ORGANISATIONAL TRANSFORMATION — MALAYSIAN AIRLINES CASE
The case of Malaysian Airlines is both current and relevant to the theme of this DBA Module.
The airline is facing the very real challenges of organisational transformation, much of this is in the public domain attracting interest globally.
As a DBA candidate, using the lens of Value, Strategy and Leadership with an Organisational Transformation Agenda, you should gain significant insights for application as well as making justified proposals in a consultancy capacity.
MALAYSIAN AIRLINE SYSTEMS BHD (MAS) — A DRASTIC CHANGE
At a packed press conference, Khazanah Nasional Bhd managing director Tan Sri Azman Mokhtar unveiled a plan to revive Malaysian Airline System Bhd (MAS) resulting from the recent challenges faced by the airline.
Point by point, Azman read out the details of the restructuring exercise on which the state-owned investment fund has worked for six months with the goal of turning MAS around in three years. Azman stressed that the implementation of the exercise was conditional upon all of Khazanah’s terms. Khazanah will transfer MAS’ operations to a new company (Newco) post-privatisation. Khazanah will spend RM6 billion on this attempt to save MAS – RM1.4 billion on the privatisation and delisting of the airline, RM1.6 billion on the restructuring and retrenchment scheme while RM3 billion will be injected into Newco over the next three years as the transfer for assets, operations and personnel takes place.
This overhaul of MAS will not take place unless Khazanah can wholly own MAS as a private entity. Hypothetically, if the privatisation exercise is not carried out, Khazanah will not be able to drive fresh capital into MAS to sustain its operations. This means the national carrier will eventually be bankrupt.
A drastic measure will be to rationalise routes for MAS shifting its focus to regional routes with flight times of under eight hours. The airline will continue to service its long-haul routes through its code-sharing programmes and One World Alliance. MAS will however retain key flights to Europe like its flagship London route.
“ We plan to serve routes as far north as Japan, as far south as Australia and as far west as the Middle East, Azman explained.
Unfortunately, MAS’s twin tragedies have made the restructuring efforts to revive the national carrier even tougher. They have been dealt a serious blow to customer confidence in the airline and tarnished the brand. In the second quarter ended June 30, the airline reported a 6.7 percentage point drop in load factor to 73.7%, exacerbating losses – RM307.04 million in the quarter, which was 75% worse than in the previous year.
Therefore, Urgent attention is needed to restore the competitive position of MAS. From a business perspective, this will mean detailed attention to future marketing strategies for defined market segments to drive a successful turnaround
In recent times, customer confidence in MAS has been lost, resulting in customer migration to competitors. In turn this has caused significant erosion to MAS brand value. It is also widely perceived that MAS is not competitively priced on certain flight sectors which has also threatened brand loyalty.
The Khazanah Nasional turnaround plan for MAS will require corporate restructuring, the injection of substantial capital, a strategic adjustment to the operating business model, revisions to corporate governance, strengthening safety functions, rightsizing the workforce, reviewing supply contracts, reskilling human resource and redeployments, sustained government support . . . And an improved relationship basis for stakeholder engagement including trade partners and customers.
Strategy interventions are needed and these must be aligned to the Khazanah turnaround plan to ensure that MAS will become progressively more customer centric, competitive and profitable. The change leadership role within the context of this corporate rescue plan is critical for business success and future shareholder value.
It is also widely perceived that MAS is not price competitive on certain flight sectors which has also threatened brand loyalty.
TheGuardian
July 29, 2014
Is there a future for Malaysia Airlines after flights MH370 and MH17 ? By Karl West
Airlines often rebrand after a crash — repainting livery, tweaking logos or even changing their names. But after the loss of its planes, it will not be easy for Malaysia Airlines to survive.
It was a sultry evening as Alice Ephraimson-Abt, a bright 23-year old, waited to board the Asian aeroplane that was to take her to start a new life halfway across the world. She grabbed her father, Hans, for one last hug before jumping on to the plane. Just hours later, the passenger jet was shot down by the Russian military. Two hundred and sixty nine innocent people perished in the attack.
That was in August 1983. But the downing of Korean Air Lines Flight 007 from New York to Seoul 31 years ago has distinct parallels with this month’s killing of 298 passengers on Malaysia Airlines Flight MH17, which was shot down over Ukraine, with many blaming pro-Russian rebel forces. Both incidents sparked global outrage and heightened tensions between Moscow and the West. Both incidents put the airlines involved under extreme commercial pressure. Korean Air Lines survived its brush with disaster, but not without huge changes to the way it looked and operated.
