Good progress on turnaround plan with encouraging performance in Q3
Passenger load factor for Q3 improved to 79%; market share on London route up 15%
Expansion plan announced with nine new routes to China and new routes between Penang and Sabah, Sarawak
Up to 50 737 MAX aircraft ordered to replace ageing aircraft and for growth
Group expects to record a loss for the year 2016, but significantly smaller than initially budgeted
Captain Izham Ismail appointed COO, further strengthening the Malaysian leadership pipeline for local succession planning
Malaysia Airlines Berhad (“MAB”) is pleased to announce its latest quarterly update, in line with its commitment to good corporate governance and transparency.
MAB showed steady progress in the period July to September 2016 (Q3), with cost control continuing to be the central focus and the airline on target to deliver ahead of budget. The quarter saw a marked improvement in revenue and passenger loads. The airline’s customer service index continued to recover as product improvements were steadily introduced in the quarter.
Malaysia Aviation Group Berhad Group Chief Executive Officer Peter Bellew said: “The focus in the first half was on reducing costs and improving the customer experience. From July 2016 we began to push hard on revenue generation with more aggressive sales and marketing initiatives. Passenger load factor for Q3 improved to 79% from 69% in Q2 and 74% in the comparative Q3 of 2015. The quarter saw expansion plans with an order of up to 50 new Boeing 737 MAX aircraft. Malaysia Airlines has also expanded its network as it launched nine new routes to China for 2017. The new lie flat seats and upgraded food in business class on our widebody aircraft has seen a 20% increase in forward bookings for the next six months. Further progress was also made in developing Malaysian leadership succession, with the appointment of Capt Izham Ismail as COO.’’
Passenger revenue for the quarter saw a 12% increase over the previous quarter due to aggressive sales campaigns. Marketing campaigns were kick-started in August and September after a lull period focusing on the all-inclusive value fares offered with no hidden extras.
A new co-operation programme started with the travel trade in Malaysia and the UK, which resulted in senior management visiting the airline’s top 20 agents to agree on new long-term trade distribution strategies. Load factors also improved at 79.3% system-wide. Targeted marketing also led to a 15% market share increase on our London route from 45% in May to 59% in September.
The airline and Group continued to make progress on cost reduction which will remain a key focus with the renegotiation of contracts and consolidation of suppliers continuing across the board.
The Group saw a reduced net operating level loss (by 7% compared to Q2) which is a positive indication that the turnaround efforts are on the right track. Overall, the airline and the Group are expected to record a loss for this fiscal year but management remains confident that both will surpass targets based on the traction gained in the turnaround efforts thus far.
The global megatrend in tourism is China and Malaysia offers natural advantages with its similar culture, food and language. Malaysia Airlines will start nine new routes to China in 2017 with direct services from Penang to both Shenzhen and Shanghai. Kota Kinabalu will see a new service to Tianjin. Kuala Lumpur will get new services to Haikou, Nanjing, Fuzhou, Wuhan, Chengdu and Chongqing. This follows the airline’s recent announcement on the service upgrade to its morning Kuala Lumpur-Hong Kong sector from the Boeing 737 to the Airbus 330.
Liverpool Football Club
In a move towards more visible brand awareness, Malaysia Airlines became the “Official Global Airline Partner of Liverpool Football Club”. This provides Malaysia Airlines numerous benefits including: LED and static board brand exposure at each home game at Anfield stadium, and exposure on the Liverpool FC website, publications and Facebook page. Liverpool has enormous brand presence in the airlines’ key markets and the deal is giving it quick brand recognition in China.
Operational improvements continue
Punctuality, measured by On-Time-Performance ratio (OTP), declined in the period due to several internal and external factors. To this end, Malaysia Airlines will work with all parties on improving OTP. For the winter schedule, which commenced on 27th October, more than 100 flights have been retimed which has seen an immediate improvement in OTP by 8%. The airline is also working on improving ground handling processes and fleet reliability for better OTP.
The quarter saw Malaysia Airlines enter into an agreement with Boeing for the purchase of up to 50 737
MAX aircraft, with 25 firm orders and 25 purchase rights, valued at around USD5.5 billion at current list prices. The MAX aircraft is a game changer for Malaysia Airlines with 12% more seats, 14% better fuel consumption and a longer range to reach new destinations.
