WAU! AJ briefed PAC: Firefly loss RM89 mil & CCF

AJ briefed PAC on 21-11-2011 about “HIS” New Business Plans to save MAS.

Why MAS losing?

37 out of 107 do not cover variable costs

Notes:

Unfortunately, AJ only informed PAC of the KL-Cape Town – Beuenos Aires, KL Johannesburg, KL – Dubai – Dammam, KK – Seoul, KK – Perth, KK – Tokyo and KK – Osaka are the 8 routes that do not cover variable costs. How about the remaining 29 routes?

KK – Perth, KK – Tokyo, KK – Osaka, KK – Seoul and KL – Dubai are new routes that need a bit of time and costs to promote and nurture. These routes have potential especially the KK sectors to Perth, Tokyo, Osaka and Seoul. It must be coincidental that AirAsia X Sdn Bhd is also flying to these cities.

By the way, Emirates Airline has two daily flights to Dubai – KL – Dubai. If Emirates Airline can operate two daily flights, it must be profitable. If MAS operating the same route with RM18.1 million losses from January to September 2011, then AJ is duty bound to look into the reasons. Was it because MAS was not able to compete in term of fare, poor services, poor quality of in-flight food, poor marketing strategy and/or incompetent sale person with accounting background stationed in Dubai? If Emirates Airline can do it comfortably with two three daily flights (2:30 am, 7:30 am & 10;30 am), surely MAS can do it with only one daily flight!

Cutting back on routes based on losses without examining the causes is not the solution for turning around MAS. It is just an easy way out which can be easily done by computer evaluations based on profitability.   

Thoughtless cut-back of routes under the name of cost saving may not necessary be good for MAS, tourism and economy of Sabah and Sarawak in the long run.  AJ must look at the reasons why the previous management took the decisions to fly these routes despite the odds before rushing into cutting back under the pretext of cutting costs.  

Yours truly believes that Firefly routes from JB to KK and Kuching were profitable but have been axed  on 24-8-2011 ( 2 weeks after inking the secret share swap).  On 3-10-2011 MAS route to Bandung, Indonesia was axed. The latest to be axed  is the Firefly routes from KLIA to Miri and Sandakan on 4-12-2011. These are also the Firefly’s profitable routes. Coincidentally, AirAsia is flying these routes too. 

Yours truly went to KK on 25-11-2011 by MAS, both the Economy and Business Class were full. The above routes were axed not because they were not able to cover variable costs but for other reasons that AJ was unable to tell us.

It is hoped that PAC will demand for a full list of the remaining 29 routes that are not able to cover variable costs and why the above Firefly’s profitable routes were terminated after less than a month of inking the secret share swap agreement. PAC should demand for the said Firefly flights for these routes to be audited and presented to PAC for considerations. 

Challenging market environment

• Global weakening in consumer confidence & economic uncertainty

• Competition & introduction of new capacity

• High fuel costs

Notes:

Other airlines including SIA, Cathay Pacific, Thai and etc are facing the same problems and they are alright.  Why MAS is having financial problems when its average revenue is about RM14 billion annually.

Why are Aj and Tan Sri Azman’s ex-business partner in BinaFikir, Rashdan, not looking into the LEAKAGES in MAS before rushing into the decision to cut the above routes. Leakages in MAS are in many forms:

• high salaries and perks for top management;

• unjustifiable promotions of “dead woods”;

• employing relatives of top management staff to head department / promoting nepotism;

• abandoning of projects or work done by previous management without looking into the pro and cons like scrapping the ONEWORLD membership where the previous management had spent time and money pursuing the ONEWROLD membership, which was in its final stage;

• spending money on advertising and promotions like RM18 million sponsorship fees of QPR home jersey; 

• the one sided catering and other cabin service agreement for 25 years with LSG Skey Chef Brahmin’s and the questionable quality of the inflight foods;

• questionable procurement contracts;

• fees paid to consultant firms when the works can be done by in-house staff; and etc.

Other airlines like SIA, Cathay Pacific and other airlines are not exempted from high cost of fuel and yet they are not in the same financial health as MAS.  Citing high cost of fuel was just a weak excuse to justify the secret share swap and CCF!

Plugging of the above LEAKAGES must be placed at the top of the agenda to turn around MAS otherwise the so-called NEW BUSINESS PLANS will end up to be another WAU (Widespread Un-Bundling of Assets), which was the pet project of BinaFikir Sdn Bhd.  Tan Sri Md Nor Md Yusof, the present Chairman of MAS, Tan Sri Azman Mokhtar and Rashdan, are all very familiar with the famous WAU of 2002, which was meant to SAVE MAS by using beautify phrase like “MAKING MAS INTO AN ASSET LIGHT AIRLINES“! Now the new found consultant liked phrase “COMPREHENSIVE COLLABORATIVE FRAMEWORK” (CCF)!   

