Malaysian Airlines Business Turnaround Plan (btp)

MBA PROGRAMME

GROUP ASSIGNMENT

CLASS: Organizational Management

LECTURER: Dr. Mohmad Adnan Alias

MALAYSIAN AIRLINES BUSINESS TURNAROUND PLAN

TEAM MEMBERS:

NO. NAME I.C. NO. STUDENT NO.

1. Mohd Hatta Ahmad 641225-05-5601 ZP00664

2. Muhammad Faizal Azizan 850608-02-5937 ZP00653

3. Mohd Azmi Hambali 810701-02-5759 ZP00659

4. Mohammad Hafeez Md Ramli 830119-06-5227 ZP00646

5. Azizul Azrin Mahmor 761117-04-5189 ZP00580

6. Gan Is Hui 760607-05-5334 ZP00645

Date: 12.06.10

THE MAS STORY

Background

Malaysian Airlines (MAS) was bleeding cash and accumulating massive losses in 2005 due to hordes of difficulties and issues of the past. In the shortened nine-month 2005 fiscal year it lost MYR1.3 billion and if MAS was to continue on the same course and speed, MAS was projected to lose MYR1.7 billion by the end of 2006 and if nothing was done, MAS would have gone bankrupt by mid-April 2006. Idris Jala, a champion of engineering business turnaround plan at Shell was brought in December 2005 as the new chief executive officer of MAS to revive the fortune of MAS.

Actions Planned and Enacted

Idris Jala hit the ground running. The company's Business Turnaround Plan was presented to the airline's board, the Malaysian Prime Minister and the Ministry of Transport on his first day on the job. "The next day, we had a town hall meeting where we gathered some 700 employees across the organization. The Prime Minister, who addressed the employees, made it very clear that the government will not bail out Malaysia Airlines. The airline will have to solve its own problems and return to profitability," he explains.

"We had a burning platform. I told the staff that we had no choice other than to take drastic measures over the course of the next 12 months," he continues. "At that point, all 23,000 employees were in disbelief! Staff morale was at the lowest in the history of the airline. It was a difficult period for all. When the BTP was announced to the public later, the share price immediately dropped to below MYR3, showing that the public didn't believe we could do it."

The solution involved tackling four critical problems: Low yield, inefficient network, low productivity and lack of cost control. Management reviewed and readjusted fares and fuel surcharges across the board so they matched the rest of the industry. Seat inventory management was improved and MAS sharpened its tactical campaigns.

"We tackled the network [problem by] running laboratories to review all the routes, which were clustered into eight business regions. If the teams in the labs concluded that they could not fix certain routes that were losing money on a cash contribution level, then we immediately cut the routes," Jala says. In 2006, MAS dropped nearly 25 routes, representing 7% of the network. Then MAS expanded its hub-and-spoke strategy by partnering with other airlines. MAS further evaluate the profitability and viability of secondary international and regional destinations where the non-profit routes were dropped. To fill the gaps, the carrier has bulked up its code sharing and currently boasts 28 code sharing and inter-airlines agreements.

On the issue of low productivity, the staff size was optimized by reducing 3,000, or 15%, via a mutual separation scheme and through natural attrition. Costs came under intense scrutiny where basically every substantial expenditure such as CAPEX had to go through him for approval. In 2006 with such belt-tightening action, the company has managed to reduce its costs by RM310 million.

Speed of action was also enhanced in variety of means and in particular the frequency of company report produced from quarterly down to monthly. In Idris Jala's words, "...... Turnarounds are all about action. If it takes too long it will not work, and staff want to see results.....", Quarterly reporting was scrapped and replaced with monthly. " Jala says. Vital to the turnaround was the government's decision to free MAS from its obligation to fly unprofitable domestic routes and hand them over to Air Asia with its much lower cost structure. MAS also launched its own low-cost carrier called Firefly, which took to the air on 3rd April 2006.

The Outcomes

The results achieved by MAS have been astounding considering the targets and corresponding time frame given by the key stakeholder, the Malaysian government. MAS announced that its target is to reduce projected loss of RM1.7 billion to RM620 million for 2006, achieve a small profit of RM50 million in 2007 and go for a record profit of RM500 million in 2008. The actual result for 2006 was, instead of targeted projected loss of RM620 billion, MAS only suffered RM136 million losses. MAS actually recorded profits of RM240 million and RM121 million for Q3 and Q4, respectively, for that financial year. In fact for the 2006 full-year results, MAS exceeded the RM1.1 billion BTP improvement target MAS had committed to the Malaysian government.

Idris Jala says MAS has "managed to achieve these results because the BTP is totally focused on delivering immediate results by anchoring everything on the P&L. In fact, with the help of my Blackberry I know the projected monthly P&L every day . . . I can act fast if my monthly P&L indicator is showing that we are heading in the wrong direction."

Going forward, MAS has planned varieties of measures to ensure their good effort and results continue in good stead. Among the prime measures lined up are: -

* Malaysian Hospitality Campaign: Progressively rolling out more than 125 initiatives to improve the customer experience.

* Project Omega & Alpha: Designed to increase yield to close the gap with the best in the business.

* Passenger Service System: Investment of some RM200 million from 2007 to 2009 to equip the airline with "state-of-the-art" IT systems.

* Network Growth: Finalize a five-year network plan. From 2008 onward MAS will develop new routes and increase frequencies

Idris