BTP masway 2

8/8/2019 BTP masway 2

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The MAS Way

Idris JalaMay 2007


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We were in a

crisis.


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01

1b

End 05 Apr 06

Critical

Level

RM600m

Cash Crisis

02

-1.3b

-1.7b

2005

9 months2006

Full Year

Profit Crisis


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Unit of measure

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Source: Source

Most routes are losing money

International

Middle East

ASEAN

Profitable routesUnprofitable routes

Americas

Europe

Australia & New Zealand

China

North Asia (Japan, Korea, Taiwan)

South Asia

Domestic

48

4

24

66

9

10

03

012

37

79

410

66

4114

-84

+163

-305

-561

-317

-100

-63

-120

NIAT

RM millions

-1.3b


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North America:Unprofitable routes contribute total RM167m loss, out of which 8 routescontribute to 80% of this loss

Route shown: combination of route and aircraft; 1=B747, 2=B777, 3=A330-300, 4=A330-200, 5=B737

Legend: profitability unprofitability load factor (%)

Profitability RM000

8 routes = negative RM134m

Unprofitable

routes

(60,000)

(50,000)

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

KUL-CAN(3)

KUL-BKI-TPE(5)

KUL-BKI-SEL(3)

KCH-BKI-CAN(5

)

KCH-BKI-HKG(5

)

KUL-HKG(3)

KUL-XMN(3)

BKI-HKG(5)

KUL-XMN(4)

KUL-BJS(3)

BKI-CAN(5)

KUL-BKI-KHH(3)

KUL-BJS(1)

KUL-FUK(4)

KUL-BKI-KHH(5

)

KUL-CTU(4)

KUL-KMG(3)

KUL-XIY(3)

KUL-NGO(3)

KUL-HKG(2)

KUL-SEL(3)

KUL-CAN(1)

KUL-KMG(4)

KUL-HKG(4)

KUL-CTU(3)

BKI-SHA(5)

KUL-HKG(1)

KUL-BKI-OSA(2)

KUL-XIY(4)

KUK-FUK(3)

KUL-TYO-OSA(2

)

KUL-NGO(4)

KUL-SHA(2)

KUL-OSA(2)

KUL-TYO(2)

KUL-TPE-LAX(1

)

KUL-STO-NYC(1

) 0

10

20

30

40

50

60

70

80

90

100

Load factor, percent


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Europe & Middle East:Unprofitable routes contribute total RM151m loss, out of which 8 routescontribute to 80% of this loss

8 routes = negative

RM121m

Unprofitable

routes

(30,000)

(25,000)

(20,000)

(15,000)

(10,000)

(5,000)

0

5,000

KUL-KHI-DXB(3)

KUL-AMS(1)

KCH-KUL-FRA(3)

KUL-DXB-BEY(3

)

KUL-ZAG-VIE(2)

KUL-JED(1)

KUL-IST(4)

KUL-DXB-BEY(3

)

LON-PEN-KUL(1

)

LON-LGK-KUL(1)

KUL-ZRH(2)

KUL-CAI(2)

KUL-VIE(2)

KCH-KUL-FRA(2

)

KUL-ROM(1)

KUL-FRA(2)

KUL-PAR(1)

KUL-MAN(1)

KUL-LON(1)

0

10

20

30

40

50

60

70

80

90

100Profitability RM000 Load factor, percent




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Australia & New Zealand:Unprofitable routes contribute total RM91m loss, out of which 5 routescontribute to 80% of this loss

5 routes = negative

RM73m

Unprofitable routes

(25,000)

(20,000)

(15,000)

(10,000)

(5,000)

0

5,000

KUL-MEL(1)

KUL-LGK-AKL

(2)

KUL-ADL(2)

KUL-PER(2)

KUL-KCH-PER(3)

SYD-KCH-KUL

(2)

KUL-AKL(1)

KUL-MEL(2)

KUL-SYD(2)

KUL-BNE(2)

KUL-AKL(2)

KUL-SYD(1)

0

10

20

30

40

50

60

70

80

90

100

Profitability RM000 Load factor, percent




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ASEAN & South Asia:Unprofitable routes contribute total RM40m loss, out of which 5 routescontribute to 80% of this loss

8 routes = negative RM32m

Unprofitable routes

(10,000)

(5,000)

0

5,000

10,000

15,000

20,000

KUL-JKT(3)

KUL-SGN(5)

KUL-MNL(5)

KUL-MES(5)

KUL-BLR(3)

KUL-BKI-MNL( 5

)

KUL-HAN(5)

KUL-BKI-CEB(5)

KUL-MAA(2)

KUL-BKK(2)

KUL-MNL(4)

TWU-TRK(6)

KUL-JKT(5)

KUL-MLE-CMB(4

)

KUL-JKT(2)

KUL-HYD(4)

KUL-BOM(4)

KCH-PNK(6)

KUL-HKT(5)

KUL-HYD(3)

KUL-MAA(1)

KUL-DEL(3)

KULAMD(3)