The human cost of airline tragedies is well-documented. Hans Ephraimson-Abt, who passed away last year aged 91, went on to become a renowned air crash victim’s crusader after setting up the Air Crash Victims Families Group. But the business cost of recovering from these shocks is often harder to quantify. Both Trans World Airlines (TWA) and Pan American (PanAm) failed as a result of the wounds left by fatal air disasters.
The latest Malaysia Airlines tragedy comes just four months after an earlier plan, Flight MH370, disappeared en route from Kuala Lumpur to Beijing with 239 passengers on board. Jonny Clark, an aviation brand consultant, says passenger jet disasters live longer in the memory because their recognisable logos and corporate colours are splashed across TV news channels and newspaper front pages. “ When a plan crashes, it’s the company that was flying the plane that crashed — in this case, Malaysia Airlines. ”
Recent reports suggested the management of Malaysia Airlines were weighing plans for a brand overhaul that would have included renaming the carrier, although Clark cautions that this could be “a nail in the coffin”. “ Passengers could see through a superficial name and brand change, especially after the global media coverage of both incidents. ”
In the case of Malaysia Airlines, an expensive rebrand might not even be necessary. Clark notes that the carrier had already started repainting older planes with new livery earlier this year : a blue-and-red vertical stripe is now painted halfway along its planes, instead of the stripe that runs along the whole length of older models. Both of the stricken planes still had the old livery, so none of the images of the wreckage in Ukraine, or the reconstructions of the missing plane, have featured the new corporate paint job.
After its 1983 tragedy, Korean Air Lines (KAL) opted for a name change, within a year of the attack it has been renamed Korean Air. Perhaps more significantly in the eyes of the customers, its planes were repainted from white to light blue, and the KAL tailfin logo – a red crane enclosed in a red circle – was replaced with a red-and-blue taegeuk, the Korean yin-yang symbol. That distinctive blue livery and tail fin remain to this day.
Despite the corporate makeover, Korean Air struggled for years to overcome its poor safety record. In 1999 it suffered three crashes in the space of six months, two of which involved fatalities. This time, there was to be no rebranding — the airline decided it had to completely change its internal operation.
It swept away old management hierarchies, hired more non-military pilots and brought in Lufthansa, the German airline giant, to retrain its pilots. It took a long time, but Korean Air’s revamp worked. It is now a top-ranked airline for safety and service.
The future of Malaysia Airlines, which has racked up huge financial losses in the last three years, is far less certain. Joseph D’Cruz, airline industry expert and Professor at the Rotman School of Management at the University of Toronto, thinks the latest crash ‘ will reduce sales to the point that it will not be financially viable
A collapse of an airline founded in October 1937 would be a severe blow to national pride. Malaysia Airlines, which is 69% owned by Khazanah Nasional, the state investment fund, flies around 37,000 passengers a day to 80 destinations worldwide and employs about 20,000 people. The mysterious disappearance of Flight MH370 tarnished the airline’s reputation and hammered sales, particularly in China, where customers flocked to rival operators. Shares in the operator have plunged 28% in the last year, and the business is currently valued at £682.5m — around ten times less than IAG, the group that owns British Airways and Iberia.
Long before these crushing blows to public confidence, though, Malaysia Airlines was battered by high costs and falling sales, culminating in a £222m plunge into the red in 2013. It is expected to do even worse this year, after reporting a pre-tax lost of £82m in the first three months. The carrier has struggled to compete against low-cost entrants such as Indonesia’s Lion Air and Malaysia’s AirAsia, and cash-rich Middle Eastern powerhouses such as Etihad and Emirates. Douglas McNeill, investment director at City financier Charles Stanley, says : “ We’ve seen in Europe that is it possible for legacy airlines to compete, but it takes many years and a lot of restructuring. ”
Malaysia Airlines was strongly criticised by travellers for the way it handled the disappearance of Flight MH370. The reaction to the second disaster has been better ; it is offering refunds to any passengers who are too scared to fly on its planes. It is also waiving all fees and accepting requests to postpone or cancel flights scheduled for this year, even on non-refundable tickets. Whether the gesture is enough to win back the trust of its Chinese customers remains to be seen. The disappearance of MH370 sparked a 60% fall in sales from China in March.
