Malaysia Airlines too ‘expensive’ to run

The new airline boss is currently targeting providers of ground handling, maintenance, IT and office equipment in a bid to bring down costs.

KUALA LUMPUR: After having successfully reduced Malaysia Airline’s staff by 7,000 to 13, 000, its new Chief Christoph Mueller is working on cutting the number of supplier companies to the airline from 20,000 to “a more normal range of 2,500”, and re-negotiating cheaper terms and conditions. “The airline has secured a 25 per cent price cut in the catering contract with Brahim’s Airline Catering,” said Mueller in an interview with Financial Times (FT).

The new airline boss is currently targeting providers of ground handling, maintenance, IT and office equipment. “The biggest focus is on costs. This is the root cause of the airline’s financial problems.”

“Getting the cost right is a prerequisite. With a high-cost situation, you cannot price competitively without making a loss, so that needs to be addressed.”

Elsewhere, Mueller is re-focusing the airline’s flight network away from connecting Australia with Europe, to the emerging economies in Asia. The carrier has already reduced its capacity by 27 per cent by cutting some routes including Frankfurt, Istanbul and Brisbane. At Aer Lingus his previous job, added Mueller, he learnt the importance of making an airline an attractive takeover target.

The Irish airline was recently acquired for 1.36b Pounds Sterling by International Airlines Group, the owner of British Airlines. “So, rebranding will tell customers a different product is on offer,” said Mueller.”

“Demand in Australia and China is still weak because of the twin air tragedies last year, MH370 on March 8 and MH17 on July 17.”

Still, the airline could face a delay in its turnaround strategy. One reason is the 30 per cent depreciation in the ringgit against the US dollar. Airlines generally pay for fuel, leases and spare parts in US dollars. “There’s a negative impact of the depreciation of the ringgit in the trajectory of our turnaround plan,” conceded Mueller. “It’s unfortunate but it does not change the game. It might delay it.”