KUL-BOM(2) 0

10

20

30

40

50

60

70

80

90

100

Profitability RM000 Load factor, percent




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Possible Headline in April 2006

MASPLANES

GROUND

ED


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Business Turnaround PlanThe MAS Way


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COMMERCIAL

OPERATIONS

FINANCE

Flying to Win Customers

Financing and Aligningthe Business on P&L

Unleashing Talents and

Capabilities

Winning Coalitions

Mastering Operational

Excellence

VISION:

Going BeyondExpectations

MISSION:

To be aprofitable

airline

STRATEGY:

BUSINESS TURNAROUND

To achieve sustained profitability by going

beyond expectations on 5 thrusts

PEOPLE

STAKEHOLDERS

Business Turnaround The MAS Way


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01Cash Flow Survival Actions


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Plan to address cash crisis

Requires

external

funding

Short term: RM 1b

Medium/Long term: RM 2b

Financing

needs

Internal cash

generation

RM 4b RM 1b

RM 3b

In addition:

Cash rationing: Stopped corporate sponsorship & advertising Banned discretionary training Postpone major capex

Disposal of assets: Sold KL Office and 22 other buildings


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02Profit Turnaround Actions

26


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Profit turnaround RM1.1b improvement in 2006

26

2006

RM mRevenue / YieldImprovements

CostImprovements

2006 NIAT w/revenue improve-ments

2006

NIAT2006

baseline

NIAT

Pricing,

inv sys &

mgmt Enforce-mentSales stimula-

tion

Network

optimiza-tionFuel surcharge, AdminCharge Fuel Handling

Re-config

Routes

Mainten-

ance

Catering

& Others

-1,700

120

5040

-990

20 40

90

90

70

-620

230

270

2007

NIAT

50

2008

NIAT

500

60

MASKargo

RM710m

RM370m

Note: Prepared in Feb06,

hence exclude domestic


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Prognosis of our businessfundamentals

Excellent products and services

Comparable load factor

Low yield(20.5 sen/RPK vs. industry average 22 32 sen/RPK)

Inefficient network(not configured to match our target customers and markets)

Low productivity

Lack of cost control


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We set off immediately to

address each of the 4 problems...


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Increasing yield


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Our yield was below competitorsYield (sen/RPK)

MAS

20.5

Thai

22.2

SIA

22.3

Qantas

32.4

1 sen/RPK increase = RM 500m additional revenue

If MAS increase 22 sen/RPK = RM 1.5b additional revenue

Pax revenue (excluding surcharges) used for yield


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We are making big improvements in yield

Yield*

RRPK

(sen/RPK) 20.5

FY 2005 Q1 2006

22.6 22.7

23.6

Q2 2006 Q3 2006

14.8

15.515.6

16.5

RASK*

(sen/ASK)

24.2

16.8

Q4 2006

Increased by

3.8 sen/RPK

Increased by

2.1 sen/ASK

*YTD cumulative figures


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Network

Restructuring


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What would a major UK carrier do to servethe SEA market?

BA can choose to serve all capital cities of SE Asian countries using long haul aircraft

However, it is unlikely that there will be sufficient traffic of the right kind to make this a

profitable strategy


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BA flies only to 2 hubs



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BA flies only to 2 hubs



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MAS currently flies to 10 Europeandestinations direct

We fly to LHR, MAN, CDG, AMS, ZRH, ARN, FRA, VIE, ROM and IST

We do not have enough business traffic or point to point leisure traffic for a lot of our

European routes

Our frequencies are low for some destinations


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Europe is better served with mix ofhub-and-spokes andpoint-to-point (in transition)

By flying to hubs, MAS can ensure that the frequencies are high and that MAS

dominates that route

Partnerships with regional airlines in the hubs can ensure that connectivity to other

destinations are preserved


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International Network Restructuring

Reroute via KLIA

as primary hubAction

Timeframe Immediate

Routes Effective late-March:London Langkawi KL

London Penang KL

Frankfurt KL Kuching

Sydney Kuching - KL

KL Kuching - Perth

Terminate routes after

exhausting route profitability

actions

3 6 Months

Effective 1st April:Calcutta, Ahmedabad

Pontianak

Effective 1st May:

Manchester, Padang

Effective 1st

June:Vienna, Xian

Effective 1st August:

Kota Kinabalu Shanghai

Effective 1st September:

Fukuoka

Terminate routes, and

apply hub-and-spokes

and point-to-point

6 + Months

Effective 29th October:Chengdu, Cairo

PHASE 1 PHASE 2 PHASE 3

To keep:

Frankfurt

Zurich

Rome

Paris

Los Angeles

New York

Stockholm


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Improvingproductivity


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Manpower rightsizing

From workforce of 22,700, trimmed to 19,700

15% or approximately 3,000 staff reduction via

MSS, retirement and expiry of contracts

Further manpower reduction through retirement

and expiry of contracts

Despite less staff, we managed to improve the

business by approximately RM1.56 billion


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EXPENDITURE ANALYSIS (I t ti l)


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Unit of measure

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Variance(RM mil)Costs

OthersReduction in costs such as software support costs and

professional fees. Due to tighter control over stocks and

assets, there were less provisions required as part of the

year end process.

