Wednesday, February 06, 2008

MAS aims for up to RM1bil cost savings

Malaysia Airlines (MAS) hopes to realise cost savings of up to RM1bil over the next 12 to 18 months with several initiatives and cost reduction programmes in place.

With a lower cost base, MAS – which is transforming itself into a five-star value carrier (FSVC) – hopes to “offer more competitive fares” that would hopefully allow it to carry 25 million passengers by 2012.

The bulk of the cost savings would be factored into this year, as the various initiatives are at different stages of implementation.

Cost saving is one of the five steps outlined in MAS' five-year business transformation plan (BTP) launched yesterday to turn the national carrier into a FSVC.

Managing director Datuk Seri Idris Jala said although the plan might be ambitious and there were challenges in its implementation, he admitted that MAS “needs a business transformation or it will fail.”

Datuk Seri Idris Jala (left) and Tengku Datuk Azmil Zahruddin Raja Abdul Aziz at the briefing on MAS business transformation plan
There are 493 initiatives that look at, among other things, revamp in procurement, introduction of meal boxes, reduction in meal wastages, renegotiation of hotel rates for crew members, measures to save on jet fuel, introduction of alternative airports and revision in taxi fuel policy to minimise fuel burn off.

The BTP also involves measures by MAS to offer five-star quality products and services, competitive fares, get more customers and revenue, as well as grow its network and capacity.

The airline aims to record an annual net profit of more than RM1bil up to 2012.

“We believe that if we aim for the best and stretch our limits, we will achieve an annual profit of RM1.5bil by 2012, even after factoring in the industry’s challenges,” Jala said. The projections were based on crude oil prices at US$100 per barrel.

Jala is confident that MAS could achieve RM2bil to RM3bil in profit per annum if all went as planned but “without the plan, MAS could potentially lose RM1bil in a worst-case scenario by 2012”, given the intense competition and demand outstripping supply with overcapacity.

This is the second plan the airline has unveiled since Jala was appointed MD in 2005. In February 2006, the business turnaround plan was launched to steer the airline back into the black.

For the third quarter ended Sept 30, 2007, MAS reported a net profit of RM610mil. Analysts expect MAS to net nearly RM1bil in net profit for the full year.

By reducing its overall costs, the airline believes it would be able to offer more competitive fares.

It would focus on the leisure market, which is essentially a price sensitive market. Given the competition from the low-cost carriers, MAS has to be in a position to offer fares that are competitive enough to attract the leisure travellers.

Jala added that MAS would add more seats to its economy class by removing some of its business class seats.

He said the airline's core network would be in Asean, China and India. It would restructure its North American and Middle East routes, monitor its South American and South African routes, and operate its Australian and European markets via a hub and spoke strategy.

MAS also intend to expand its fleet, going forward, and take ownership of new planes serving its core network.

It has yet to order more aircraft and executive director/CFO Tengku Datuk Azmil Zahruddin said a decision would be made this quarter on new orders.

On the status of the six A380s, Azmil said the airline was not happy with the continued delay in delivery of the first A380 and was still looking at getting compensation from Airbus.

Jala said the focus now was to “make use of existing assets” but that did not mean the airline was not sourcing for new ventures.

It was in negotiations for a joint venture to set up maintenance, repair and overhaul operations with Qantas in Subang, he said.

Entering into an alliance is also conceivable by 2012 and to Jala “this is crucial as we need to belong to a tribe (alliance).

“MAS is looking slightly more beautiful as we are more confident now and we would be able to do a lot more things (in the future).”

Source : STAR
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