By Updesh Kapur /Doha
It’s a story that has been rumbling on for months, yet is now just days from being made official.
One of Malaysia’s most iconic companies is set to enter the next chapter of its 70-year history with a complete makeover.
Malaysia Airlines (MAS) will undergo a massive transformation, one of the biggest ever in Asian aviation. A 20,000-strong workforce that will be trimmed by 30%, a radical cut in its global route network, a huge fleet overhaul; potential new name, and the likelihood of a fresh brand identity and corporate look – to name just a few.
The affected 6,000 or so staff are expected to be issued with termination letters on June 1 with a transition period building up to a new-look Malaysia Airlines taking to the air on September 1. The troubled airline has gone into nosedive with years of consecutive losses since 2008 amassing debts of $1.5bn.
The rapid emergence of low-cost airlines and greater regional and global competition has eaten into MAS’s market share. The loss of two Boeing 777 aircraft within four months of each other last year further dented business, profitability and most importantly, the company’s global image.
Malaysia Airlines enjoyed one of the best aviation safety records in the world until 2014. The disappearance of flight MH370 en route from Kuala Lumpur to Beijing and the shooting down of MH017 over the Russian/Ukrainian border with a combined loss of 537 lives sent the company into mega-damage control overdrive. Malaysia Airlines is effectively being forced to re-launch as a “start-up” and attempting to reinvent itself by detaching from its past.
“I’m hired to run the new company entirely on commercial terms and there’s very little margin for error,” says Christoph Mueller, the newly-appointed CEO of Malaysia Airlines.
“It’s not a continuation of the old company in a new disguise, everything is new.”
In the job for just a few weeks, the seasoned aviation executive is the first non-Malaysian to hold the top position at the national airline. With a history of corporate makeovers in the airline industry, the German turnaround specialist has taken on what has been described as the toughest job in aviation. His start date at MAS was brought forward by two months to get on with the job in hand.
After leading change at his former employers, German carrier Lufthansa, the now-defunct Belgian operator Sabena and, more recently, Ireland’s Aer Lingus, Mueller is hastily engaged in making a mark in Southeast Asia with his latest mission.
Mueller’s biggest test will be employee resistance. But with the implemented actions aimed clearly aimed at transforming a struggling airline into a competitive force, the harsh reality is drastic change is needed for national interests.
There are reports that contracts of all 20,000 staff will be ripped apart and, aside from the 6,000 or so personnel set to lose their jobs, the remaining will be offered fresh contracts on different terms.
Mueller has the backing of Khazanah Nasional, the Malaysian government’s investment arm, which has taken 100% control of the national airline hoping Mueller and his management team will steer the new-look company back to profitability within three years.
Since Khazanah took full control of MAS in August last year having increased its stake from 69%, it embarked on a restructuring plan to prepare for a commercial revamp under Mueller. The airline was delisted from Bursa Malaysia, formerly known as the Kuala Lumpur Stock Exchange; Mueller was appointed as CEO; a new company was created, Malaysia Airlines Berhad, to replace the current Malaysian Airlines System Berhad; and over 4,000 supplier contracts were reviewed.
This week, Khazanah announced the voluntary appointment of an administrator to prepare for the official launch of the new company from September 1.
With Mueller now at the reins, his comments about being hired to run the new company “entirely on commercial terms” demonstrate how the airline has been run for years.
Slashing fares and adding seats in an over-capacity market has been MAS’s strategy over the years, deemed commercial suicide and one which Mueller will want to reverse sooner rather than later. With a cost base at least 20% higher than competitors, MAS needs to act fast to survive in the cut-throat business that aviation is.
Bringing the aggressiveness back into the business with an effective, manageable and realistic commercial strategy to build yields – the difference between cost and revenue – is crucial to revitalise the airline. Job cuts and a route revamp are designed to improve productivity and close the gap with Asian competitors. The Malaysian air travel market has been dominated by low-cost airlines, primarily Air Asia, and aggressive full-service Asian neighbours Singapore Airlines, Thai Airways and Cathay Pacific, which combined have taken business away from Malaysia Airlines.
But so have the Big 3 Gulf carriers – Emirates, Qatar Airways and Etihad – pumping capacity into Kuala Lumpur to capture business onto their services to the Gulf and connecting flights beyond across the Middle East, Africa, Europe and The Americas. MAS’s long-haul network has been reviewed for several months and changes are expected in the coming weeks. With London and Paris established strong markets, under scrutiny for capacity cuts is expected to be Amsterdam, Frankfurt, Istanbul and Dubai within its network outside Asia Pacific.
MAS cut five long-haul destinations in its last restructuring in 2012, including Buenos Aires, Cape Town, Johannesburg and Rome to narrow its global reach and show the focus was more on developing regional operations.
Malaysia Airlines currently flies to over 60 destinations worldwide with a fleet of more than 100 aircraft. Seventy% of the fleet is single-aisle, short-haul regional aircraft; the remaining being long-haul planes such as the Airbus A380 superjumbo, of which MAS operates six, and its other wide-body planes, A330s and Boeing 777s.
Some of the long-haul planes have a “For Sale” sign as MAS looks to take advantage of its regional strengths and focus on shorter-haul markets under the new proposed business plan. It will also look to capitalise on strengthening ties with the oneworld alliance and its members such as British Airways, Qatar Airways and American Airlines to feed passengers onto global markets.
British Airways today relaunches daily non-stop flights from Kuala Lumpur to London Heathrow while Qatar Airways recently stepped up frequency on the KL-Doha route to thrice-daily giving MAS the opportunity to better utilise the services of oneworld partners without the cost of operating its own aircraft.
As Mueller prepares to implement the commercial strategy, he has been spared of the painful task of identifying cuts in the headcount.
Khazanah has been actively involved in the process of engaging with unions, employee associations and representatives from non-unionised staff to keep them abreast of developments covering everything from proposed separation schemes, staff reviews and management transition.
The review process was intense, focused on “right-sizing” the workforce and revisiting the company’s business model.
A talent assessment exercise was carried out on all 20,000 employees, taking into account their past performance, experience, qualifications, behavioural traits, disciplinary records, competencies and aspirations to join the new-look organisation.
MAS’s 500 most senior management underwent three-hour behavioural interviews with independent consultants while all other employees took competency talent questionnaires. No one was immune from the review, the biggest ever conducted by a Malaysian company.
Aware of the negative publicity that surrounded MAS management’s handling of the crises surrounding their two ill-fated Boeing 777s last year, Khazanah could ill-afford to have another crisis in the handling of Malaysia Airlines’ revamp.
Frequent updates by the government’s sovereign wealth firm were made over the past months to ensure transparency with employees and observers alike. It has been as much a public relations exercise as a practicable measure to avoid any further criticism.
It will be difficult to get away from the negativity surrounding last year’s aircraft incidents. And questions will be raised whether a rebrand and fresh identity really are the answers to shroud the negative perceptions of the airline.
Whatever form Malaysia Airlines takes in the weeks and months ahead, the government will make every effort to retain a flag carrier that the nation should be proud of.
Any national carrier is seen to facilitate economic growth, drive economic development and, more importantly, spread the nation’s brand overseas.
As Christoph Mueller settles into his new role with sleeves rolled up, he will relish the challenge of reversing the misfortunes of MAS and guiding it into the spotlight for the right reasons.
♦ Updesh Kapur is a PR & communications professional, columnist, aviation, hospitality and travel analyst. He can be followed on twitter @updeshkapur
Malaysia Airlines preparing for a complete overhaul that includes the sale of some of its Airbus A380 superjumbos.
