Malaysia Airlines' chief executive Izham Ismail is a man on a mission: continuing the carrier's the turnaround and returning it to profitability. Still, he admits his first year on the job has not been smooth sailing.
Appointed in October 2017, Izham is Malaysia Airlines’ third boss in four years. As with his predecessors, he continues to grapple with challenges "beyond control of the airline," namely fuel and foreign currency exchange rates.
The Oneworld carrier endured "an extremely challenging" first half of FY2018. Its latest quarterly update for the three months ended 30 June showed that fuel costs rose over 37% year on year, while overcapacity in the industry resulted in demand and yield pressures. It also faced operational constraints from pilot shortages.
As such, the privately owned airline said it was working to deliver "profitable performance in 2019" – a contrast to its 2017 outlook, when it predicted a return to profit in 2018. This would mean that Malaysia Airlines appears likely to miss its initial profitability target – a development that Izham did not confirm.
Nonetheless, he says Malaysia Airlines’ turnaround plan, initiated in 2014, "was to effectively halve [losses] year on year".
AHEAD OF BUDGET
"We closed 2016 ahead of budget. However, in 2017 and to a certain extent [in] 2018, the volatility and unfavourable fuel and forex environment had a significantly adverse effect on our bottom line," adds Izham. "We can’t control external factors but we can to a certain extent put buffers around [them]."
To that end, Malaysia Airlines has a fuel hedging policy in place, and is leveraging technology and digitisation to mimimise fuel volatility effects. The airline recently introduced SkyBreathe, a fuel-saving software that analyses its flight data recorders to assess a flight's efficiency. This allows the implementation of appropriate practices for fuel savings.
"About 40% of an airline's cost is fuel and more than 70% of our transactions are done in US dollars. Any slight increase [in fuel prices] compounded by forex fluctuations severely affects our bottom line."
Izham also says that the carrier's cost and revenue initiatives have seen "considerable traction." He claims that CASK "has reduced and is the lowest among regional full-service carriers”.
While it has not provided a CASK figure, Malaysia Airlines’ quarterly update shows that its yield improved by 0.3% and RASK grew 2% to 19.5 Malaysian Sen ($0.05).
An industry report suggests that Izham's strategy for Malaysia Airlines is focused on building yield, while his predecessor was focused on load factors. Izham says that both strategies require "a strong RASK proposition".
"The reality is that either strategy, or a hybrid of both, is applied for different routes and also seasonal. There is no one-size-fits-all approach and the airline must adopt a dynamic approach to revenue to deliver the maximum RASK it can achieve."
Izham confirms that plans to re-list on Malaysia's stock exchange are intact. However, he adds the company must be profitable before any IPO plans can be considered. Malaysia Airlines' shares have been de-listed since 15 December 2014, following the twin air disasters of MH370’s disappearance in March and the shooting down of MH17 over Ukraine in July that year, as well as years of mounting losses prior to that.
Meanwhile, the carrier expects its pilot shortage situation – particularly its Boeing 737-800 fleet – to stabilise by the fourth quarter after an extensive pilot training programme was implemented last year, alongside recruitment drives.
PURSUING ASIA-PACIFIC FOR GROWTH
On its network, Malaysia Airlines will continue its strategy of pursuing growth in the Asia-Pacific region, "where we feel we can play to our strengths".
Izham says the 737-800s provide domestic and regional connectivity, while its widebody fleet has been "streamlined and rightsized to a simpler model" of Airbus A350-900s and A330s.
The A350s, equipped with a First Class product, fly to London and Japan, where Izham says there is a higher demand for premium cabins.
FlightGlobal schedules data shows that besides its London route, Malaysia Airlines also deploys the A350 to Osaka, Tokyo and Sydney.
Meanwhile, its A330 fleet will be deployed on "higher-density regional routes across Asia-Pacific", thereby "significantly improving the customer experience whilst also generating better revenue".
This year, Malaysia Airlines launched three new routes as planned: Chongqing, Surabaya and Brisbane. However, Izham says the carrier has no plans for another European destination.
"Next year, there will be new markets we are exploring across the Asia-Pacific region. The focus will be a gradual growth of two to three new markets per year…This is where the two huge growth markets – India and China, are."
