Idris Jala joined Malaysia Airlines with a remit to turn the carrier's burgeoning losses into profits. That goal has been met but there remains a long road to reinvention
At this time two years ago, Malaysia Airlines was in deep trouble. It had just reported the biggest-ever loss in its history. Today, posters are going up at its offices with the words "Record Profits". It is a remarkable turn of events for an airline that not so long ago warned it was likely to fail without an immediate and sweeping restructuring. But chief executive Idris Jala is cautioning staff that while they should be celebrating successes, the restructuring effort is far from complete. Deeper, structural change now needs to take place to turn MAS into what he calls "the world's five star value carrier" - essentially a high-quality airline with the cost base of a budget operator.
"We have done a successful turnaround, no doubt about it, and it's clear we've done it ahead of schedule. We were supposed to have done it in three years and we did it in two," Idris told Airline Business at his office near Kuala Lumpur's Subang airport days after reporting the record-high net profit of 851 million ringgit ($267 million) for 2007.
New attitudes - Printing money
Celebrating achievement has been an important part of the turnaround effort at Malaysia Airlines, helping motivate the workforce to progressively get rid of the "silo mentality" between departments.
One example Idris gives is of the crew rest areas in the carrier's long-haul aircraft, which are essentially containers in the cargo holds. For years the cargo department had been asking that on short-haul flights they be removed to free up space for freight, but other departments said it was not possible because the same aircraft were also used for long-haul services. "This debate went on in the company for five years. So we got everybody in a room and within one week they concluded the answer: ring-fence the aircraft and put in a new schedule so these aircraft are used solely for short-haul routes," he says. "We took out the crew bunk and used it for cargo, and we were printing money from day one."
His offices are themselves a symbol of how much things have changed since he was brought in by the government from oil giant Shell to turn the national carrier around. When he joined, the head office of MAS was a building of its own in the centre of Kuala Lumpur and one of his early moves was to sell it. It was not a popular move.
"When I decided to sell our headquarters there were a lot of people jumping up and down. It was very emotional. People said this is the brand, it is right in the city, it belongs to Malaysians, how dare you go and sell this building," he recalls. "But I told them very frankly, we are burning 150 million ringgit in cash a month, and we are selling the building for 130 million. That is cash to cover us for 20 days. If you can tell me how I am going to raise that money, please tell me. Our backs were against the wall and we had to fix our business otherwise we would go bankrupt. It was better to be emotional about the airline rather than the building."
Idris, who turns 50 this year, says that once the true nature of the carrier's dire financial state was made clear, attitudes quickly changed. As with many other state-owned companies, politicians and the general public were not accustomed to hearing of doom and gloom. But sugar coating the negatives is not Idris' style. He is blunt in his predictions of troubled times ahead, believing that as an executive he has a responsibility to always prepare for the worst.
Idris won a reputation at Shell as a corporate "fix-it" man, known for turning around problematic operations and making them successful. He readily admits he was happy there and did not seek out the MAS job, but ultimately saw it as a challenge and in some ways as a national duty. "One of the reasons why I agreed to come - and I didn't apply for the job - is because the government launched their government-linked company transformation programme. As I was being wooed to come in and join what they called a revolution, I wasn't convinced they were serious," he says. "I was invited to attend the launch event and I sat in the crowd and listened to the proceedings. The prime minister launched it, the finance minister was there, all the head honchos of the government-linked companies were there. As I sat through the launch I became convinced that these guys meant business. For the changes in the top they were putting in professional managers rather than ex-civil servants to do those jobs.
"The starting point was to feel that the time was right, that the winds were blowing in the right direction. But the most important thing was the prime minister came to introduce himself personally at the event. What he said, and it was very important, was that the government will not bail Malaysia Airlines out, that it must fix its own problems." Idris was immediately convinced the time was right the political will was there to transform the organisation and this meant he would have the support to take tough action. He says he loves "corporate adventure", and with the government refusing to provide a bailout "it helped me sell the need for change". He adds: "More importantly, on the other flip side was the deal with the government. The fact that they didn't give us any help in that sense, they had to then give us the autonomy. That's fair and square. If you give us a loan it is fair that you interfere. If you don't give us a loan it is fair that you allow us to fix our problem."
