At Malev Hungarian Airlines, a major improvement in efficiency is one of the main outcomes of a modernisation programme that started back in 1991 but only really started to take root last year.

Indeed, commercial director Ferenc Turi says the restructuring has really only just begun in earnest. 'We are using the whole of 1995 to restructure our markets, network and costs.' But three efficiency measures were already starting to show impressive improvements in the last financial year, driven primarily by one factor - fleet replacement.

In 1991, the carrier operated a fleet of 25 Russian-built aircraft and two B737-200s. Today, Malev is operating an all-Boeing fleet on scheduled services - six B737-200s, three B737-300s, two B737-400s and two B767 -200ERs - and five Tu-154s for its charter business.

The main changes in the fleet's makeup came during 1993/4 and led to dramatic increases in both aircraft utilisation and labour productivity last year. It is easy to see why. A B737-200 flies an average of around 3,000 annual block hours, against only 1,300 for a Tu-154, explains Turi. Aircraft utilisation rose a massive 23 per cent last year, although that came from a relatively low average base of five hours a day.

The higher aircraft utilisation available with the Boeing aircraft meant the carrier could increase frequencies and open new routes, including a direct New York service which was launched in a joint venture with Delta Air Lines using Malev's B767s. This expansion, combined with a slight (0.4 per cent) reduction in employee numbers, was the main driver behind the leap in labour productivity with ASKs per employee up 17 per cent to 990,000 in 1994. Similarly, the switch to western aircraft helped boost load factors by 7 percentage points in 1994.

Despite all these gains, however, Malev's finances slumped last year - the carrier recorded a loss of $6.9 million in 1994 against a $600,000 profit the previous year. The loss arose mainly from higher aircraft leasing costs and lower yields, which suffered in the face of a weakening Hungarian forint despite a 24.8 per cent increase in RPKs.

But the various measures imposed during the 1995 restructuring programme appear to be turning the carrier's fortunes around. With the Hungarian market accounting for 30-35 per cent of Malev's total revenues, one of the main priorities is to protect the carrier from the weak local currency. In January, Malev introduced a 'comprehensive' yield management system which, allowing for training and 'settling in', should be 'capable of ensuring revenue optimisation by the end of the year,' says Turi. The system has led the carrier to 'fine-segment all our markets into nine reservation classes - two business and seven coach.'

'The results are already showing,' says Turi. 'For the first time ever, growth in net average yield is keeping pace with the devaluation of the Hungarian forint.' Yields in the first six months were up a staggering 28.33 per cent, against a 28 per cent devaluation of the forint. Also, Malev is pursuing an aggressive pricing policy in its home market. 'We used to be a market follower, but now we are trying to initiate pricing to boost yields,' says Turi. He estimates 70 per cent of the leap in unit revenues is 70 per cent due to the new yield management system and 30 per cent due to the new pricing policy.

The carrier is also strengthening its distribution chain in its home market with a two-tiered approach. The first targets corporate clients in a 'trilateral arrangement' with travel agents. The second is the establishment of the Malev partner office, described by Turi as an 'independent, semi-franchise arrangement' with selected travel agents, where the carrier pays for training of the company's staff and provides a Galileo CRS system. These measures follow last year's introduction of the bank settlement plan, which boosted total sales volumes (not just Malev's) by 230 per cent.

The revamping of the carrier's sales and distribution channels comes at a good time. In the first half of 1995 passenger numbers have only grown 1 per cent, as a result of the easing of the UN embargo against Serbia and Montenegro. Budapest had acted as a natural hub for the former Yugoslavia during the economic blockade but that market has now shrunk by 15 per cent, Turi estimates. This traffic loss and the continued use of Tu-154s on a number of routes earlier this year led to a slight load factor decline in the first half.

But the Boeing fleet is helping to keep direct operating costs down, with lower handling and landing charges and a $3 million saving on fuel in the first half. Three additional Fokker 70s should boost efficiency further.

Source: Airline Business