EXPENDITURE ANALYSIS (International)FY06 vs FY05

294

FY06

(RM mil)

-37

-259

Depreciation

13,171

3,081

RM665m

cost

reduction

Reduction in depreciation charges, in line with fall in property

assets and change in depreciation rates due to change in

estimates.

Fuel costIncreased by only 2.8% despite increase in price by 16% from

FY05. Cost increase has been contained due to lower

consumption, better efficiency and hedging gains.4,524 +123

Increase mainly due to higher leasing rates and USD LIBOR, asmost leases are on a floating rate basis.

2,133 +232Aircraft Leases

-57Commissions and

Sales Incentives751

Lower due to lower sales (excluding fuel surcharge) on

international sector.

Staff cost 1,642 -52Lower due to reduction in staff numbers from MSS exercise.

However, this is offset by contractual salary increment given

during the year and ex-gratia payment of RM21m..

Advertising 92 -137 Since the Business Turnaround Plan (BTP), advertisingactivities have scaled down which resulted in cost savings.

Maintenance

Costs 654 -123

Lower cost due to better efficiency and cost containment. Also

helped by change in accounting standards to capitalise heavy

maintenance work on engines owned by the company.


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Unit of measure


Our Cost Story in 2006

RM million

Took over

Domestic

P&L

2006

Total

Cost

623m 13,793

2005

Total

Cost

Cost

Reduction

Cost

Increase

13,481 665m

355mFuel:

+123m

Aircraft

lease:

+232m

13,171m

2006

Normalised

P&L

310m


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MAS achieved

substantial resultsin 12 months

N fi


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Net profits

4Q 05 1Q 06 2Q 06

3Q 06

240m

-177m

-616m

-321m

121m

4Q 06

Full Year 2006

-136m

-620m

RM million

Actual Target

F FY06 hi d RM1 56 billi t i t


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For FY06, we achieved RM1.56 billion net improvement

Revenue

increase

Cost

reduction

Aircraft

leases

increase

Fuel cost

increase

Domestic

profit

WAU

compensation

+ sale of

properties

domestic

rationalization

expensesInternational Domestic

Net

improvement

RM million

+665m

+973m

+232m+123m

+55m

+226m +1.564b


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80

100

120

140

160

180

200

220

Jan-06

Feb-

06

Mar-0

6

Apr-0

6

May-0

6

Jun-06

Jul-0

6

Aug-06

Sep-06

Oct-0

6

Nov-0

6

Dec-0

6

Jan-07

Feb-

07

Mar-07

Apr-07

May-07

M AS KLCI

Rise in share price is a strong sign of investors confidence in MAS

3 May 07

MAS share price outperforms

KLCI by 54% over last 17 months

20

2.50

3.00

4.50

5.00

5.50

6.00

6.50

3.50MAS

Pric

e

International Awards


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1) 5-Star Airline Award 2006

2) Global Winner for Economy

Class Onboard Service

Excellence 2006

3) Best Cabin Staff Award 2006

(Top 3)

4) Best Airline 2006 (Top 10)

Reader's Digest Trusted Brand

Platinum Award 2006

Best Airline to Asia

Best New Business Class Seat

International AwardsMalaysia Airlines is a 5 Star Airline


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Thank you

CAPA Airline Turnaround of

the Year 2006 Award


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Back Up Slides


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Secret No. 1:

The Game of The Impossible


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Secret No. 1:

The Game of The Impossible


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(1) The Game of The Impossible

Steps to making the impossible happens:

Make a personal stand

Set Olympic targets (very few precedence, difficult

to justify)

Conquer the fear of failure conversations!

Create a game so large it will consume you


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Secret No. 2:

Anchoring on the P&L


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(2) P & L Anchorage

Personalise P&L for each customer or route (for MAS)

Make people accountable to the personalised P&L

The whole organisation should focus on the P&L

Rigorously challenge strategies & activities

Reward people who improve the P&L

THE P&L IS NOT A PLACE TO HIDE


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Secret No. 3:

The Discipline of Action


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(3) The Discipline of Action

Agree what constitutes success and measure

Plan and track results (alongside action plan)

Report and communicate results

Roll your sleeves and get into the details

THIS IS REALLY HARD WORK BUT EXCITING!


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Secret No. 4:

Situational Leadership

(4) Sit ti l L d hi


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Change leadership style based on team development

Dissatisfaction

STAGE 2 STAGE 3 STAGE 4

Resolution ProductionOrientation

STAGE 1

Productivity (Competence)

Morale (Commitment)

Directive Style Empowering Style

(4) Situational Leadership


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Secret No. 5:

Divine Intervention


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Unit of measure(5) Divine Intervention

Many things are outside your control e.g oil price

Whos in control? Fate, luck, Feng Shui, God

Paolo Coelho (author ofThe Alchemist): If you wantsomething desperately, the whole of the universe willconspire to make it happen!

Once youve done your best, be at peace!

PRAY FOR DIVINE INTERVENTION!

BTP masway 2

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