Malaysia Airlines faces a long road to redemption. While some airlines have been able to move on from tragedy and regain customers’ trust with little more than a fresh coat of paint, others have had to take far more drastic action. ValuJet, a low cost US operator, rebranded itself as AirTran Airways after a crash in 1996, and managed to shed the perception that it had a bad safety record. Another that was forced to embrace a corporate makeover was SwissAir, following a crash in 1998.
Three years later it became Swiss International Airlines. The brand revamp was more subtle than some ; the airline, often known as Swiss, has kept its instantly recognisable tailfin logo of a white cross on a red background. During the seven-year project, it refreshed its planes’ liveries, refurbished its premium-class lounges and upgraded cabins in its long-haul aircraft. Clark thinks Swiss was able to pull through because it retained the support of the public in Switzerland, who viewed the airline as a symbol of national pride ; this perhaps, offers some hope foe Malaysia Airlines.
TWA never really recovered after one of its Boeing 747s crashed in 1996 just 12 minutes after its take-off from New York, and the company filed for bankruptcy in 2001. Others were not so fortunate. TWA never really recovered after one of its Boeing 747s exploded and crashed in 1996 just 12 minutes after take-off from New York’s JFK airport on a flight bound for Rome ; the carrier eventually filed for bankruptcy in 2001. Another airline that never managed to pull itself back from the brink was Pan Am. The carrier limped along for a few years after Libya’s 1988 bombing of Flight 103 over Lockerbie in Scotland, which killed 270. It finally collapsed in 1991, following the outbreak of the first Gulf War, which sent fuel prices skyrocketing and depressed the global economy.
Despite current public concerns about air travel, it is still much safer to fly today than it has ever been. Until this year, Malaysia Airlines had just two fatal accidents in its history, and the last 19 years have been fatality-free. The website planecrashinfo.com shows there were between 25 to 35 air disasters a year throughout the 1960s and 1970s. Last year there were only two. Yet D’Cruz reckons there are no good options left for Malaysia Airlines. The most likely saviour is the Malaysian government. Reports suggest Khazanah Nasional, the sovereign wealth fund, is working on an emergency rescue by buying up the shares it does not already own. Taking Malaysia Airlines off the stock market would pave the way for Khazanah to perform radical surgery.
Khazanah owns stakes in about 50 firms, valued at $40bn, across sectors as diverse as banks, telecoms, hospitals and theme parks. According to sources quoted by Reuters, the restructuring plan could be revealed next month. It would involve a sale of the profitable engineering arm, plus the airport services or budget airline subsidiaries. Other cost-saving measures would be driven through, including slashing its bloated payroll and installing a new management team, The airline and Khazanah commented that the reports were “ speculation ”. The next move by Malaysia’s power brokers will be decisive in determining whether the airline can indeed rise from the ashes.
Wall-Street-Journal(Online)
July 18, 2014
MALAYSIA AIRLINES FACES A DIFFICULT FUTURE ; THE TWO CRASHES IN FIVE MONTHS COULD DEAL A CRIPPLING REPUTATIONAL AND FINANCIAL BLOW TO THE AIRLINE
By Gaurav Raghuvanshi and, Jeffrey Ng
Malaysia Airlines has lost two planes carrying 537 people, in the space of five months. Now, the big question for the carrier’s survival is : Will passengers keep taking their flights ?
Aviation and crisis-management experts say the fate of Malaysia’s flagship carrier will hinge on how it weathers what’s expected to be another sharp drop in bookings after its latest air disaster, when Flight 17 from Amsterdam to Kuala Lumpur crashed Thursday in the battle-torn region of Donestk in eastern Ukraine. U.S. intelligence agencies say they believe the plane was struck by a ground-to-air missile.
The crash took place at the height of the holiday travel season for Europeans, who accounted for over half of the passengers aboard, and during the Islamic month of Ramadan, a busy travel period for Muslims. The Boeing 777 — the airline’s main long-haul workhorse – was completely full, carrying 298 people. The airline had already been reeling from the March disappearance of Flight 370, which vanished about an hour after taking off from Kuala Lumpur to Beijing with 239 people aboard. Taken together, that is the biggest casualty toll suffered by any airline over such a short time span. A double tragedy of this nature after such a short period is unheard of in the industry, ” said Vivian Lines, global vice chairman and crisis-management expert at Hill + Knowlton Strategies in Singapore. “ They were the wrong airline in the wrong place at the wrong time. ”
The disasters could deal a crippling reputational and financial blow to Malaysia Airlines’ listed parent, Malaysian Airline System Bhd, which is 69%-owned by the Malaysia state investment firm. The airline had already been suffering from years of poor performance. A high cost base and robust labor unions that represent its 20,000 strong workforce have eroded the airline’s competitiveness against the region’s leaner and highly profitable low-cost carriers.
