Monday, March 12, 2007

MAS revamp shows positive results

OVER the past one year Malaysia Airlines (MAS) has been busy turning around various parts of its business in the hope that it will be able to record the yields that it desires and carry enough load that justifies the load factor.

It has also offered competitive fares that the market wants and fly into the profitability path that it is so eager to be in.

As part of the revamp, the airline managed to reconfigure its network, fly only to destinations where it can record decent yields, improve its reservation system, enhance yields and create wider distribution channels. The national carrier has also successfully gained full control of seat inventory, realign its fare class pricing and install a system that allows it to track competitor’s fares.

In an interview, MAS senior general manager of network and revenue management Bernard Francis gave an insight into the arduous journey he and his team had to endure the past one year to put things right.

Bernard Francis

Network reconfiguration

MAS was flying to too many unprofitable routes that had caused the airline to make losses on many of the routes it plied.

The revamp was in three phases – to make the KL International Airport a hub and discontinue major international flights from other hubs.

The plan also included the withdrawal from destinations that were deemed unprofitable routes or that did not add commercial value to the network. The process helped MAS reduce a number of aircraft from the system. Only destinations that could potentially be profitable were reinstated.

Low yields

Low yields were a major issue at MAS. Its extensive network matched that of rivals Singapore Airlines' (SIA) and Cathay Pacific’s but yields paled in comparison to its rivals.

A route profitability lab was set up for a month where all of MAS' station and area managers and people at its network unit studied all aspects of route profitability from scheduling, competition, fares and product offering in all the markets thaT MAS flew in.

The findings showed that MAS, as a product, was good in some markets but not in others and fares were generally under priced in most markets.

Reacting to this, MAS had adjusted its pricing immediately. The team later found out that it had failed to address the seat inventory issue where MAS could not determine the pricing of each seat.

Nonetheless, yields have improved from a year ago. As at end Dec 31, 2005, MAS' yields, a metric defining average fares paid by passengers, stood at 20sen but a year later rose to 24.2 sen. It is still low compared with Cathay and SIA and this year MAS is working towards further revving up its yields.

Omega project

Acknowledging that there was a mismatch in pricing and seat inventory and given the perception in the market that MAS fares were high even though independent data from the International Air Transport Association (IATA) showed otherwise, MAS embarked on a project codenamed Omega. Forty-three initiatives were identified to simply look at pricing and inventory management, network planning and scheduling.

Arising from this, zoning of fares according to distance – short, medium and long haul – as was done by SIA and Cathay was implemented.

Being a network airline, MAS should be calculating yields by distance and not fare by distance, Francis said.

This led to the creation of the fare class realignment (FCR) where 16 new fare classes were announced as opposed to fewer classes previously. The FCR sets the floor price for all routes with the lowest benchmarked against competitors. In addition, within the 16 fare classes, the quantum of differentiation is 10%, ensuring there is always an affordable option for travellers.


Having the fares but not distributing it to the right channels would not get MAS the passengers it needed. A revamp of the distribution system was also conducted.

Francis said: “We were totally dependent on travel agents as a network airline but the strategies were different previously. Fares were distributed on paper and some agents might not have the fares to quote travellers.

“Now, any fare changes are imputed into the global distribution system (GDS) for agents anywhere in the world to view and quote.’’

This ensures transparency not just for the agents. Air tickets now carry the right fare paid by the passenger and not the IATA published fares. This eliminates any manipulation of fares in the system. MAS now has 570 distribution agents in Malaysia alone versus 357 previously.

Given that MAS now has total control of its seat inventory, the airline can make price adjustments nearer to flight date to maximise revenues so long as it has a 60%-70% load factor.

It could also offer discounts if the flight had not reached the desired load factor within a specific time frame. That is why MAS can organise more travel fairs and promotions, as it knows exactly which seats are available for sale at any one time or on any particular flight.

Fare management distribution system (FMDS)

FMDS is an online system that allows MAS to track all fare prices globally on all the routes it plies and with that the airline will be able to react to any market pricing within 24 to 48 hours. The system will be operational in June.

The whole objective of the entire revamp is to also push for e-ticketing and manage pricing to meet demand and supply so that the airline will not just get the yields it hopes for but also provide the most competitive fares in the market place.

Source : STAR
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