Malaysia Airlines' (MAS) hub-and-spoke network being weaved by the current management is one of its four strategies to achieve a sustained financial turnaround.
Idris Jala, its chief executive officer, felt that the airline had operated on an inefficient network, flying point-to-point to too many destinations.
He is changing it such that MAS will fly to selected regional hubs only, with feeder passenger traffic coming from connecting routes or spokes operated by other airlines under code-share agreements.
MAS signed a code-sharing agreement with South African Airways last month and Italy's Alitalia on Thursday.
In a meeting with the media in Johannesburg recently, Jala said he had come to a conclusion that MAS had four weaknesses: a low yield, an inefficient network, excess manpower and high costs.
Hence, he mapped out various strategies to remedy these weaknesses. These strategies have been executed to some extent, with some programmes that are still in the process of implementation.
An efficient network, based on a hub-and-spoke setup, offers two advantages – lowering costs and increasing yields.
In the industry, yield refers to revenue management that is usually associated with flexible pricing, with different prices on the same routes on different dates.
When Jala joined the airline in September 2005, he found that the Kuala Lumpur-Manchester route needed a load factor of 140% to break even. After brainstorming here and in Manchester and after a solution was not found, the route was scrapped.
“It's very tough to fill a plane on a point-to-point model,” he said. Hence, MAS signed a code-share pact with British Midlands airline.
A number of spokes, provided by partner airlines, increase passenger load factor for MAS. “You don't have to invest in the metal (planes), and you get the passengers,” he said.
The hub-and-spoke model will help MAS lower its costs. “I'm aiming for the airline to be able to break even with a load factor of 60%. We're not there yet,” Jala said.
MAS is not a member of a global airline alliance and, so does not benefit from passenger traffic routed from alliance members. It will overcome that with its own code-sharing arrangements.
It is understood that being late in trying to join a global airline alliance, MAS may not get favourable terms.
To a question on the Government's plan to reduce its stake in MAS, Jala said it would be very good because that would improve liquidity of the stock and that there was tremendous interest from foreign investors.
It would have been a wrong decision for the Government to sell the shares at about RM2.60, its lowest level last year.
“It would also have been wrong to sell at RM4 but RM5.75 is reasonable,” he said.
During his tenure so far, MAS' total market value has risen from about RM3.6bil to RM7.4bil. Its share price, meanwhile, almost doubled from around RM3 in 2005 when he joined the airline to RM5.90 yesterday.
Source : STAR
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