Road to recovery continues for Malaysia Airlines

It has been three years since Malaysia Airlines’ (MAS) flight MH370 disappeared from the radar screen at the Kuala Lumpur Air Traffic Control Centre. Within a few months, another tragedy struck when its passenger flight MH17 was shot down while flying over eastern Ukraine.

Both incidents almost brought the national carrier to the ground, with its reputation (and sales) heavily beaten.

In the first-half of 2014 (1H14), MAS reported a loss of RM750 million, 65% lower compared to the corresponding period in the preceding year.

Even before the tragedies struck, the troubled national carrier had already plunged into the red on high costs and falling sales, while competing with emerging low-cost carriers. Between 2001 and June 2014, the airline posted a cumulative net loss of RM8.4 billion.

In August 2014, state investment fund Khazanah Nasional Bhd, the sole shareholder of MAS, introduced a RM6 billion 12-point recovery plan to hoist the carrier back into profitability within three years of its eventual delisting later that year.

The restructuring fund comprised RM1.4 billion for the delisting of MAS via a selective capital reduction exercise; RM1.6 billion for the restructuring and retrenchment cost; as well as a progressive injection of RM3 billion into MAS.

Since then, the airline has taken several stern measures including the successive appointments of two new CEOs; a change in name to Malaysia Airlines Bhd (MAB); the consolidation of its operations from Sultan Abdul Aziz Shah Airport in Subang to Kuala Lumpur International Airport,; and the retrenchment of 6,000 employees.

The plan does not stop there. There have also been talks of a complete rebranding exercise; expansion of new fleet and routes; along with the introduction of a new charter airline.

The Malaysian Reserve (TMR) recently sat down with Peter Bellew, the current MD and CEO of MAB. Previously the COO of MAS, Bellew took over the stewardship of MAB from Christoph Mueller on July 1, 2016. In an hour-long interview with TMR’s P PREM KUMAR AND ALIFAH ZAINUDDIN, Bellew shared some of the latest updates on what has been dubbed as “the greatest turnaround in the history of aviation”.

The following are selected 15 questions and answers from the interview:

TMR: You have been in the hot seat for the last 11 months. How has it been so far?

Bellew: We’re in that transformation mode right now. We have a lot less staff than we used to with a lot of people who will still be finding their fit in different roles within the company with a different approach in doing business.

I have had enormous cooperation from my colleagues. I feel the huge support from the people of Malaysia and sometimes that in itself is quite daunting to me, to be honest.

Everywhere I go, people would ask me: “How is OUR airline?” They don’t ask you how is Malaysia Airlines. Lots of random people would come up to me and that in it self is a bit scary. Everybody is worried about it, and wants to know how it is doing. Everyone is very proud of it and is very keen on it getting back on its feet. It is a big responsibility.

TMR: Emotionally and personally, how far have Malaysia Airlines employees as well as yourself travelled from the tough period in 2014?

Bellew: I think, actually, they say time is a healer but for the staff at Malaysia Airlines, it is still a deeply personal thing. There are many customers who lost their lives on the flights. We live with it every day. There isn’t a day where you don’t think about that.

When you’ve survived through two tragedies like that, when you’ve survived losing six thousand colleagues and the competition where everyone else has been battering you around for so many years — and still is…If you get through that, and you make progress as we certainly have over the last 12 months. There is an amazing backbone in people — that strength in people you don’t normally see in organisations. It’s not even just to do a business for most of the people there.

A lot of people work for Malaysia Airlines. I’d say most senior people could easily get higher paying jobs, easier jobs with less hassle but they don’t, because they have a sense that they’re on a mission…This is a matter of national pride, and they want to make this airline the pride of the nation again.

TMR: It is undeniable that MAB faced a branding crisis. Have you overcome that situation?

Bellew: I think around the world, there is a group of people who will never travel with Malaysia Airlines. That’s it. Then I think there is another group that would consider travelling with Malaysia Airlines and there is a group of people that are extraordinarily loyal to Malaysia Airlines.

As soon as I got the job last July, there have been a lot of discussions taking place — should we change the brand, what should the brand be called, should we have a new logo, we should change flight codes — all of them.

Fortunately, or unfortunately, when I got the job, I didn’t have time for that. We had run out of time, to be honest. I needed to sell seats, I needed to get passengers back flying with us, I needed to get people travelling, I needed to generate revenue. Taking into account the cost, time, expense and complexity of changing a brand, I’m glad we didn’t.

There is 40 years of brand heritage in Malaysia Airlines. It’s a very well-known brand all over the world and it would have created enormous costs in actually changing the brand. It is proven in the recovery in passenger traffic that obviously there is not much wrong with our brand.

TMR: Talking about rebranding, even before you came in, there was a lot of news about potential new uniform, new logo, new colours. What is happening and what is not happening?

