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July 21, 2014

EXCLUSIVE: How Malaysia Airlines Can Survive Beyond 2014

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Written by: Eric McKirdy
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One need not go too deeply inside Malaysia Airlines’ 2013 annual report to find trouble brewing even before the catastrophic ends of two flights in 2014. The report, released in June 2014, underscores the financial peril faced by the airline for several years.


Malaysia Airlines Chairman Tan Sri Md Nor Yusof

“The business environment of 2013 was indeed tough,” observed Malaysia Airlines Chairman Tan Sri Md Nor Yusof in a letter to shareholders. “The final numbers for 2013 [are] a loss; however, we made important strides for the long term sustainability of this group.” Outlined elsewhere in the letter, these strides include a traffic increase of 27 percent in 2013 over 2012, record high seat load and a higher than average seat load compared to other airlines. However, the business cost of these higher seat loads was greatly reduced fares, thus offsetting any potential revenue gains.

The numbers tell the story: parent company Malaysian Airline System Bhd has not delivered a profitable quarter since Q1 2013, where the company eked out a scant 59M ringgit profit though finishing the entire year in the red overall. For 2013, the Wall Street Journal reported “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.” The airline’s last profitable year was 2007.

Malaysia Airlines CEO Ahmad Jauhari Yahya

Malaysia Airlines CEO Ahmad Jauhari Yahya

It would have been difficult to absorb the business impact of a jetliner going missing even under the best financial circumstances; yet for Malaysia, the March 2014 disappearance of MH370 presumably in the south Indian Ocean was another break in the dam. In comments to shareholders in June 2014, Malaysia Airlines CEO Ahmad Jauhari Yahya observed “It feels inappropriate to describe our past year’s performance at a time like this.” MH370 had a very material impact on the airline; it posted a 443M ringgit loss for Q1 2014, compared to a quarterly loss of 279M ringgit in Q1 2013. In early July 2014, the Wall Street Journal reported that the airline was considering going private in order to buy some recovery time.

“The future continues to look challenging with intensifying competition, continued high fuel costs and a weak foreign exchange position,” Yahya prophesied in June. While operational changes may have helped to position the airline to respond to changing market conditions and demand, they certainly couldn’t have prepared the company to absorb a second catastrophic hull loss just five months later with the shooting down of MH17 over eastern Ukraine. The second loss means the total net absorption of more than twice the cost of just MH370. While Malaysia Airlines’ insurance carrier should cover the loss value of both Boeing 777-200 aircraft, Malaysia Airlines itself is responsible for compensation to the families of victims; the compensation costs just for MH370 alone have already surpassed 44M ringgit.

To be sure, both aircraft losses were not the operational fault of Malaysia Airlines; in both cases, the airline found itself in a wrong-place-at-the-wrong-time situation. In the court of public opinion, the greatest charges against Malaysia Airlines may be reputational rather than economic. The airline has begun waiving fees for reservation changes and fully refunding cancellations even when non-refundable fares were originally booked. Many booked passengers are opting instead to fly on Singapore Airlines, Malaysia’s nearest competitor. Low-cost carrier Air Asia also poses a significant threat to Malaysia’s business; in the year-over-year period from 2012 to 2013, Malaysia Airlines bookings originating in China alone — historically one of the airline’s most important markets — fell 60 percent.


James Mowdy, founder of San Francisco brand consultancy b|spoke

“Even as US intelligence sources seem to confirm that the rockets are linked to a sovereign power, Malaysia Airlines is not in the clear,” said James Mowdy, a self-made aviation buff and founder of b|spoke, a San Francisco-based brand consultancy. “The battle to win back brand confidence, hearts and minds stands before them, in the face of unprecedented legal, financial and insurance challenges. But before these challenges are approached, Malaysia Airlines (and to a large degree, the Malaysian government) must find an authentic and emotionally supportive way to physically connect with victim’s friends and families, their brand advocates and influencers and the greater global, flying public.”

In the immediate aftermath of the crash of MH17 over Ukraine, the airline seems to have doubled down on opportunities to step into action. “A company flight ‘mobilizing 212 personnel from various government and media bodies and its staff … (on) a special mission for MH17’ arrived in Kiev and Amsterdam on Saturday morning local time, including (5) individuals who will join ‘the search-and-recovery mission at the crash site in the Donetsk region,’” Mowdy said. “This coordinated brand action sits in stark contrast to the perceived inaction of the first MAS crisis, and communicates a brand mandate that must succeed, especially with regard to being physically present at the crash site even as Ukrainian rebels are turning other officials and agencies away. This effort suggests MAS may already be receiving expert guidance, but more importantly, that the brand is making a concerted and public effort to reach out and touch those most affected by this event and, with regard to the recovery mission, attempting success where others have thus far failed.”

The news isn’t all bad

In 2013, Malaysia Airlines made significant strides in its marketing efforts, and most especially through the launch of its Journeys campaign. “The significantly larger investment in branding and awareness of our products and services was necessary, and resulted in an improved brand awareness worldwide,” the airline claimed in its annual report. “Top of mind brand awareness increased 58%, unaided awareness improved 32%, [while] the Malaysia brand health matrix growth surpassed competitors [after the conclusion of the Journeys campaign].”

