The MAS turnaround was real debate

The MAS Turnaround was real

You people better sit up and listen. All those talks about Idris Jala not actually turning around MAS are all cock and bull. He did. You people are just envious. You don’t think an unknown person from the Kelabit tribe can do the job. Hey man- he has the credentials. He worked with one the seven sisters.

These are probably the sniggering gestures the author had when finishing the last sentences of this article.

The author who worked with Jala during those impactful years reminded me of one African student in one of our seminars on economics in our post graduate class. He proudly informed the class that the main export of my country is labour and showed the class his biceps on the mention of the word labour. When our professor asked how he knows that, meaning he wants the student to elaborate and expand his statement by way of facts and figures- the student answered; No need for that- I know, I am from there. Our professor responded. In that case, we can’t debate your statement further.

You know, that is just it. The import of the author in this Mas turnaround was real article is similar. He knows. So that’s it.

Hello, in the name of intellectual honesty, we don’t have any problems in acknowledging what’s real from what is apparent. If Jala has done a good job, all credits are due to him. But the last sentence by the author in this article appears to reveal the true intention of the article- paint Jala as a larger than life figure. Would anyone, with an above average intelligence, given the terms of reference as that given to Jala, do the same thing and gotten all those achievements?

That should be our starting point. This nauseating myth building is just that- nauseating and reveals intellectual shallowness.

In order to evaluate what Jala has done, we need to have some reference point and comparison. How do you distinguish Jala? By giving out the facts and numbers comes the answer- as done by the author. Indeed they looked worthy and credible.

What made it possible for Jala to achieve those figures? He was given an electronic sledgehammer while those who came before him only had a small hand held hammer.

All the previous people who went in before Jala including the now infamous Tajudin Ramli, were not:-

(1) allowed to meddle with routes because Malaysia needs those to advertise herself.

(2) Can’t retrench the people in MAS

(3) can’t sell assets.

(4) MAS is also doing national corporate social responsibility. Plus many more constraints.

The most immediate question to ask, were there any additional facilitating factors that were available to Jala that were not given to previous lumberjacks assigned to the MAS jungle? Was Jala in fact given effectively a carte blanche whereas the previous people assigned to do it, was sent blindfolded with hands tied behind their backs. Of course it didn’t help matters when the person or person sent there, have personal wealth building agenda.

I just want to say to the gentleman who e mailed this article by Rashid Khan( not sure whether this Rashid was once a legal executive in Shell- I remember one fellow by this name who was with Shell in the late 80s) to hold on to his gloating smile. The jury is still out there. The scarcity of responses to the Rashid Khan article should not in any way be taken as inferring, his article is the gospel truth and should end the controversy.

If the setting up of Firefly was a sensible business sense and was credited with shoring up MAS’s operational profitability, its impending ‘eviction’ from the game must be prevented at all cost, by any means necessary, shouldn’t it? This issue whether Jala did right or stupid is just like the author said- a sub topic.

Let’s see that after I post the Rashid Khan article in full. The article( minus all the slideshows):-

In the wake of the MAS-AirAsia share swap story that swept Malaysians into a multi-dimensional arguments and views by the politicians and uninformed public, one of the sub-topics that created doubts amongst Malaysians was the previous turnaround effort in MAS.

I was the fortunate few that served MAS during Idris’s tenure and here I am drafting this article to correct the perception that the MAS turnaround was not a mere charade as claimed by certain quarters. General phenomenon of short attention span by Malaysians has propelled this article to serve its objective as a refresher. The facts presented here are not new, most of which was shared to various internal and external stakeholders (including public at large).

Unlike the Peremba boys, Idris Jala was not a familiar household name to many Malaysians when Khazanah first made the announcement as the new CEO of Malaysia Airlines at the end of 2005. Against the backdrop of growing competition and bad management post-Mahathir era, politicians on both divides jumped whilst the cynics redefined the word MAS for Mati Anak Sarawak. Public and investor confidence was at its lowest after the post Wide Asset Unbundling (WAU) financial engineering exercise which was not designed to solve the operational problems.

This took place before Idris came to the office. Coupled with Tan Sri Tajudin Ramli’s legacy issues and growing competition by regional carriers and low cost carriers, public was anxious to what this underdog from a small Kelabit tribe in Bario was capable off. Backed by 23 years of turnaround experience in Shell London, Shell Sri Lanka and Shell Malaysia, Idris took the MAS office with a storm.

Idris launched two distinct strategies during his tenure, i.e the Business Turnaround Plan 1 (BTP1) and Business Transformation Plan 2 (BTP2) which consist detailed, step by step process on what the company needed to do in order to stay afloat. The BTP1 and BTP2 can be downloaded from MAS website.

BTP1 was launched to turn around the company from a loss of RM 1.2 billion in 2005. At that time MAS was faced by two issue; cash crisis and profit crisis. In 2005, MAS has only RM 600 m cash reserve that can last the company only less than 3 months. MAS management took a pragmatic approach to anchor all key business activities on the P&L (i.e things which moved the bottom-line).

The BTP1 is a 3 year programme focused on revenue enhancement and cost reduction. Before 2005, MAS producing losses in the tune of RM 260 million to RM 836 million. After 1.5 years BTP1 was launched, profit has seen a record high, RM851 million.

I would like to focus on the revenue and cost figures to show evidence in operational improvements (and not one-off gain, fancy accounting exercise, or mere fluke!)

For revenue, from the MAS Annual Report the revenue increased from RM 13.4 b (2006) RM 15.2 b (2007), RM 15.5 b (2008) through various revenue enhancement initiatives. That includes Route Profitability & Rationalization, Yield Enhancement exercise, Network rationalization, etc. See chart below.