Bellew: We are not changing anything but we did seriously consider the uniform. Datuk Seri Farah Khan came up with very beautiful designs, new versions of the kebaya and they looked stunning. It wasn’t just the kebaya, she went into incredible detail with the fabrics, which would be stain resistant; special fabrics with technology from Japan; the shoes, accessories, the bags, scarves — everything. It looked fabulous.

I went to our own crew, I asked if they want something new or the existing look. They all wanted to stay with the current uniform.

I live near Solaris Mont Kiara and there is a guy who sells durian at the corner of the road. So, every night when I go for a walk, he will always ask about Malaysia Airlines. He’d say, “Why are you wasting my Goods and Services Tax money by changing the uniform? The girls look beautiful, don’t change it.”

When the durian guy tells me to not change the uniform, for me, even as an Irish guy, I know that I should leave it alone. I think the crew looks stunning.

However, we will be changing some uniforms on the ground base staff — people at the check-in, some of the staff on the lounges — and we will incorporate some of the wonderful ideas so her (Farah’s) ideas won’t go to waste but we are not changing the name and everything.

TMR: Being a premium airline, MAB cannot escape from the repeated comparisons between its business class with its regional peers such as Emirates, Etihad and Singapore Air- lines. What are you doing to improve your business class offerings?

Bellew: Our food is better than Emirates. They have some cooler gadgets alright…But we don’t plan to put in cooler gadgets because I don’t think that is what it is about. For the business class, the beds are just as comfortable.

We don’t have a bar on board our A380s. We don’t plan to put one in. Personally, I’m quite happy we don’t do that. I actually think you’d get a better chance of getting a night’s sleep on one of our flights than you do on an airline with all the gadgets. If you have a lot of entertainment going on in the business class on a plane, people are up and about, partying a bit — that is not what we’re about.

TMR: Is Malaysia Airlines hiring? How big are the numbers?

Bellew: At the moment, we’re hiring web content designers, app content designers, database specialists, people with other digital integration skills. At the end of the year, we’re hiring more pilots and we will be hiring some specialist engineers. We’re also looking for some specialists in the finance division at the moment, so yeah we are hiring.

This year, we’ll probably have some hundreds of people that will leave also and we will probably have new people with new skills that we don’t have at the company. We’d probably have about 150 I’d say. We’re a little bit short in the age profile of the company. We need to get some younger, fresh people in. So yes, we are hiring.

TMR: Talking about routes, will you go back to Europe or is there no plan to go back at all?

Bellew: Europe is not our No 1 priority right now. We’ll have six A350 aircraft, so we need three to four to operate to London and we have two more aircraft. Those aircraft are more than capable of flying to Europe.

If we could get the right cost deal in a great European airport, and get a great cooperation deal with one of the European carriers, and if we could get a great deal here with Malaysia Airports Holdings Bhd to start a new route, we’d seriously consider doing it late next year or in 2019. It is not our No 1 priority in the business right now but it is possible that we could do it. We’re not going to do it because it’s cool or glamorous. It would have to be a great chance of breaking even within 12 months and some profit within a couple of years.

TMR: If it happens, any potential market that MAB could be looking at?

Bellew: The obvious ones would be Paris, Amsterdam, Frankfurt, Rome… But you have to line up a load of other things. We are talking to people all the time but it’s quite complex to make it work properly. It is all about making sure the cost is right.

If we get the cost right, there is a good chance for it to succeed and it would be a good jump-off point for us to generate some significant revenue for the company and assist the turnaround. It is all about getting the right deals.

TMR: What do you think about AirAsia Bhd’s ambitious Hawaii venture?

Bellew: I don’t know why they are doing it but I guess it’s a cool thing to do. There are much easier ways to make money than trying to persuade Japanese people to Hawaii when you are competing against seven other airlines. I guess there must be some strategies there that we don’t know about, but listen… the marketplace is enormous in Asia.

When I look at China, probably over the next five or six years, there are 40 different places in mainland China that Malaysia Airlines could fly to. I’m not saying that we will do so but I wouldn’t be surprised that in 10 years, if Malaysia Airlines fly to 30 different places in mainland China. There is a greater likelihood for that to be a success.

TMR: How many aircraft are you taking in this year?

Bellew: At the moment, we’ll take in the two A350s. If we can get an amazing deal on some beautiful, posh secondhand A330s, we may end up taking in some more aircraft right at the very end of the year. So, at the moment, just two.

TMR: What is the progress on the negotiations with Alitalia?

Bellew: We have spoken to most of the lessors of Alitalia. I think Alitalia is going to survive as a medium-long haul airline. So, I don’t think their aircraft are available but there are many other aircraft that are available…Secondhand beautiful, quality aircraft — at good prices at the moment. It is again a matter of us locking in the right deal with the right aircraft for delivery at the right time.

