Malaysia Airlines flip-flops, its future uncertain

THE powers that be at Malaysia Airlines seem to be not quite sure about what they want. The apparent lack of conviction in their commitment to right a tilting ship has left the airline directionless and without a palpable vision.

In August last year, the ailing airline made a share swap with white knight AirAsia in a move aimed at checking Malaysia Airlines’ plunge further into the red. This would result in AirAsia chief Tony Fernandes owning a 20.5 per cent stake in the national flag carrier, in exchange for a 10 per cent stake in the budget carrier. Today, that deal is off as both airlines agree to unwind the share swap, reportedly “on a willing-buyer, willing-seller basis” but not discounting political pressure and that from Malaysia Airline staff and their union. This will also see the exit of both Fernandes and his deputy Kamaruddin Meranun from the Malaysia Airlines board of directors.

Scuttled along with the abortive deal is of course the master plan to restructure the Malaysian competition that would divide the market between the compatriots and their subsidiaries. It was a national agenda. Malaysia Airlines would focus on the long haul, leaving the budget market to AirAsia, which owns AirAsia X that operates the budget long haul. Malaysia Airlines already has a budget offshoot called Firefly that operates within the country and to nearby destinations in the region.

Both Malaysia Airlines and AirAsia airlines also talked about setting up a regional premium airline, although it was not known if that would be separate entities or a collaborated effort. The rumour then was that Qantas was keen to team up with Malaysia Airlines to realize its own plan to set up a regional premium carrier to be based in Asia, but agreement could not be reached between the two parties.

That did not come as a surprise. The Australian flag carrier, faced with objection from staff unions at home, had sought a compromised solution in a joint venture that would also reduce its capital outlay, but if it were Malaysia Airlines that it had wooed, it might have found the enthusiasm not quite at the level it had expected although it attributed the breakdown in negotiations to disagreement on commercial terms.

Clearly Malaysia Airlines has its own bag of woes. The airline posted a loss of RM2.52 billion (US$841 million) in 2011, prompting its chairman Tan Sri Md Nor Md Yusof to declare that “the company is in crisis.” At the time of announcing the result in March, Group chief executive Ahmad Jauhari Yahya also recognized the dire straits that the carrier was in, calling for the airline to urgently adopt strong measures to stop the “bleeding”. Such measures would include “staff redeployment, increasing productivity and efficiency, relentless cost control and making further reviews.”

Undoubtedly there was heightened awareness of the airline’s ailing state – and it had verbalized its ambition to be back on the leader board. Mr Yahya had said Malaysia Airlines was exploring the possibility of partnerships for its regional premium proposal, but it that was not forthcoming, it would go it alone. As part of the airline’s restructuring or perhaps, more aptly, transformation, he had said: “We are also implementing an aggressive sales and marketing strategy.”

The real problem could be one of inertia or the lack of conviction. It may be a case of the spirit is willing but the flesh is weak. Of course, it is always easier said and done, noting how the business is invariably punctuated with risks and uncertainties in the throes of the rising fuel price. Despite that, what Malaysia Airlines needed is a clearly delineated strategy that calls for specific and concrete action – so much about improving staff productivity and efficiency, and reducing cost.

To be fair to Malaysia Airlines, it may well surprise with something up its sleeve. The airline is expected to announce a plan at the end of the month on how it would raise funds and strengthen its balance sheet. The share swap flip-flop may be nothing more than a corporate, structural change of names that is a normal business practice, and the result of an enlightened review. In retrospection, its termination may even ward off any potential conflicts between the two parties and their subsidiaries, even as they have decided to carve up the market, a move that may benefit more the budget carrier than the full-service airline in the run up to Asean Open Skies by 2015.

However, both airlines have pledged to continue their cooperation. They have entered into new agreements of collaboration to explore the setting up of a joint-venture company to provide aircraft component maintenance support and repair services, and to establish procurement synergies through a “special purpose vehicle” that would bring about the economies of scale for Malaysia Airlines, AirAsia and AirAsia X.

No big deal. One key word is “explore”. Malaysia Airlines may be mindful of how “the heights by great men reached and kept, were not attained by sudden flight, but they, while their companions slept, were toiling upward in the night.” (Henry Wadsworth Longfellow) Waiting for the right time to act may mean missing the boat when opportunities arise.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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