Khazanah Nasional’s recovery plan for Malaysia Airlines reaffirms the country’s commitment to the ailing flag carrier, but highlights the carrier's cost and productivity disadvantages relative to its rivals.

Following its initial statement about restructuring MAS last Friday, the sovereign wealth fund issued a 39-page report that details its 12-step plan for restructuring the carrier.

The report’s foreword includes a message from Malaysia's prime minister Najib Razak, where he underlines the importance of the carrier for national development. He also stresses that “for MAS to survive and thrive, we need a new compact for the national airline.”

In addition to adding more detail about the 12-step plan, sections of the report focus on MAS’s underlying cost structure and labour productivity, both of which Khazanah feels are unsustainable in a competitive airline market.

MAS’s unit costs as measured by CASK are slightly lower than full service peers in the region at MYR0.214 ($0.07), compared with regional peers average of MYR0.222.

This slight cost advantage is offset by its RASK of MYR0.2, compared with regional full service peers average RASK of MYR0.227.

Against low cost rivals, MAS’s CASK is 42% higher, while its RASK is just 20% higher.

This comes against the backdrop of a tough market. The report says airline capacity in Malaysia is growing 10% annually, while demand is growing at just 8%. This, Khazanah believes, will push fares down by 8% over the next five years.

Poor productivity also plagues the carrier. MAS produces only 3.6 million ASKs per employee annually, compared to Cathay Pacific’s 5.1 million and Singapore Airlines' 6.1 million. As for revenue, each MAS employee generates just MYR850,000 ($269,000) annually. This is half that of a Cathay Pacific employee, and one third that of an SIA employee.

As such, Khazanah has concluded that the workforce of MAS can be cut 30%. Point eight of the recovery plan says the work-force needs to be “right-sized” to approximately 14,000.

Ultimately, Khazanah hopes to reduce MAS’s costs to within 15% of low cost rivals, and bring costs to parity with Middle Eastern carriers. It also hopes to operate a lower cost base than regional full service rivals.

“Cost-competitiveness is the foundation upon which the rest of the business will be built,” says the report. “Resetting the cost structure is particularly important given the Malaysian market context, especially for short-haul travel…there is increasing emphasis on the short-haul business traveller’s preference for efficiency and conveniences versus a premium product, and MAS’s premium advantages are eroding as LCCs move upmarket.”

Source: Cirium Dashboard