Will Qatar Airways be Malaysia Airlines’ white knight?

Some three to four months after Malaysian prime minister Mahatir Mohamad said ailing Malaysia Airlines (MAS) may shut down or be sold, he revealed he had received four proposals to take over the national flag carrier.

The first known interest came from former AirAsia non-executive chairman Pahamin Ab Rajab and five partners, whose consortium is looking at scooping up a 49 per cent stake in MAS. Whether AirAsia is part of the consortium is not clear, but the budget carrier’s chief Tony Fernandes had said he was not interested as it would be a mistake for a low-cost operator to want to go full-service. (See Can AirAsia save Malaysia Airlines, 8 July 2019)

Qatar Airways now emerged as the second prospective white knight come to the rescue of MAS following a meeting between Dr Mahatir and Qatar Emir Sheikh Tamin Hamad al-Thani. Both Qatar and MAS belong to the OneWorld alliance. At least that’s common ground for a start, unless geopolitical problems Qatar faces with its neighbours that lead to its isolation in the region stand in the way.

But, of course, no doubt Qatar has the funds to shore up the loss-making MAS. There are good competitive reasons for doing so. The tie-up will certainly boost Qatar’s standing in Southeast Asia and the extended Asian region. Dr Mahatir has recognised that MAS suffers from fierce competition, and Qatar’s aggressive strategy in the international arena may well also push the Malaysian carrier in the same direction.

The acquisition will complement Qatar’s investment in Europe, where it is already a major shareholder of the International Airlines Group (IAG) which owns British Airways, Iberia, Vueling and Aer Lingus. With a share of 20.01 per cent, it s IAG’s largest single stakeholder.

It is interesting that of the four proposals received by MAS, Qatar is the only foreign company. It is not known if the other proposals are from industry players apart from the suggestion that Mr Pahamin had an aviation link in a non-executive capacity. That probably explains how many industry experts think MAS’ best bet is AirAsia, once a carrier heavily indebted and now Asia’s leading budget operator.

Qatar’s credentials as the world’s best airline voted by Skytrax respondents are impressive, but national pride to keep the flag carrier in local hands may present a hurdle. Yet one only has to look at Swiss International Air Lines now owned by the Lufthansa Group and the merger between Air France and KLM to appreciate how in business, the desire to survive will dictate the course. Already Dr Mahatir has assured his people MAS will retain its name.

Can AirAsia save Malaysia Airlines?

Courtesy Reuters

Back in March, AirAsia chief Tony Fernandes said he was not keen on acquiring Malaysia Airlines (MAS).

This came amidst speculation of a likely scenario when Malaysian Prime Minister Mahatir Mohamad mulled over the future of the beleaguered flag carrier, suggesting it might be better off sold if not downsized or expanded as the case may be with a change of management.

Dr Mahatir said: “Although we hired foreign management, MAS still faced losses. Therefore, one of the options is to sell.”

Four turnaround initiatives without success had apparently cost the government MYR250 billion (USD 6.05 billion).

Recent events have led to renewed speculation of AirAsia’s interest. Former AirAsia Group Bhd non-executive chairman Pahamin Rajab is said to have met Dr Mahatir. However, it might well point to Mr Pahamin’s personal interest eyeing the top job at Malaysia Airlines following the resignation of Tan Sri Mohammed Nor Md Yusof as chairman.

But if the acquisition does come about, it would be an interesting case of how a budget carrier came to assimilate a larger national carrier. AirAsia, once itself heavily indebted, had become Asia’s leading budget carrier.

There are clear benefits of such a merger. The two carriers can complement their networks and not compete as rivals on the same routes given AirAsia’s ambition to expand into the long-haul market, unless the products differ substantially in their make-up. This can be modelled after the likes of Singapore Airlines-Scoot and Qantas-Jetstar complement.

The execution is key. The industry has seen one too many examples of assimilation by a legacy carrier of a low-cost operator. For AirAsia, the big question must be one of how its operating culture will mesh with that of MAS, noting in particular that its success lies in the austere budget model although this does not imply it is not inclined to be service-bias.

One can’t help but wonder how and why MAS has failed to change in spite of earlier initiatives at restructuring, so much said about cost-cutting and perhaps not enough focus on the operating culture. So can AirAsia work the magic?

But, of course, only if Mr Fernandes wanted it. He had said: “For low-cost carriers to go full-service… is a mistake.” He had also called Malaysia Airlines “old-fashioned”. For him, the priority is to transform AirAsia into a “travel technology company”. In his words, to be “more than just an airline”.