Izham adds that Malaysia Airlines is working with other airlines on more partnerships. He gives the recent codeshare announcement with Qatar Airways as an example that will feed traffic into the Kuala Lumpur hub. He says there are a few more partnerships that will be announced later.
At the group level, the company is exploring the synergy of the networks of its MASWings and Firefly units with the mainline carrier "for better efficiency".
MASWings, which operates services for rural destinations in the Eastern Malaysian states of Sabah and Sarawak, will see its current agreement expire at the end of the year. A new agreement with "revised terms" is being negotiated with the relevant authorities that will take effect from January 2019 for a six-year period.
As for Firefly, Izham says the turboprop unit will continue to connect primary and secondary destinations within what he describes as "the Indonesia-Malaysia-Thailand growth triangle", as well as providing air linkages between Malaysia and Singapore. Its latest AOC is valid until 16 March 2020.
"Firefly will maintain its current fleet of 12 ATR72-500s… and will keep a watchful eye on the market. If there is surge in demand on a sustainable basis, Firefly will be ready to capitalise on it by increasing its fleet size. The turboprop market in Peninsular Malaysia is essentially big enough for a fleet size of 20 to 22 aircraft up till year 2020, so any decisions we make will be based on a sustainable market where yield is reasonable and not flood the market with overcapacity."
REFINING THE FLEET
Flight Fleets Analyzer shows that Malaysia Airlines has 10 Boeing 737 Max 10s and 15 Max 8s on order.
Malaysia Airlines is on the fence about whether the Max 10s fit its network strategy, but will take delivery of "five or 10 of the Max 8s first" from 2020.
"These 737 Max aircraft are intended to replace the existing 48 737-800s, whose average fleet age is currently eight to 10 years."
In March, the carrier issued a request for information for widebody aircraft and is undergoing a selection process for aircraft aimed at growth and replacement of ageing and end-of-lease aircraft.
"Several vendors have been engaged to provide information on new technologies that would best suit the group's network and expansion plans. This would also take into consideration fuel efficiency and passenger requirements. The RFI did not specify the number of aircraft we want, as it is up to the aircraft makers to advise us on the fleet we would need to further develop our network going forward. We will only go to request for proposal… depending on our future network plan," says Izham.
Malaysia Airlines says it will end the year with its current fleet of 81 aircraft: 48 737-800s, six A350-900s, 21 A330s and six A380-800s.
"PROJECT AMAL" TAKES OFF
One key task on Izham’s plate is that of Malaysia Airlines' A380 pilgrimage charter unit, also known as "Project Amal". To date, the carrier has signed an agreement with five Umrah tour operators to provide air charter services using A380-800s for the Umrah season beginning October until 2021. This season, Malaysia Airlines expects to carry 140,000 Umrah pilgrims, with an increase of 15%.
Izham says the "ultimate plan" is to build a subsidiary airline that will operate the super jumbos with a separate AOC, although he admits it is not an immediate priority.
"Our focus is a profitable business… We are also evaluating the business plan for Project Amal and the use of the A380s. With the escalating price of fuel there may be aircraft offering superior technology to provide better returns for the business."
Izham adds that the carrier sees "big potential" in the Haj and Umrah markets, not just in Malaysia but also in Thailand and Indonesia, which has a pilgrim market five times larger than that of Malaysia's but has limited capacity.
"[Pilgrim services from Indonesia] is an underserved market, [and] feeder [traffic] to Kuala Lumpur is an attractive proposition [as compared to] Soekarno–Hatta International airport, where there is a shorter distance and cheaper feeder cost [from Kuala Lumpur]."
Nonetheless, Izham says Malaysia Airlines is open to deploying the A380 on other charters and that the airline is in talks with several parties who have expressed interest in operating the aircraft.
LEADERSHIP RENEWAL ON THE CARDS
Being part of Malaysia Airlines for the past 39 years, Izham, who started his career with the airline as a pilot, is also involved in its leadership succession planning.
While he did not disclose when his term as chief executive will expire, Izham says the company has already identified "at least three strong candidates" to replace him.
This is part of the carrier's bid to strengthen its talent and human capital "to ensure a more robust and sustainable organisation".
"We have invested significantly in training and leadership programmes for all our staff where participants are evaluated and trained on capability gaps. This applies to the CEO pipeline too," says Izham.
Source: Cirium Dashboard