The CEO says there is a potential in the future to sell things but that is not the focus now
(Pic by Muhd Amin Naharul/TMR)

TMR: How many aircraft are up for renewal?

Bellew: What we would like to do is reduce the fleet of 737 narrow-body aircraft by about six to seven aircraft in the next 12 months and we’d like to replace those with great quality, highly specified lie flat bed wide- body aircraft. We’d swap those so the fleet overall won’t increase. We’ll just replace narrow-bodies with wide-bodies that will give a beautiful business class product. It will give a lot of comfort for people even in economy.

We’ve been trying to get into a situation where within a couple of years, we would take six to seven aircraft next year and another six to seven the year after. We’re trying to get into a position where for pretty much all flights over three hours, it would always be in a wide-body aircraft.

For the public, it would give them a really nice product. It would give us premium fares and it would be more economical to operate on the routes because there are significant operating economies over three hours flights in a wide-body aircraft, particularly if you’ve done a great deal in leasing the aircraft and that would differentiate us significantly from the other competitors here in the marketplace.

TMR: The A350s will have a wider fuselage and there was a mention that a premium economy class will be introduced? Will that be carried out?

Bellew: No, we will not have a premium economy product. It will be first class, business class and economy but some of the economy seats you will be able to pay a little bit more and you can get more space. It would be like an add-on, you can choose if you want to. The A350s are coming with 25 seats that have slightly more room and we’ll sell them as extra-large seats.

Personally, I think premium economy has been a failure for most air- lines. Not all, as some have done very well at it, but in Asia. It is my personal belief that people either want something really good or something really good value. I actually think the middle ground of any product in Asia is a bad place to be in.

The middle ground here is a dangerous place…Premium economy, I think, would damage our revenues in business class, so I don’t think it’s a good idea for us. It’s just a slightly better seat with a free toothbrush and a comb. That’s it and I don’t want to do that.

TMR: MAB is always associated with spin-offs or potential disposal of unprofitable assets since the trend was created by former chief Datuk Seri Idris Jala. What’s your strategy in this matter?

Bellew: I think at the moment we are just focusing on getting them all to work well. There is a potential in the future to sell things but that is not our focus now. We’re just trying to make the business great and if they can all break-even or make a profit, it is fine. That is built with the value that is in them.

MASwings Sdn Bhd is an amazing company. They provide very essential travel services for people in Sabah and Sarawak, and they do it in very challenging circumstances like some of the weather [conditions] they operate in. They get a subsidy from the government to do that. It really just makes the difference between what their operating costs are and what the revenues they could generate, without trying to overcharge people for flights to break even. It’s not a profit generator for Malaysia Airlines in any way and we never see it as that. It’s more, in a sense, national services.

Firefly [FlyFirefly Sdn Bhd] has had significant losses over the last four to five years but it is doing much better this year. We’ve rationalised the business there. We’ve taken action to get it back to some stability. We believe in the next couple of years that it would be a break-even situation and that’s fine because we don’t want to pull out of the Subang market. We believe it is going to be a good market in Subang over the next few years.

Our engineering department primarily services our own aircraft right now but we do see ability for that to generate third-party business in the coming years so we believe that will be profitable.

And the ground-handling business has 70% of the grand handling of airports in Malaysia. That makes a little profit at the moment and we believe, with some investment in new equipment, staff training and recruitment, we believe it could be quite a profitable venture over the current years.

MASKargo [MAB Cargo] is quite close to breaking even now as well. Some months it is making a profit. It has rationalised its business in terms of aircraft, and it has reoriented itself from carrying fresh produce and live animals to now mostly carrying high value electronics, pharmaceuticals, and it has increased rapidly over the last six months. It services the e-commerce business in Asia between Tai- wan, Japan, China and Malaysia, and it has got some good alliances with the carriers now, so it is bringing in stuff from all over Asia, transship- ping it here in Malaysia.

TMR: Alcohol servings on board Malaysia Airlines have been repeatedly criticised, even in Parliament. Do you plan to stop serving alcohols in MAB flights?

Bellew: We don’t have any plans to change this. I think many of our customers are happy that we don’t have alcohol on flights under three hours and it is certainly something that I don’t want to change.

I think the only two airlines I know of that don’t sell any alcohol at all is Royal Brunei Airlines and Saudia, I believe. On our flights over three hours, we have a lot of international visitors and we don’t have a bar and we are not madly pushing alcohol on our flights over three hours.

If our western visitors or our non-Muslim visitors want to have a drink, I think that’s fine, I think they’d expect that and I think we do it in a very tasteful way, so I think that is a normal thing.

I think Qatar, Emirates and Etihad have bars on board of some of their aircraft and we don’t. They’re from a predominantly, almost 100% Muslim country, so I think it’s fine.