The FINANCIAL — Malaysia Airlines Berhad on September 8 announced its latest quarterly update, in line with its commitment to good corporate governance and transparency.
In a seasonally weaker quarter, MAB continued to show steady progress on the turnaround plan costs remained a central focus with the airline delivering ahead of budget. On-time-performance also remained stable amidst external challenges and the airline’s customer service index continued to recover as product improvements were introduced in the quarter, according to Malaysia Airlines.
Malaysia Aviation Group’s Chief Executive Officer Peter Bellew said “Malaysia Airlines made continued progress in what is traditionally our weakest quarter. Competition both domestically and globally remains intense and I expect it will intensify in the second half of the year. The focus so far has been on managing costs and continuing the product improvements in food, on time performance and new business class seats.
In the second half of 2016 we are working hard on revenue generation with more aggressive marketing and sales initiatives whilst maintaining strict cost discipline. We need to move quickly to maximise revenues and I am confident with the steady progress seen that we will succeed.”
Q2 performance
As expected, the second quarter was weaker due to seasonality with revenue down quarterly due to soft demand during Ramadan. Overall, the airline and the Group are expected to record a loss for this fiscal year but management remain confident that both will meet and potentially surpass targets based on the traction gained in the turnaround efforts thus far.
Whilst overall load factor was weaker, domestic travel loads improved.
The airline and Group continued to make progress on cost reduction which will remain a key focus.
Equally, the renegotiation of contracts and consolidation of suppliers will continue across the board. The airline’s fuel conservation programme also saw continued success with further reduction in consumption in the quarter.
Operational improvements continue
Punctuality, a core goal of the operations team, measured by On-Time-Performance ratio (OTP), remained stable during the period and reached a year-to-date level of 82% for the airline. External factors, such as delays in immigration processing and infrastructure constraints at KLIA did, however, have an impact on OTP. Improved OTP was registered across the group with MASwings at 87% and Firefly at 91%.
Fleet enhancements
A further two Airbus A350-900 aircraft were leased in the quarter for delivery in 2018. Construction commenced in June at Airbus in Toulouse of the first of six new Airbus A350-900 aircraft, which will be delivered in October 2017. The new aircraft will offer our customers an enhanced product on our direct London and international routes with great operating economics.
The quarter also saw the completion of two large-scale heavy maintenance C checks on our A380 aircraft – only the second time that this highly complex technical work has been completed on the A380 in the southern hemisphere. A new collaborative approach was taken, with a dedicated team of experts from Airbus in France and colleagues from Sepang Aviation Engineering (SAE) assisting in completing the work on time and on budget.
The installation of new business class lie-flat-seats on our Airbus A330 aircraft was completed on seven aircraft in June. We are on track to have the new seats throughout our ASEAN medium haul fleet by December 2016.
A review of each aircraft in the fleet was completed in the quarter, with the decision taken to retire two older 737-800 aircraft in September. The Malaysia Airlines passenger fleet is currently planned for Q3 to consist of 54 Boeing 737-800, 15 Airbus A330-300 and 6 Airbus A380.
Fuel savings
Fuel management and efficiency remains a key focus, with the Group continuing to implement initiatives that will ensure optimised consumption of fuel both in the air and on the ground. New initiatives included improved best practices in standard operating procedures and policies relating to matters such as flight speeds, weight on the aircraft and uploading of fuel.
Customer service index improving
The overall customer satisfaction index increased in the quarter as a result of various product enhancements. The newly revamped mobile app, enabling a more efficient and user friendly interface, for example, has been very positively received. Currently only available on Android, the airline will be introducing the IOS version soon.
The airline also received positive feedback thanks to catering enhancements introduced in May. These included the new “dine anytime” service, enabling First and Business class customers to enjoy their meals at their convenience. Upgrades to the airline’s Economy class were also well received with the introduction of larger protein portions for in-flight meals.
Technology driven company
A key milestone on the company’s path to advance digitally in an increasingly competitive environment has been the selection of the new Passenger Service System which is on track to be completed by the first half of 2017. Once complete, the airline will be able to offer customers enhanced speed and convenience, a sophisticated web booking experience, state of the art mobile applications and bundled offers to suit individual needs. Passengers can expect a leaner, more agile experience, from booking tickets to pre-purchasing excess baggage, meals and managing loyalty points, all at the click of a button.
The Group’s IT system is being overhauled to remove unnecessary complexity and to improve the customer experience. During the quarter the company selected key technologies and partners to kick off the “Fit for the Future” project. This work will ensure a more agile, cost efficient, secure, green and fast IT system.
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 Code of Business Conduct, where a manual declaration process was implemented for gifts, hospitality and conflicts of interests. Governance framework online training was also offered to all employees across the group alongside fraud awareness programmes promoted via pop up applications on all laptops and desktops. The Corporate Approving Authority (CAAP) Booklet and Manual was also completed in the quarter. Moving forward, the Business Integrity Unit will be focused on setting up a Knowledge Management Unit as a focal point for Learning & Development.
Investing in the talent pipeline
The development of talent and human capital to ensure a more robust and sustainable organization continued apace with the launch of several development programmes. This included training around leadership capabilities, where participants were evaluated and trained to address capability gaps. The airline also emphasises the continuous enhancement of technical skills amongst engineers, technicians and pilots. This is to ensure that they are kept abreast with technological developments and best practices. This includes pilot training in Seattle and Toulouse.
Malaysia Airlines Berhad also welcomed its first batch of management trainees this year, offering fresh graduates valuable exposure to the aviation industry. These investments in the talent pipeline will help foster a future generation of leaders for the airline, recruited entirely from within.
Staff engagement
The Malaysia Airlines Works Council, a tripartite between the various representatives from specific employee groups, Senior Management and Human Resources, met twice over the quarter. Established earlier this year, the council has provided an important platform for open dialogue between employees and management on matters of employee welfare and wellbeing. The council has enabled the airline to implement change more rapidly and efficiently.
Outlook for second half of the year
Competition within Malaysia has increased with other airlines introducing an additional 12 narrow body aircraft based at Kuala Lumpur airport. In addition, business class yields are under pressure globally. Malaysia Airlines plans to intensify its sales and marketing efforts and has a new revenue management plan in place to address these commercial challenges. The airline will also be aggressively engaging with travel agents, a key target audience in Malaysia. Forward booking patterns are already strengthening in Q3 and we expect improved performance on business class loads in Q4.
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