A380s for the Haj and Umrah
The Group is working towards finalising plans for the formation of a new airline, utilising the six A380 aircraft, servicing the Haj and Umrah market. Malaysia Airlines is already transporting Islamic pilgrims on charter flights to Saudi Arabia very successfully and is in a good position to cater for increased passenger demand on this route.
Customer service index improving
Upgrading the customer experience remains a key target for the airline. Steady improvements continued with improved food and beverage, Business Class lie flat seats on the A330s and 22% less mishandled bags than a year ago.
The airline’s award winning Enrich frequent flyer programme extended its reach with significant new partnerships across the ASEAN region. Customers now earn more miles with a simpler redemption policy, making it easier to earn free flights. The airline plans significant investments and enhancement to Enrich in 2017.
This quarter saw the cutover of call center operations to a new outsourced call center operated by Mindpearl. The new system has seen improved pick up times; however, the airline is working hard to improve on short term issues.
Technology driven company
A new passenger sales system from Amadeus will become operational in Q2 2017 with testing already commenced. Once completed, the airline will be able to offer customers enhanced speed and convenience, a simple web booking experience, state of the art mobile applications and bundled offers to suit individual needs.
Significant progress has been made by IT in its 2016 plan towards making the airline ‘Fit for the Future’. Phase one of the Data Center Transformation project has been completed with the successful migration of facilities from Subang to Cyberjaya.
Enhancing corporate governance
The Business Integrity unit achieved several milestones in the quarter, in-line with the airline’s focus on transparency, accountability and good corporate governance. This included the roll out of the Navex whistleblower system, fully automated and independent, which has significantly escalated the number of whistleblower cases. Also in the quarter was the implementation of the Thomson Reuters risk management application which allows the vetting of new employees and potential vendors to highlight potential issues such as prior convictions.
The Group also reinforced its zero tolerance policy with a major investigation conducted leading to a number of personnel dismissed and charged in court.
Investing in a talent pipeline and local succession planning
Malaysia Airlines commenced a management development programme for its staff that will intensify in Q2 2017. The end goal is that the future generation of leaders for the airline will be recruited entirely from Malaysian talent within. The succession for all of the key senior managers has been identified and programmes are in place to ensure a smooth transition. The development of Malaysian leadership succession is one of the two primary tasks for the MAB CEO, along with the successful turnaround of Malaysia Airlines.
Malaysia Airlines recently appointed Captain Izham Ismail as the Chief Operations Officer. Captain Izham began his career with Malaysia Airlines as a trained pilot in 1979 and has risen through the ranks serving in various departments such as Director of Operations and CEO of MASwings.
In addition, Malaysia Airlines continues to invest in new talent via its management trainee programme. A second group of management trainees joined in September this year.
The second Works Council Conference was held on 16th August. All members attended the session to present their progress and showcase some of the issues identified and solved as well as highlight issues that require further attention.
The Group remains cautious in its outlook for the financial year 2017 (FY2017). We have delivered a stronger second half of 2016 but a weak Malaysian Ringgit, Brexit uncertainty and overcapacity in the Malaysian market will be the dominant features of 2017. We have hedged significant fuel requirements but we will continue to be exposed to Dollar volatility in the first half of 2017.
We believe we will improve on our targets for 2017 as set out in the MAS Recovery Plan (MRP). Our guidance is heavily dependent upon there being no unexpected adverse declines in 2017 airfares and a possible headwind could be intense competition. Limited visibility and the planned expansion of other carriers in Malaysia, who may add an excess of aircraft, will result in gross overcapacity in our local Malaysian market and we expect fares to trend significantly downwards in 2017.
We expect unit costs will fall by a further 3% in FY2017. The price of fuel in 2017 combined with increased efficiency measures are expected to deliver significant savings and these savings will be passed on to our customers.
We expect to carry over 15 million customers in FY2017. Despite the tough operating environment Malaysia Airlines believes that we can deliver profitable growth in 2018 by controlling costs, competitive airfares, and maximising load factors in a manner that will benefit our customers, our people and our shareholder.