If all energies are centered around cutting back unprofitable routes like what have been done now to Firefly without plugging LEAKAGES, MAS will take another nose dive in the foreseeable future. Those who cannot remember their past deeds/FAILURES are condemned to repeat it. Failure will NOT be just an OPTION but a practical reality! CCF will be another version of WAU!

CCF – from MAS’ Perspective

• Will enable MAS to utilise its core competencies, optimise efficiency to benefit the customer & focus efforts to become a full service premium carrier that can compete effectively.

• Tap synergies & savings.

CCF alone is not enough to arrest financial slide but does set the stage to stem MAS losses by implementing : Business realignment; network rationalisation and New Business Plan for sustainable profitability.

Notes:

No details of CCF were provided to PAC. Under this so-called CCF. We saw  only:

• Cancellation of Firefly full load flights during Raya seasons causing inconveniences and heartache to 7,000 passengers;

• Termination of Firefly profitable routes from JB to Kuching and KK;

• Termination of route to Bandung, Indonesia;

• Latest, termination of profitable routes from KLIA to Miri and Sandakan from 4-12-2011;

• Spending RM18 million Pound Sterling to sponsor QPR home jersey; 

• More  cancellations of profitable routes of Firefly and MAS are forth coming;

• Grounded Firefly jet aircraft, reconfigurations of seats to MAS requirements and respraying them to MAS logo which will cost million of Ringgit;

• Re-registration of Firefly jet aircraft to MAS will be additional losses to be sustained by MAS/Firefly;

On the way back from KK, yours truly saw two Firefly jet aircraft were parked on the tarmac in KLIA, which will no doubt contribute to more losses daily i.e. cost of rentals and loss of revenue.  This must be part of CCF / NEw Business Plans to turn around MAS! 

Immediate Steps

Withdraw from unprofitable routes; focus on profitable routes

Accelerate return of ageing aircraft

Increase yield

Aggressive pricing & marketing strategies for all classes of seats

Manage high, volatile fuel prices

Deploy new aircraft with better fuel efficiency

Older, less efficient aircraft to be returned progressively

Halt Firefly jet losses

Address People Issues

Notes:

As yours truly has said earlier, no details were provided to PAC. AJ should provide a proper list of unprofitable routes to be axed.  

Deploy new aircraft from whom? Does this mean that MAS had to purchase a big chunk of the 300 airbus ordered by Tan Sri Tony Fernandes in April 2011?

How about MAS membership to ONEWORLD? Isn’t a collaboration with another 12 IATA airlines will be beneficial to MAS in the long run?  If SIA and THAI had joined Star Alliances with another 22 IATA airlines in the alliance, MAS should seriously look into ONEWORLD membership before it is too late!  

AJ and Rashdan should appoint a consultant firm to give them a report on the benefits of MAS joining ONEWORLD.

AJ and Rashdan, the ex-BinaFikir golden boy, should make plugging of the LEAKAGES/KEBOCORAN in MAS as their main priority.

Plugging of LEAKAGES is of immediate concerns to AJ. If AJ were to plug 10% of the LEAKAGES, MAS would have made an immediate profit of RM140 million from its revenue of RM14 billion without having to do anything else like taking the trouble to sponsor QPR within QPR stadium and thereafter to in great pains to justify it! If there is no attempt to plug the LEAKAGES/KEBOCORAN, we will see endless exercise to save MAS until it is finished.  

Concerns – Firefly Jet Operations

Halt losing Firefly jet operations

Heavy continuous losses – Oct 2011:  RM89 mil loss

Network rationalisation programes

• Firefly will continue with turboprop service

• Firefly’s jet operations take over by Malaysian Airlines

• (How about pricing?)

• Malaysian Airlines will focus on premium full service offering

• MASwings continues connectivity within Sabah & Sarawak

• Special fares (students, senior citizens) on MAS continues

Losses arrested immediately (projected full year 2011: RM100 mil loss)

Connectivity between Pen Malaysia & East Malaysia maintained – 183 flights per week

Notes:

Yours truly has been informed that it has been announced by the previous management that Firefly has been making profits and majority of the flight are full especially Sabah and Sarawak sectors. Firefly’s employees have been paid bonuses last year!   

Now AJ told PAC that Firefly has made a loss of RM89 million as at October 2011. Who was telling the truth, AJ or the previous management?   Hopefully someone within MAS/Firefly can shed some light on this matter because AJ was relying on the losses to justify the termination of Firefly jet operations. By 4th December, Firefly will be reduced to truboprop. So AirAsia X Sdn Bhd can carry on competign with MAS on profitable routes like London, Jeddah, Tokyo and other cities. We have never heard  that AJ or Rashdan making demands that AirAsia X Sdn Bhd to stop competing with MAS for these routes. It seemed that MAS had to terminate profitable routes that are in competition with AirAsia. This may be the actual spirit behind the secret share swap and the CCF.   