The real question then is: Is MAS ready for the transformation?

The hangman cometh at Malaysia Airlines

mas logo2IF Christoph Mueller, the new man appointed to head Malaysia Airlines (MAS) – to be renamed on 1 September as a new airline – appears to be a hangman at the onset, it is understandable since termination letters have been sent to all employees ahead of the airline’s re-launch .  It is estimated that at least 6,000 employees will be axed and others offered to join the new airline. Some may be offered short-term contracts.

The staff cuts should not come as a surprise. It is an inevitable path that struggling companies undergoing restructuring are apt to take, and in almost all cases when a new helmsman comes on board. Mueller himself is an experienced hand in that respect. When he joined Sabena in 1999 as CEO, he axed several jobs as a way to keep the Belgian airline competitive, but unfortunately it went into bankruptcy in 2001.

Mueller was best known for his success at turning around loss-making Aer Lingus when he was appointed CEO of the Irish airline in 2009. He implemented a slew of cost cutting measures that include axing more than 600 jobs. After six years, he left Aer Lingus to join MAS, which some observers consider to be a bigger challenge.

Courtesy Irish Echo

Courtesy Irish Echo

The Malaysian flag carrier has been battling years of financial losses, and it suffered two disastrous airliner incidents last year – the disappearance of MH370 on Match 8 with 239 people on board followed two months later by the shooting down of MH17 over Ukraine, killing all 298 passengers and crew. Added to that, Mueller’s appointment was not one that was politically acceptable in all quarters, including some local businesses. Former Prime Minister of Malaysia, Mahatir bin Mohamad, for one considered it an insult to Malaysians and had reportedly said: “I am worried, if we do not believe in ourselves, one day when we need a prime minister we can get a white man because he is smarter than us.”

However, it being a business appointment, the political invective loaded with sarcasm is unlikely to cost Mueller any sleep. It was not directed personally at him, just so he is an outsider, being the first foreigner to head the Malaysian state-owned company. The test, as he might say, is in the pudding.

On the industrial front, one may also consider Mueller fortunate to have been equipped with the experience of dealing with rather powerful unions at Sabena and Aer Lingus, that he should therefore be well prepared for similar tussles at MAS. In an interview with Cambridge University’s business school, talking about his experience at restructuring a company, he recounted: “The first year of a restructuring is really like a war situation.” For all the angst expressed by affected workers and sympathizers, Mueller is likely to find a more congenial field compared with his previous encounters.

But that does not mean he has an easy plate. In the same Cambridge interview, Mueller said: “My experience is it’s very difficult to create a winning team from existing management.” The issue is more than just trimming bloating staff numbers down the staff ranks. He explained: “There’s nowhere more obfuscation than in the boardroom at the beginning of a turnaround.” Every CEO bent on change knows getting the support at the top and getting them to fly in the same direction are critical in herding the flock whose compliance will then follow naturally.

It is to be expected that Mueller will likely replicate some of the things he did for Aer Lingus at MAS. These include reducing capacity and eliminating unprofitable services. The new MAS will cut back on international routes, and focus on domestic and regional routes. This is not new as the airline has already been abandoning or suspending unprofitable routes, both long haul and regional as it continues to reel from the throes of the global financial crisis. Downsizing will make it more manageable to reconstruct on strengths, then expand and grow on a firm footing from there. Mueller said MAS will maintain its presence internationally through alliances and partnerships.

As an outsider, Mueller is not weighed down by old baggage and biases, even as national pride may be hurt since MAS is the country’s flag carrier and a national icon. He is therefore in a better position to inject fresh ideas and make unprecedented moves although it would be foolhardy of him not to take into cognisance potentially political and cultural sensitivity of some of the measures he may put in place. Dealing with domestic issues even for a local leader may demand more delicate handling than international ones.

There is a stark similarity between Aer Lingus and MAS where the competition is concerned. For the former, there is Ryanair, and for the latter, AirAsia, the rivals in both cases being budget carriers. Mueller has been credited for staying attempts to takeover Aer Lingus by Ryanair, which is Europe’s largest budget carrier and the Irish national airline’s single biggest stakeholder. Regionally MAS has been facing stiff competition from AirAsia, which is Asia’s largest budget carrier. Shifting the focus from international to regional competition, the new and smaller Malaysian national airline’s rivalry with AirAsia can only magnify as it intensifies. It is to be seen if the restructuring will take its toll on two subsidiary budget airlines, namely MASwings and Firefly.

