursa Malaysia’s Practice Note 17.
In that episode, MAS had hedged at an oil price of US$100 per barrel but what it failed to do was to structure the hedge so as to benefit fully from any fall in the oil price below US$100. Paradoxically, as the oil price collapsed, MAS’ profits collapsed too.
For the subsequent quarters, MAS made enormous profits because the oil price rose again, reversing some of the earlier provisions but there were massive operational losses nevertheless.
For the latest quarter, MAS again blames rising oil prices for the losses but there is no explanation as to how many other airlines still manage to make profits, albeit at lower levels.
One has to suspect that this lies in revenue management. Perhaps it does not have enough business class or first class seats. Perhaps it has got its pricing wrong and is cannibalising some of its own market via cheap offerings and through its low-cost airline, Firefly. Perhaps it has given up too many routes to be able to grow rapidly.
Perhaps, MAS has become so obsessed with cutting fares and offering value comparable to low-cost airlines that it is losing its own high yielding market by people who book earlier to take advantage of lower fares.
Perhaps the airline is not very clear about where it should stand in terms of the kind of strategy it must adopt to maximise its revenue. You don’t leverage great service by offering value (read low-cost) fares. In fact you do the exact opposite.
Yes, one must agree that new airplanes are more cost efficient and that could make the difference between profit and loss, but does that imply that MAS has been negligent in its fleet planning?
In terms of broad strategy, MAS should just focus on being an excellent full-service carrier, market it as such and leave low-cost operations to subsidiary Firefly. It should get the best people and systems to manage its fleet and price its fares.
It should focus on continued cost reduction in other areas without seriously undermining its service standards, its promotional efforts and its brand reputation and positioning.
And it should engage in prudent hedging policies which allow it to take advantage of falling oil prices instead of being locked into high-cost oil when the price of oil is falling.
Once it has sorted all this out and is back on the firm path of profit, then it can talk about being Asia’s number one airline in every respect, not just service.