The whole operations and its potential must be looked at.  The revenue chalked up by Firefly within the last few years must also be looked before jumping into the conclusion that Firefly was making losses therefore, its jet operations must be halted forthwith . A new business cannot show immediate profit especially airlines because of its capital intensive. Those who have travelled on Firefly will know that most, if not all the Firefly flights were full and gaining popularity in the minds and hearts of Malaysians, who have travelled on Firefly, as a real “Your Community Airline”.

AJ should also make public how much will it cost MAS to respray the six jet aircraft to MAS color.  This is a bother form of LEAKAGES in MAS. The respraying costs are totally unnecessary if the new management seriously look into the potential of Firefly. From the moment, Tan Sri Azman Mokhtar inked the secret share swap agreement, it was announced that Firefly operations will be stopped and replaced with a new company called SAPPHIRE. Therefore, it would appear that the reasons given so far by AJ was an afterthought.

Address People Issue: At a town hall meeting with Firefly staff on or about 25-11-2011, when asked about the future of its staff, the answer they got:  Wait and see and they will be informed of the development from time to time.  This showed that the new management hasn’t got a clue what they are doing. Most probably, they are just taking instructions from some where. 

Concerns – QPR sponsorship

Sponsoring means huge brand visibility, both in Malaysia & internationally via football fans from all over Europe, the Americans, Asia-Pacific, Australia and all over the world.

Barclays Premier League: Over 100,00 hours ‘live’ broadcast by more than 80 broadcast partners globally. International audience of 3.51 viewers across 600 million homes in 200 countries. In Malaysia alone, 97% of the nation watches football; some 91% watch the BPL.

MAS home jersey sponsorship: GDP 1.8 mil per year, equivalent to approximately 5% whole MAS annual A & P budget

BENEFITS:

Media value (direct in UK): GBP 7 mil per year i.e. approximately 4 times sponsorship investment

Home jerseys, LED signage around stadium; logo on interview backdrop

Bundling with other MAS products & campaigns

Corporate hosting opportunities

Added exposure when QPR wears home jersey for away matches (total: 29 matches in BPL, plus more when QPR plays in other Cup matches)

Notes: 

After a week of inking the secret share swap agreement , on 16-8-2011 Rashdan had to London to sign the QPR sponsorship agreement costing MAS RM18 million when he was supposed to manage the problems in MAS. Why was there a rush to sponsor QPR and not other more renowned team in UK?  Was it because Tan Sri Tony Fernandes is the co-owner of QPR that Rashdan had to follow the “trend”? Why can’t MAS use this RM18 million to pay its staff as incentive or special bonus? The staff are entitled to the RM18 million because they have worked so hard and scarified MAS all these years.  Of course, the hard working employees are not important to the new management. They would rather please the highly paid dead woods in MAS with high perks and nice cars as part of their package.  Many of these dead wood are good in appointing consultants to do the thinking for them.  Don’t know whether Porsche Panamera is included in their perks!  

If the new management thought that the staff was not entitled to be paid incentive or bonus and the RM18 million had to be spent as part of its budget for advertisement, why not sponsor our own Harimau Muda that have made our country so proud. RM18 million will go along way to help Harimau Muda to put Malaysia on the world map.

By the way, Genting paid only RM17 million sponsorship fees to Aston Villa for two years for home and away jersey. This is the trouble with MAS management. They “BINA” with the rakyat money “tanpa FIKIR”! Then they will appoint consultant firms to solve problems for them and at the same time the top management are paid very high salaries with perks. Since 2002, yours truly just wonder what is the total figure that MAS has paid for consultancy fees.

In early January 2002, it is hoped that PAC will question AJ and Tan Sri Azman Mokhtar about consultancy fees in early January 2012. 

For Khazanah, the total consultancy fees must be in the region of RM200 to RM300 million. Do we really need a MD in Khaznah and MAS if appointment of consultant firms is the norm in its operations?   

Concerns – MAS Employees

• Address People Productivity & Efficiency

• Continuos & treatment communication & employee engagement – Town Halls, Q & A sessions, face-to-face meetings, intranet, emails, circulars, memos

• Engage with Unions – 4 sessions since mid-Sept; engagements to continue

• Introduce productivity initiatives

Notes:

Yours truly hopes that MAS employees could provide valuable feed backs to the above points by AJ.

From the comments received in this Blog, the members of staff of MAS are in the dark with regards to the developments in MAS after the secret share swap. AJ brief PAC that he has engaged with the Unions 4 times since mid September.  MAS staff have written to the Union, in particular MASEUS, asking about the secret share swap, CCF and the promised picket in early December but no respond.  MAS unions must be  very busy in planning for the MASS PICKET in December. But December is only a few days away.  

Please read HERE for Tan Sri Azman Mokhtar’s briefing to PAC.