Malaysian Airline System Bhd, reported a net loss of 443 million ringgit (S139.5 million) in the first quarter, widening from a loss of 279 million in the same quarter last year. In 2013, the company reported a loss of 1.17 billion ringgit, its third consecutive year in the red. At the end of the first quarter, the company had $1.06 billion in cash-on-hand and $3.7 billion in total debt, according to data from S&P Capital IQ. Total debt has more than doubled from $1.78 billion at the end of 2011.
If the company continues to incur losses, which is widely forecast, some analysts say they expects its current cash levels to allow the airline to run operations until the end of next year, before it would need to consider seeking a capital bailout from the state.
Malaysia Airlines’ yields — how much money the carrier makes per passenger for each kilometer flown, and an important measure of profitability — were already falling after the first disaster, said Ian Douglas, senior lecturer of aviation at the University of New South Wales. If spooked passengers avoid the airline’s flights, those yields could fall further. After a boom in passenger numbers during 2013, Malaysia Airlines’ passenger growth has been decelerating steadily since February, according to the company’s monthly traffic data.
Following the disappearance of Flight 370 in March, the carrier registered a year-on-year decline in passenger numbers of 4% in May to 1.3 million, its first fall in traffic since September 2012. Still, airline executives have said traffic had begun to improve in recent weeks. Reflecting the loss of consumer confidence, Mr. Douglas says several of his friends in Australia have cancelled travel on Malaysia Airlines, rebooking on rival Singapore Airlines Ltd. After Thursday’s crash. That is “ even though they know the loss of the aircraft could have happened to any carrier flying from Western Europe towards Southeast Asia, ” he said. “ The business implications for Malaysia Airlines are very, very significant, ” said Jonathan Galaviz, partner at consulting firm Global Market Advisors. “ The Malaysia Airlines brand is heavily damaged, even if it’s not the airline’s fault. “
The unprecedented nature of the disasters makes it difficult for analysts to assess the airline’s ability to overcome its woes. But the biggest challenge for the airline, they say., will be how it could keep its passenger figures up without substantial discounting, a strategy it is recently resorted to fill more seats. “ Before [the latest crash] it was just a cost issue…now I would question that there’s going to be a revenue problem as well, ” as demand will likely plummet despite the peak travel season, says Daniel Tsang, founder at Aspire Aviation, a Hong Kong-based consultancy. “ The dire situation of the airline right now is jus the tip of the iceberg that has been brewing for the last decade, ” he said.
To be sure, industry watchers expect the Malaysian government to step in if the situation gets too bad. Earlier this month, people with knowledge of the airline’s restructuring process said that the Malaysian state investment firm, Khazanah Nasional Bhd., was considering taking the company private, it would be easier for its management to push tough decisions without being questioned by shareholders.
Analysts said the best course of action may be to let the airline fail, and then to rebuild it from the ground up. “ Starting from scratch, while radical, will be a very sustainable measure over the long run, ” said Mr. Tsang. Several premium carriers, including Swiss International Air Lines with its predecessor Swissair, and Japan Airlines Co. have in recent years gone through similar restructuring programs in hopes to rebuilding financial strength.
Malaysian Airline System’s Kuala Lumpur-traded stock was lately trading down over 11% after falling as much as 18% earlier in the session. The stock price is down around 25% since the disappearance of Flight 370 in March. For now, Malaysia Airlines needs to concentrate on handling Thursday’s crash better than it did the disappearance of Flight MH370 in March, said Hill + Knowlton’s Mr. Lines. This time, it should be easier to figure out what happened — something that is still a mystery in the case of Flight 370 and to comfort the families of victims, he said.
Key players seem to have learned lessons from the first disaster as well : Malaysia’s prime minister was on television making a clear, public statement soon after the crash, an improvement over the confused and delayed March response from officials and the airline. Longer term, Malaysia Airlines has to reassure passengers that it is safe to travel on its planes, something that could require a complete overhaul of the company and the brand, Mr. Lines said.
