Malaysia Airlines aims high4 September 2013
Strong recent quarterly results, a new fleet of A380s and becoming a member of the oneworld alliance are all signs that Malaysia Airlines is leaving behind a legacy of unprofitability, lost routes and market share challenges. Carl Friedmann talks to the company’s group chief executive Ahmad Jauhari Yahya about the climb into clearer skies.
Unprofitability has been a major issue in the past for Malaysia Airlines. After six consecutive quarters of loss, in Q3 and Q4 2012, the company showed an operating profit and net income after loss. In 2011, it recorded massive operating losses amounting to MYR975 million ($320 million) due to rising fuel costs and management reconfigurations. As a result, certain routes ceased operation through what the firm called the Route Rationalisation Programme.
But in 2012, the group started to turn things around. Due to reducing fuel spend and capacity, operating losses improved to MYR405 million ($133 million) while total revenue fell by only 2% to MYR3.5 billion ($1.2 billion). The company also announced an operating profit and, specifically, a net income after tax of MYR37 million ($12 million) for Q3, which was its best performance to date.
It's an encouraging trend, and with the airline now part of the oneworld alliance - a group of 12 leading airlines that among other stated aims is working to provide customers and carriers with services and value that no airline can deliver on its own - and boasting a new rebranded fleet of A380s, it is easy to understand why group chief executive Ahmad Jauhari Yahya is smiling. But any success is only as good as how it is sustained, so there is no let up in terms of reviewing every customer segment, improving cost management and driving better productivity.
"We have a strong brand, but we need to refresh it, and the A380 is a good start with a signature route from Kuala Lumpur to London, so we're focusing on that," Ahmad Jauhari Yahya explains at our table in the JP teres restaurant in Kuala Lumpur's new Grand Hyatt hotel.
"Based on the lessons learned on this route, we will eventually apply them across the whole airline. But while London is a signature route, what we're focusing on in the medium term is the regional area, so we're looking at India, China and South-East Asia because we see Asia as the centre of tremendous growth over the next five to ten years. We have to be prepared for it and strategise the airline in terms of products and services to meet those demands."
The focus on the potential in Asia, along with an assessment of destinations that impeded positive results, led to the withdrawal of several routes as part of the Route Rationalisation Programme, including those to Dubai, Karachi, Cape Town, Johannesburg, Buenos Aires and Rome.
"We will look at them again, but at the same time, you must have the right achievements," says Ahmad Jauhari. "You must have the right aircraft to operate those routes and look at the economics to see if they are worth looking at again."
However, some earlier suspended regional routes such as Bangkok, Chennai and Taipei, which offer high potential for growth, have since been reviewed. The company has also resumed two international routes from Kota Kinabalu in Malaysia's east to Perth, Shanghai and Osaka, and has also increased frequency to Hong Kong.
Most of the decisions to strengthen the brand come from Ahmad Jauhari's management style of engaging with others in Malaysia Airlines' C suite to eliminate as much bureaucracy as possible and simplify a lot of processes.
"We want to have people take more initiative in what they do, so I encourage people to do their best," he says. "Technology and product drives the industry and if you're not in line with what your customer wants, you lose them. People have plenty of choices, so we just have to make sure we remain the right choice."
Similarly, retaining talent is a challenge, although with the airlines, there's still a degree of romance and adventure that employees find appealing.
"People [in the organisation] are everything," Ahmad Jauhari says. "We just have to make sure we provide the right environment, the right challenge, the right motivation and, obviously, the right compensation. We have to make sure people are encouraged and therefore motivated."
Strength in numbers
Joining oneworld is an ideal fit for Malaysia Airlines, and comes at a perfect time as competition continues to test innovation and brand loyalty.
"The ability to feed traffic into one another is where airlines are moving these days, through joint ventures, alliances, codeshare or whatever you want to call it," explains Ahmad Jauhari. "Ultimately, we have to make sure we remain an attractive choice for travellers; we have to compete on that basis since prices are becoming more comparable. So, what differentiates you from another is really your brand, your service and your products."
However, the mutual benefits aren't lost on Ahmad Jauhari either. "We're able to provide connectivity into Asia," he says. "If you look at the other oneworld carriers, we have a unique position within the alliance as we occupy this space in South-East Asia and we're moving into Indian cities like Mumbai, Bangalore, Chenai and Hyderabad."
Emerging markets in Central Asia, such as Azerbaijan, which has a growing middle class eager to travel, are a high priority, too. In September 2012, Kathmandu became Malaysia Airlines' newest destination, and within two months, frequency between Kuala Lumpur and there increased from three flights a week to five.
Meanwhile, China is developing all the time, but more with secondary cities such as Chengdu and Xian, as opposed to the premier destinations of Beijing and Shanghai. However, the likes of Chengdu also have growing middle classes in a sizable population of approximately eight million people, and so fit Malaysia Airlines' strategy to broaden its regional reach by tapping into emerging markets anxious to travel.
Differentiation in such a demanding industry isn't easy, but one way Malaysia Airlines is looking to boost the destination's attractiveness is through the country's famed hospitality, which is a selling point Ahmad Jauhari is eager to capitalise on.
"The way I look at it, we have to sell the concept of Malaysian hospitality and take advantage of the cultural offerings we have," he says. "Every airline and culture is complex, but we have a lot to offer in terms of hospitality and that's what we're pushing. I know other airlines are doing the same thing, but we say that you fly because of the destination more than anything else, so we do our part to make Malaysia a preferred choice."