Yet it cannot be assumed that the task for Mueller at MAS is a carbon copy of that at Aer Lingus. In his own words, Mueller described his challenge at MAS as a “hard reset” for the airline. He talked about “a new start in markets where our brand is tarnished” but was careful not to disparage the old name as “we want to be as well-known as the old carrier.” Yet he has made it clear that “the travelling public needs to understand we are not just MAS in a new disguise but truly a start-up.”

It looks like an ambitious overhaul in not so many words, and the “orang puteh” (white man) is working fast to prove the battle is his to win. A month into his job, Mueller is expected to unfold his program, or at least some early measures, by the end of the month. It will add to his credit that he, as a foreigner, when finally succeeding in bringing MAS back into the black, also manages to rebrand the airline that he has promised will still be “Malaysian at heart”.

This article was first published in Aspire Aviation.

Malaysia re-strategises: Too little, too late?

Malaysian aviation authorities are implementing new strategies to revive the fortune of the country’s beleaguered national flag carrier and its air hub standing in regional competition. Recent developments include the appointment of a new chief to head Malaysia Airlines (MAS) and the launch of a new airline – flymojo – to be based in Johor Baru in close proximity to Singapore Changi Airport and in Kota Kinabalu, East Malaysia.

Malaysia Airlines

Courtesy GETTY Images

Courtesy GETTY Images

Outgoing Aer Lingus chief executive Christoph Mueller will be taking over the helm of MAS as CEO of a new company to be launched in July. Analysts generally do not deny that it will be an uphill task for him, but to his credit it is also said it is the challenge that he will relish to add another feather in his cap. Some local quarters are not particularly welcoming of his arrival, with former Malaysian Prime Minister Mahatir Mohamad viewing the appointment of a “white man” as an insult to local talent. Mueller is the first foreigner to be appointed to the leadership position.

But Prime Minister Najib Razak said Mueller would help “lay strong foundations for the future success of our national carrier.”

The political aversion should not prejudice any judgment of Mueller’s qualifications to turn round MAS. Indeed, he comes with extensive industry experience. Investment company Khazanah Nasional Bhd, which owns the airline, said the job required “absolutely the best aviation management expertise”. Its managing director Tan Sri Mokhtar was impressed by Mueller’s “strong track record of turning around national flag carriers.”

Courtesy Irish Echo

Courtesy Irish Echo

Mueller has been widely credited with improving the fortunes of Aer Lingus since assuming the top honcho position in 2009. He leaves the airline on a high note in May. The Irish carrier reported one of its strongest performances last summer with operating profits increasing by 19% to €112.9 million (US$128.1 million). Aer Lingus chairman Colm Barrington said: “Under Christoph’s strategic leadership, Aer Lingus has been transformed into a strong, consistently profitable airline with a clear strategic direction, a resilient business model as a value carrier and an improved cost base.” Aer Lingus expanded transatlantic routes and chalked up points for good customer service. Perhaps its most noted battle success during that time was staying a takeover of the airline by budget carrier Ryanair.

Mueller’s appeal to MAS is apparent. But little was said about his failure at turning round Belgium flag carrier Sabena in his earlier years. The airline went bankrupt in 2001. But since that came before his success at Sabena, it is likely irrelevant, even forgivable, considering that he might be operating under circumstances beyond his control. One of his tasks at Sabena was to downsize the workforce, which resulted in bitter industrial action; a major task at MAS is similarly cutting down at least 6,000 workers out of a staff of 20,000, which fortunately for Mueller has already begun to take effect, and quite unlike Europe, industrial strikes are probably less likely to happen to the same extent in this part of the world.

The question remains: Can Mueller succeed? He definitely has the advantage of coming to the job as an outsider without the baggage of the past but with a clean slate to implement new ideas and directions. One wonders if he had not been a “white man” but, say an Asian, would his appointment have ruffled as many feathers locally? He probably would, as the issue looks to be one of an appointment from without rather within the company. Many struggling companies have taken that path to be rid of entrenched old practices and to welcome fresh ideas. New brooms sweep clean. Some companies even think it better to pick someone from outside rather than within the industry, for a fresh perspective and possible transfer of workable solutions that insiders do not, cannot and will not see because of their prejudices and the blinkers they wear that limit their horizon.