The-Sydney-Morning-Herald
BusinessDay
September 9, 2014
MALAYSIA AIRLINES SAYS AUSTRALIAN CUSTOMERS ARE COMING BACK
By Jamie Freed
Malaysia Airlines is pointing to signs of recovery in passenger demand following MH17 tragedy over Ukraine in July, with its flights heading from Australia and New Zealand to Kuala Lumpur now averaging at least 70 per cent full. Malaysia Airlines regional senior vice president Lee Poh Kait said the resurgence in bookings was a result of “unrelenting support” from travel agents combined with outstanding fare deals and positive community sentiment toward the airline.
“This region is our main market outside of Malaysia,” he said. “We are determined to rebuild confidence in Malaysia Airlines as one of the best full-service carriers in the world. We appreciate the support of the travel trade, our passengers and valued employees, especially our award-winning cabin crew. ”
Malaysia Airlines last month increased commission rates to travel agents to 11 per cent from 6 per cent for tickets booked for September 15. It is also offering “spring sensation” flights to Kuala Lumpur with return economy class tickets from as little as $798 from Melbourne and $813 from Sydney until September 21.
In the immediate aftermath of the MH17 tragedy, Malaysia Airlines has offered full refunds to passengers with tickets booked that no longer wanted to fly on the airline.
Including the mysterious disappearance of MH370 in March, 537 passengers and crew have died on Malaysia Airlines flights this year, marring a longstanding strong record for safety.
The airline is poised to be de-listed from the Malaysian bourse following an offer from its major shareholder Khazanah Nasional, a state-owned investment fund. A restructuring plan will involve the loss of 6000 jobs at the carrier.
The Dutch Safety Board is due to release a preliminary report into the MH17 incident at 6pm Sydney time on Tuesday. To-date, evidence suggests the flight was shot down by pro-separatists rebels in eastern Ukraine.
Gulliver
BusinessTravel
The Economist Dec 1, 2014
MALAYSIA AIRLINES : MUCH ATWITTER ABOUT NOTHING
Malaysia Airlines which has lost two aeroplanes in tragic circumstances during the past year announced a $170m third-quarter loss on Friday. But the airline’s continuing struggles — which have forced Malaysia’s government and sovereign wealth fund to announce plans essentially to nationalise the flag carrier – have been overshadowed in recent news coverage by a series of inconsequential stories about the company’s tweets.
“In a Twitter Post, Malaysia Airlines Sends the Wrong Message,” The New York Times (http://www.nytimes.com/2014/11/9/world/asia/malaysia-airlines-tweet-sends-wrong-message.html?r=0 assessed on 10th December, 2014)
“Malaysia Airlines apologises for tweet, posts loss.” USA Today (http://www/usatoday.com/story/todayinthesky/2014/11/28/malaysia-airlines-apologizes-for-tweet-posts-loss/19611871/accessed on 10th December, 2014).
- A September advertising campaign and free-ticket giveaway that asked customers to submit their “ultimate bucket lists”. (A “bucket list”, the Times helpfully explains, is used by some people to refer to a list of things they wan to do before they die…ie. “kick the bucket”
- A September tweet, using the hashtag #flyinghigh, which advises : “If you fell down yesterday, don’t stay down. Get up as quick as you can.”
- A October tweet, highlighting the airline’s new slogan, “keepflying”, reading : “It does not matter how slowly you go as long as you do not stop.”
- The latest offense on Thursday, was a tweet that read “Want to go somewhere, but don’t know where ?”
- The offensive thing about these items isn’t that they recall the loss of MH370, still missing in the Indian Ocean, or the downing of MH17 over Ukraine. It’s that they’re utterly banal. Only the most thick-skinned and histrionic of Malaysia Airlines’ customers could conceivably claim to be offended by this pablum. At worst, these promotions highlight the airline’s marketers’ lack of creativity.
- The carrier’s problem isn’t bad tweets, it is that it lost two airliners. Investigators may ultimately determine that neither disaster was the airline’s fault. But people are instinctively terrified of air travel and disasters – especially mysterious ones such as the loss of MH370 – naturally stick in people’s minds.
- Malaysia Airlines wouldn’t be the first carrier to find it could not recover from the knock-on effects of such a tragedy. The Malaysian government obviously feels compelled to try to save the airline. But if even the faintest echoes cause people instantly to associate the airline with death and destruction, saving it as a business — especially under its current name – may already be a lost cause.
- Source : http://www.economist.com/blogs/gulliver/2014/12/malaysia-airlines
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