Idris started at MAS on 1 December 2005 and that morning presented what he called a turnaround "roadmap" to the board. He then met with the transport minister, the prime minister, and finally around 700 MAS employees. He told them that over the next 100 days his roadmap would be fine-tuned and developed into a formal Business Turnaround Plan. The plan, now known as BTP 1 following a new strategy document, was made public in February 2006 as MAS reported a net loss of 1.3 billion ringgit for 2005 - in fact only for a nine-month period as the carrier switched to calendar-year reporting. The document is blunt, warning repeatedly of the likelihood of failure without immediate change. But its overall message is that a genuine turnaround was possible.
"When we published it nobody believed we could do it," says Idris. "The share price did not move for six or nine months. Everybody felt that we could not do this." But the industry outsider has, at least to date, proven the doubters wrong. Cuts have been dramatic: dozens of routes have been dropped thousands of jobs have been eliminated and essentially every area of the organisation has been overhauled, enabling the airline to reverse its losses and return to the black. A no-nonsense approach was also taken to malpractice with a whistle-blower programme.
Idris says MAS had three main fundamental problems at the start of the turnaround: it was desperately short of cash was losing money in large part because yields were low and staff were demoralised and unmotivated, which resulted in productivity levels well below those of competitors. A few years earlier a financial restructuring had in fact been carried out that was initially hailed as a success, but by the time Idris joined it was clear that it was more a restructuring on accounting terms through asset sale and lease-back deals with the government and did not get to deep-rooted problems within MAS.
With no in-depth understanding of the airline business, Idris focused on what he knew best - the profit and loss statement. His team immediately got to work raising much-needed cash, in part through sales of some of the carrier's few remaining assets, and focused on stemming the losses as quickly as possible.
The problems at MAS were clear to many, but few were willing to admit them and take action. Idris points to the carrier's network as an example, with most of its routes unprofitable over the 12-month period up to the time that he joined. On the international side, 66 were unprofitable and just 48 were profitable, with too many services being operated out of "social obligation". On the domestic side 114 were losing money and only four were profitable. MAS was not exposed to the domestic losses as those services were operated on behalf of the government for a fee, but bleeding so badly in a core area of the business did little to create a culture of fiscal accountability elsewhere. Over the next few months MAS carried out several rounds of extensive international route cuts, in part as it eliminated point-to-point services from secondary Malaysian destinations and fed them through Kuala Lumpur International Airport. At the same time it negotiated new codeshare agreements with other airlines.
A deal was then agreed with the government and low-cost carrier AirAsia under which MAS dropped services on dozens of domestic routes to focus on trunk routes. It was later able to cut its workforce by several thousand people through a voluntary separation scheme and eventually took back P&L responsibility for domestic services - excluding subsidised turboprop operations in less-developed East Malaysia.
With the main goals and profitability targets of BTP 1 achieved a year early, MAS has moved to the next phase, which is a three- to five-year "transformation" that Idris says is necessary for MAS to remain competitive in an increasingly challenging operating environment. "My father used to say to me as a kid that the best way to think about life is always to aim and plan for the best, but assume the very worst. And that has been my motto in life. Always think that life is going to be tough, and the competition is going to be much better than you are. You over-prepare so you build a boat that will weather the storm. If there is no storm you will do very well but if there is a storm you will still not capsize," he says.
"In business you must have what I call a stand-based future. You must stand in the future and look to manage the present. You don't manage the future from the present. You picture what it looks like and when you become convinced that you like that world then you say you will manage the present."
