Christoph Mueller will assume the toughest job in the airline business when he takes over as chief executive of Malaysia Airlines (MAS) later this year.
Taking the reins of a troubled carrier is familiar territory for the German executive, who engineered the turnaround of Ireland’s Aer Lingus. In a 2011 Airline Business interview, Mueller said that when he took charge of the Irish flag carrier in 2009, it resembled a patient in an emergency room, haemorrhaging cash. He may well feel a sense of déjà vu when he formally steps into the MAS role, likely during April or May this year.
Mueller will not have to contend with public shareholders and stock analysts following MAS’s de-listing on the last day of 2014, but this is arguably the only problem not on his plate. Even before Mueller’s appointment was announced in December, his mission was clear, as codified in August 2014 when Malaysia sovereign wealth fund Khazanah Nasional outlined its 12-point restructuring plan for MAS.
At the core of the plan was de-listing MAS and the creation of a new company (MAS NewCo) with a competitive operational structure and workforce. The de-listing has been dispensed with, and it is up to Mueller to deliver the rest. He will get some help from cash infusions that will see the majority shareholder inject MYR6 billion ($976.7 million) over three years.
Salient elements of Khazanah’s plan include cutting the workforce by 30% from 20,000 staff in August (a process that is already underway), moving the company’s headquarters, and focusing more on regional routes. Profitability is to be achieved within three years - no small feat given that MAS’s fiscal third quarter results, released on 28 November, saw net losses widen to MYR576 million ($163 million).
MAS’s 2014 results were partially weighed down by the disappearance of MH370 in March and the shooting down of MH17 over the Ukraine in July, resulting in the loss of 537 lives.
All of the changes need to happen in a cutthroat market. On domestic and regional routes, MAS faces its traditional nemesis AirAsia and (to a lesser degree) Lion Air’s Malindo unit. Both rivals tout better cost structures, and have no qualms about competing on price.
Malaysia Airlines domestic routes, January 2015
Innovata
On the international front MAS is pitted against the fast growing long-haul, low-cost player AirAsia X, which benefits from tight connectivity with AirAsia. Farther a field it must contend with the three ‘super connector’ Persian Gulf carriers, and regional players such as Singapore Airlines and Thai Airways.
Although experts Flightglobal spoke with are unanimous that Mueller is probably the best man for the job, some question whether even his acumen and leadership skills are up to the task.
MAS has long had an extremely close relationship with the Malaysian government and political interests. Throughout its history, it has been regarded as an important player in promoting Malaysia, both at home and aboard. Like other legacy carriers, it has struggled for profitability, if not outright relevance, in an era characterised by deregulated markets and nimble, aggressive low-cost carriers. For the carrier to become a commercially viable airline and not a burden on Malaysian taxpayers, it will have to undergo wrenching shifts to its business model and, more crucially, its culture.
MAS (Blue) vs. AirAsia X (Red) - gray routes served by both
Innovata
“The key to making these changes happen, and turning MAS around, is getting stakeholders on-side and getting real political backing,” says one observer familiar with the carrier. “It’s all-too-easy for a politician to say ‘downsize the airline.’”
He says the changes will be painful for a lot of staff - those who lose jobs will need to find work elsewhere while survivors will need to be more productive. The environment facing MAS today is far more competitive than when former chief executive Idris Jala turned the carrier around a decade ago, because at that time AirAsia hardly existed. Southeast Asia’s other big turnaround in recent years, Garuda Indonesia, occurred at a time when Lion Air was still very much a lion cub.
John Strickland of JLS Consulting is cautiously optimistic of MAS’s future. “It’s a difficult job, but not impossible,” he says.
Strickland believes MAS’s membership in Oneworld could be of benefit, because working with the other carriers in the grouping could provide valuable best practice, with the potential for working together and even joint ventures.
In regard to local relationship issues, Srickland believes Mueller needs to build a rapport with a strong local team that can help him drive change and deal with sensitive issues.
Strickland notes that MAS has been able to boost its load factors through the cutting of fares. Future success will rely on the carrier keeping load factors high, but not having to rely entirely on lower fares. To assist with this, MAS needs to find ways to sharply reduce its cost base and also boost efficiency.
“Mueller has a good track record for the Malaysia Airlines hot seat,” says Strickland. “He took Aer Lingus from having a primarily low-cost focus to having a business traveller emphasis, at a time when Europe was suffering the effects of an economic crisis with a strong low-cost rival in the form of Ryanair.”
Aside from changing MAS’s business model, cutting costs, and increasing productivity, Mueller has to contend with several structural issues. Foremost among these are long-haul routes where the carrier has boosted load factors at the expense of yields. He will also need to make tough fleet decisions. The carrier’s Boeing 737-800s have an average age of three years, but some travellers have said the product feels tired.
MAS fleet (average age eight years)
Ascend
More urgently, he will have to address obsolescence issues with the carrier’s 13 Boeing 777-200ERs, which are on average 20 years old. MAS’s six Airbus A380s are the flagships of the fleet, but many observers feel the super jumbos are simply too large for a carrier like MAS to fill profitably.
Joanna Lu, head of advisory at Ascend Flightglobal Consultancy in Asia, feels the key challenge facing Mueller will be overhauling the company’s management culture.
“Mueller’s challenge is changing the overall work culture in this airline, helping it know more about the market and their competitors, and making the MAS team more disciplined. His background will help but it will be challenging to change the company in a short time. He has to re-brand the company and convince the world this is a totally new and professional airline. It is definitely a difficult job.”
Source: Cirium Dashboard