	2006	2007	2008
Total Revenue	13,407,240	15,232,741	15,570,141
Total Expenditure	13,641,880	14,404,400	15,299,234
Operating Profit	(201,741)	875,227	324,001
NIAT	(133,737)	852,743	271,795
Shareholders' Funds	1,873,425	3,934,893	4,119,822
ATK	9,525,623	9,579,101	8,503,203
ASK	58,923,735	56,227,787	53,378,580
RPK	41,099,612	40,162,186	36,176,166
Seat Factor	69.8%	71.4%	67.8%

The highest revenue achievement by MAS in 60 year highstory was in 2008, at RM 15.5 bilion. If you break it down further, the one of gain selling of assets such as the MAS building, Four Seasons, etc are insignificant compared to the operating revenue that the company was generating through a series of drastic measures like route profitability analysis, increasing yield, network rationalization and many others.

MAS realized the Revenue per Available Seat Kilometre (RASK) at 4 USD cents was lower compared to the national carriers like SIA Cathay Thai are operating between 5 to 9 USD cents. At the same time, alot of routes were not profitable. Hence, route profitability exercise was done to cut / stop the routes which are not profitable. A classic example was the Langkawi-London, KL-Kuching-Perth and KL-Manchester. Even AirAsia doesn’t want to fly to Manchester although the air rights was available to them.

The key revenue lever is to increase yield (i.e profit per seat), expressed in Revenue per Available Seat Kilometre (RASK). As you can see from the chart below RASK improved by 45% during Idris’s tenure. This is REAL OPERATIONAL IMPROVEMENT and NOT mere fluke as claimed by Anwar and many others!

In optimizing the operating cost, more than RM 2 billion was saved between 2006 – 2009 through a series of cost initiatives. From fuel management, salary freeze, manpower optimization, process improvements, engineering breakthrough projects, and many others. At the time data was available, 2009 was the highest cost saving target that MAS could ask for. This is not mere charade as claimed by many, it requires hard work and dedication from MAS employees to make this a reality.

Many sceptics during that period were worried that the cost reduction initiatives will impact the level of customer service in MAS. In fact a quick look at the number of awards received by MAS between 2006 – 2008/2009 (during Idris’s tenure) revealed that the highest number of awards (i.e 21) was achieved in 2008. 5-Star Airline award by Skytrax and The best cabin crew award were the common annual accolades received by MAS during Idris’s tenure.

BTP2 was launched to transform MAS into a 5-star value carrier. The impetus of change was driven by global and regional competition. At that time, the growing threat of Air Asia and the new order of airplanes from regional airlines have propelled MAS to transform its business model. It was a do or die situation.

BTP2 clearly projected best case scenario of RM 1.5b profit by 2012 and worst case scenario of RM 650-1b loss by 2012 if the company do not execute a list of projects (i.e Revenue Enhancement Project, Cost Reduction Programmes, Procurement Revamp, Network & Plan, MAS Campaign, Project Delta and many more.

MAS laid out a clear roadmap in BTP2 expressed in the chart below. It shows the MAS needs to grow profitability by taking clear 5 step process.

The first step is to maintain 5 star service. During Idris’s tenure, 490 customer service improvements carried out was a strong evidence that the commitment was real.

Second step was to reduce cost. That is why MAS tracks the cost savings (direct and indirect) on a yearly basis. This is where Project Delta was introduced to reduce cost at various operational departments such as Airport Operations, Flight Operations, In Flight Services and many more.

After cost is reduced to an acceptable level, only then you can introduce the third step, i.e to offer competitive pricing. This is where MAS introduced the Everyday Low Fares that shocked Air Asia, MH Value Fairs and many other products. This will in turn get more passengers and revenue.

And the final step is to grow the network, i.e to introduce new routes based on demand. The chart below was showed many times to the public and MAS internal staff.

It is evident that the roadmap of the BTP2 was clearly laid out for the management to follow (see Chart below). It contains sustainable improvements that need to be executed in logical stages (i.e MTM- Making the Most, GNB – Gaining New Business, BNG – Breaking New Ground). The success of BTP2 lies on effective execution. Sustainable improvements (i.e processes, system) can be yield positive results if the initiatives are managed and deadlines are adhered to.

A classic example of the BTP2 roadmap action was setting up Firefly (under the Gaining New Business) to capitalize the turbo prop operations via Subang for the convenience of the Klang valley population.

The BTP2 is not a fluke. BTP2 was not a “wahyu” from God. It is a compilation of a well thought process by the management based on the economic and aviation landscape.

The famous quote “Melayu Mudah Lupa” by Tun Mahathir should be rewritten as “Malaysians Mudah Lupa”. However Google search engine never failed to refresh our memories.

The glory days of MAS turnaround witnessed numerous financial analyst reports being published and loads of commendations from international airline organizations. Lets not forget the MAS share price was historic high during Idris’s tenure. MAS turnaround story was even featured as MBA case study by Harvard University. It was a classic Jack Welch story that can be replicated by many leaders out there.

No success can be achieved without relentless support of 19,000+ MAS employees who have been dedicated and committed during Idris’s tenure. The turnaround effort was real. The turnaround effort was due to blood, sweat and tears of MAS people.

Although more data can be presented to showcase the operational improvements in MAS during Idris’s leadership, there is one key ingredient that made the difference. It was not the BTP1 or BTP2, but it was the man himself.

Posted by sakmongkol AK47