At the core of the just-released BTP 2 strategy document is a message that MAS must be able to offer competitive fares by achieving a cost base similar to those of low-cost carriers, while retaining its full-service cabin offerings. Idris recognises that many will say it is not possible to achieve this ideal scenario, but he firmly believes it is doable for MAS. "We cannot continue with our current business model and survive in this turbulent world. We will sink," he says. "So me and my team sat down and asked the question, what would the airline look like that could survive? We came up with the vision that the airline that will survive in our market is this thing called the five star value carrier. We want to make sure our quality of product is really up there, but reduce our costs so that we can give affordable fares. That is our vision, and we believe that when we reinvent ourselves to become that, that is what will weather the storm." He says employees have been buying into the concept and are far more motivated now than when he joined. Productivity - so low for so long - is continuing to improve, yields have risen significantly and underlying costs have been slashed. However, another 1 billion ringgit in cost savings needs to be found, says Idris.
A particular concern is overcapacity in the industry. Idris says MAS will not get caught up in it and will expand at the Asia-Pacific region's forecast annual traffic growth rate of roughly 6%. MAS does have stretch targets and he hopes it can grow more aggressively, but much deeper change is needed first.
Coming soon is a long-awaited fleet revamp, starting with narrowbody orders to replace ageing Boeing 737s. Later in the year MAS intends to order widebodies, but again largely for replacement with options for growth. Already on order are turboprops from ATR for subsidised East Malaysian operation MASWings and new subsidiary Firefly, which it expects to develop into a low-cost operator to face rivals as liberalisation progressively takes hold in Southeast Asia. MAS already faces intense competition at home from Asia's largest low-cost airline, Kuala Lumpur-based AirAsia. It has been growing aggressively on short-haul routes and recently a sister carrier, AirAsia X, began operating long-haul services. AirAsia and MAS have not exactly been on good terms over the years, but Idris sees a day when they may co-operate.
"The winners in a competitive environment will be those who know how to compete and collaborate at the same time. If you strike the sweet spot between how far you compete and how far you collaborate it is a winning proposition," he says. "There are a lot of areas where we can work together. Training pilots, for example, and MRO. The net result is we could both reduce costs, but then when it comes to customers we compete. Have we had discussions with them? Yes and no. They have sent some of their aircraft to us but we have not had a long-term deal so we have not quite been successful just yet. But I can see the possibility and I am open to it."
Joining a global alliance is seen by Idris as another likelihood for MAS in the near future. He does not identify a preferred alliance, but most observers favour SkyTeam or oneworld. Star is considered unlikely as Singapore Airlines and Thai Airways are already members.
And of Idris' future at MAS? He acknowledges that his contract is up in November and he hasn't decided whether to stay on. But regardless of his decision, he says an important development from the airline's restructuring has been the emergence of new leaders, meaning the transformation programme is sustainable with or without him. "Now that I have been with the company for two and a half years I know what the guys are good at and they are prepared to run the mile," he says.
Rhythm of life
Type "Idris Jala" into YouTube and you may be surprised at what comes up. Not only are there videos of him giving corporate speeches to the Malaysia Airlines workforce, there are several of him playing guitar - and doing so very well.
Idris says he is genuinely passionate about several things in life, such as his family, fishing and blues music. Getting Idris talking about any of those subjects seems to put him in a different world and takes him away from his corporate worries. He enjoys fishing because it clears his mind, and he likes all kinds, whether it be deep sea, lake or river fishing. With music, however, it is almost exclusively the blues. "I really dig that, and I am very intensely into it," he says. Idris plays lead guitar and resonator guitar.
Idris had humble beginnings, growing up in a tribe in Sarawak, in East Malaysia. He moved away and secured a bachelor's degree from the Universiti Sains Malaysia and a master's from Warwick University in the UK.
A veteran of Shell, which he joined in 1982, he won a reputation there for successfully turning around troubled divisions. Between 1995 and 1997 he was in charge of the national retail business of Shell Malaysia and was a member of the company's business re-engineering team.
Between 1998 and 2000 he was managing director of Shell Sri Lanka. Between 2000 and 2002 he was vice-president of retail marketing with Shell International in London.
Before joining MAS he was managing director of Shell MDS (Malaysia) and vice-president of Shell Malaysia Gas & Power.
Check out Idris Jala jamming with his band the Popudoms: flightglobal.com/jala
Source: Airline Business