Consider how close rival Singapore Airlines (SIA) picked a foreigner to launch budget Tigerair, which in later years as it was struggling with a bad name recruited someone from outside the industry before appointing an internal candidate to the job as the carrier continues to find ways to avert its misfortune. Whether it is a right or wrong move, the decision is best explained as situational. Timing too has everything to do with it. And the best candidate for a salvage job knows, even as he denies it, he needs that little bit of luck too.

It would appear that MAS has waited too long to restructure as it muddles through years of red ink, and that this should come only after two tragic incidents that occurred within four months of each other last year, the first involving a flight carrying 239 people that went missing soon after take-off in March and the second shot down over Ukraine in July killing all 298 people on board. The writings were long on the wall, but until then the efforts to improve performance seemed too sparse, too little, even risking the impression of a smack of complacency, and strangely optimistic that the tides must change at some point. Prime Minister Najib had said the incidents “will change the way MAS operates. We believe our national carrier must be renewed. This means wholesale change… Only through a complete overhaul of the company can we deliver a genuinely strong and sustainable carrier.”

That spells out for Mueller the challenge, which really hinges not on whether he can turn round the airline but how much free hand he has in steering it clear of the red ink the way he thinks it should go. In many ways MAS presents the same context as Aer Lingus, one of which is the competition posed by not only regional giants such as SIA, Cathay Pacific and Qantas, but also homegrown budget carrier AirAsia quite like Ryanair. The biggest challenge will be for Mueller to restore public confidence in the new MAS beyond a change of name and logo if that is on the card, a lesson from Tiger Airways changing its name and livery from Tiger Airways to tigerair that it takes more than that if at all it marks a fresh start. A bit of good news for Mueller is that MAS delivers a reasonable level of customer service, ranked in the top 20 by Skytrax last year.

Mueller’s biggest challenge may be cultural, a nebulous realm without overstretching it, sensitive given that any interference by Khazanah may also be pinned down to it being so, but not insurmountable. This will be his saving grace, but there is no reason to think that he will not be able to steer MAS back to profitability. Sooner is better, but one remains hopeful that it is never too late.

flymojo

Courtesy Bombardier

Courtesy Bombardier

Malaysia’s launch of flymojo appeared to be an afterthought that came lately, perhaps reflecting with a tinge of regret over the sale for one Malaysian ringgit (US$0.27) to Richard Branson wannabe Tony Fernandes a debt-ridden carrier that today by the name of AirAsia has become Asia’s largest budget carrier, and noting the lukewarm development of MAS’s offshoot Firefly. Meantime the region witnesses to today the exponential growth of budget carriers as Asean and nearby neighbours adopt more liberal aviation policies.

The new carrier is scheduled to commence operations in October this year with a fleet of Canadian made Bombardier CS100 aircraft. While its stated aim is to play a key role in improving air travel between Malaysia and other parts of the region, it does not disguise its intention to grow Senai Airport in the southern state of Johor. Deputy minister of transport Aziz Kaprawi said: “As the only airline utilising the southern corridor as its headquarters, flymojo will transform Senai into a key regional aviation and logistic hub.” You cannot help but note its proximity to Changi. For years now, Senai has been trying but with not much success to attract some traffic away from the Singapore hub, even with MAS transferring complementary its passengers by coach from downtown Singapore to the airport. Its best bet is the cargo business, considering its limited passenger facilities and network and the inconvenient location; even then, that is developing not quite fast enough. Changi is unlikely to be fazed by the threat.

Malaysia may have already missed the opportunity to raise the hub status of its capital airport Kuala Lumpur International (KLIA) when in 2011 Qantas decided to launch a new regional Asia-based premium airline that could be based there (Changi being the competitive alternative) but killed the idea soon after. According to the latest Skytrax survey, KLIA ranked second after Seoul Incheon (Korea) as the best airport serving 40-50 million passengers per year, but it would be simplistic to think that any airport with customer appeal alone can achieve hub status.  Yet it is not far-fetched to see how an airport and its home airline can grow in tandem, complementing each other.

As for Senai, the success of flymojo is critical. And for flymojo, while it may be the only airline basing its HQ there, the competition it faces stretches beyond the southern corridor.

The second half of this year will be interesting as observers wait anxiously to see Mueller’s tablet of change for MAS and as flymojo takes to the sky. It cannot be business as usual.

This article was first published in Aspire Aviation.