Malaysia Airlines accelerates Business Transformation Plan

Managing Director/ Chief Executive Officer, Tengku Dato' Azmil Zahruddin said the airline's transformation into a FSVC, with low operating cost, is critical in light of the industry's worst losses ever.

International Air Transport Association (IATA) forecasts that the industry will lose

USD11 billion in FY2009.

"We will focus on 3 core areas - enhancing customer satisfaction, generating revenue and intensifying structural cost reduction.

"This has a 2 pronged approach - address current operational losses and position the airline for growth," he told the media in a briefing at Malaysia Airlines' Training Academy today.

"We must get customers to continue flying with us. They must also be willing to pay a premium to fly with us. To do that, we must do ordinary things that matter most to our customers extraordinarily well.

"We will concentrate on 5 areas; serving customers better, enhancing inflight experience including food, website experience and cabin serviceability, as well as Enrich.

"My job is to ensure that we drill down to the root causes, and address them thoroughly," said Azmil who heads up the MH Customer Value Proposition committee.

The right pricing which optimizes seat inventory, opening up of more distribution channels, aggressive sales strategy and more targeted market segmentation, are also key to Azmil's plans.

"Dual Pricing is the cornerstone of our sales and marketing plans. It allows us to offer low fares during low seasons and maximize yields during peak travel periods. Dual Pricing allows us to have the best of both worlds. We have taken a very granular approach and we will drill down further to every flight by day and time of departure.

"This will allow us to offer competitive fares on a regular basis. The flexibility and dexterity in managing the seats gives us the competitive advantage where every airline, full service and low cost, is offering low fares."

"We have no intention to turn into a low cost carrier. We are a full service carrier with a vast network and superior services," he added.

Malaysia Airlines is also progressively renewing its fleet. It will take delivery of 35 firm B737-800 aircraft with delivery commencing 4^th quarter 2010. It has another 20 planes on option. These planes will be deployed in Malaysia, ASEAN, South Asia and China.

As the New Generation B737-800 has extended range and is more fuel efficient, the aircraft will be used for other Asian and Australian destinations as well.

A total of 6 A380 will be delivered beginning 2011 which will be used for high density routes such as London, Sydney and Amsterdam.

"The strategy behind the fleet renewal is to provide customers with better products, and match demand with capacity. In the long run, the efficiency of the new fleet will result in lower fuel cost, engineering & maintenance, and reduction in landing, parking and overflight charges," Azmil said.

"Taking delivery of the B737-800 at the end of next year is perfect timing as the economy is expected to recover then. We will be the second airline in the world to take delivery of the new B737-800 Boeing Sky Interior," he also said.

Azmil will continue to pursue structural cost reduction with a target of RM700 million this year. Over the last 3 years, Malaysia Airlines have saved more than RM2 billion through aggressive cost saving measures.

"There is a lot more room for cost savings. A 62 year old legacy carrier inherits a lot. But we are only getting rid of bad costs such as those that don't add value or give poor returns. A significant portion of our savings is returned to customers in the form of lower fares and better services.

"We will continue to invest in good costs. We are consciously spending on products and services such as inflight food, safety and regulatory requirements and to generate third party revenue," he also said.

Malaysia Airlines will also continue to grow its cargo, and 3^rd party maintenance, repair and overhaul (MRO) businesses as well as community airline, Firefly.

MASkargo aims to return to profitability next year while MAS Aerospace Engineering aims to achieve revenue targets of RM1 billion by 2010 and RM3 billion by 2013.

"The E&M team has done a superb job. Productivity has increased from 32% in 2005 to an average of 80% today. The number of customer airlines has grown to over 100. It is in a good position to capitalize on the required MRO services for aircraft which will be commissioned for flight once the economy recovers," Azmil said.

Firefly which currently operates 7 ATRs will continue to use Subang as its base for growth, and in developing Singapore as a key destination in its network.

Malaysia Airlines will also continue to pursue strategic partnerships. "We are always open to partnerships and strategic alliances. The most important criterion is that these partnerships must add synergy and value add," he emphasized.