Elsewhere in the company, the airline won prestigious recognition as ‘Asia’s Leading Airline’ at the World Travel Awards 2013 and was rated a five-star airline by Skytrax UK at the 2013 World Airlines Awards. During 2013, Malaysia collected awards for ‘Best Airline Signature Dish’ (Skytrax UK) and ‘Best First White Wine’ (Cellars in the Sky 2013). The awards were the culmination of product enhancements across the entire in-flight experience offered by Malaysia. But Mowdy points out these accolades are not necessarily enough to carry the company forward.

“In light of two 2014 disasters, premium on board brand experience and customer service accolades are now secondary to travel safety and personal security,” said Mowdy. “As part of a greater global action plan, MAS will need to demonstrate how a competent, well-trained flight, ground and cabin crew impacts every passenger’s safety from the moment of check in to the retrieving of luggage at their destination. All of this while still reflecting superlative customer service and exceptional passenger brand experience.”

A Sky Shield prototype attached to the underbelly of an El Al airliner.

A Sky Shield prototype attached to the underbelly of an El Al airliner.

Mowdy also notes that future in-flight product enhancements will need to be realized in other ways for the sake of consumer confidence. “Malaysia Airlines must also seriously consider innovating new, inflight safety advancements in the cabin environment and perhaps for the jet itself; Israel’s Defense Ministry recently (and successfully) tested ‘Sky Shield,’ a laser technology system that protects commercial planes from missile attacks. Costing $1 million per plane, the IDM plans to equip Israel’s El Al with the technology on “sensitive routes” as soon as it becomes fully operational. If the airline is able to create tangible and effective safety advancements for passengers and jets, then luxury product offerings and premium in-flight dining experiences are added to a list of groundbreaking safety innovations, perhaps capturing global attention via differentiation from international competitors,” Mowdy said.

MASkargo_B742F_TF-ARNAlso owing to Malaysia’s operational strength are its three niche carriers; MASkargo, a long-haul cargo operator (though operating at a loss in 2013 due to decreased cargo demand worldwide), regional short-haul carrier Firefly, and MASwings, a village-hopping airline connecting the small communities of Sabah, Sarawak and the BIMP-EAGA area to regional airports served by Firefly.

“Barring any discussion of how financially feasible this is for Malaysian Airlines in the immediate and long-term, the diversification of MAS across four divisions could be seen as a brand asset,” Mowdy said. “Assuming that the MAS parent brand continues moving towards a strategic and empathic action plan to create 1-2-1 connection with MH17 victim families, MAS flyers and the global public, these business divisions serve as platforms for parent company messaging and, in some cases, brand action in the home-country market.”

Options for success

With little cash flow to shore up its bottom line and all eyes looking to the airline for answers, can Malaysia Airlines repair its brand image? Mowdy believes the answer is yes.

“Transparency and empathy are priorities right now. Malaysia Airlines repeatedly fumbled its MH370 crisis communications, search coordination and overall crisis management,” Mowdy said. “At this early juncture, MAS seems to have learnt some difficult lessons from the previous crisis,” in spite of the fact that the airline is 67% owned by the Malaysian government itself.

“This is a government that’s shown itself to be notoriously secretive and perhaps more concerned for privacy and the needs of its elites before transparency and cooperation with other governments and the global public,” Mowdy noted. “Now with a second disaster and a total of 537 people lost in the space of five months, MAS’ business culture must make quantum leaps. If not already in progress, MAS must engage the world’s best crisis communications experts.”

firefly11Malaysia Airlines can also lean on the strength and positioning of its other brands to help reinforce some positive sentiment of its core brand. “Currently, the MASKargo, Firefly and MASwings websites open to a MH17 condolences message that connects to information regarding the parent company’s latest MH17 activities,” Mowdy observed. “In other words, the message that the world is receiving is the message a potential Malaysian customer in a smaller city or village is receiving. This parity could be a critical first step in becoming a more transparent, empathetic and action-based company that must win back the trust of a domestic and global flying public.”

Charting a new course

“Before cutting seat pricing even lower, letting the company fail or going private in order to rebuild, I would urge the MAS organization (and to the extent possible, the Malaysian government) to demonstrate an authentic willingness to accept assistance from the outside world, especially as it relates to tangibly improving the safety and security of our passengers and our aircraft,” said Mowdy, outlining what he would do as CEO of the troubled airline. “I would stay receptive to outside business expertise and begin discussions with my board to establish a separate and internationally diverse advisory board.”

“In much the same way that Lee laccoca famously appealed to the American public (and Congress) to support, save and buy from Chrysler in the 1970s and 1980s, I would strive to personify Malaysia Airlines’ best customer service and brand values. As part of a greater, global business action plan, I would make myself available to victims’ families and friends, my regular customers and the global flying public through private, in-person meetings, press events and 1-2-1 global media and/or social media interviews and events,” Mowdy said.

The US auto industry also offers a more recent, valuable lesson from which Malaysia Airlines can learn. “Like General Motors CEO Mary Barra, I would go through the uncomfortable moments with victims’ families, reporters, protesters and other governments, even as unprecedented legal, financial and insurance challenges loomed,” Mowdy said. “In this way, I would hope to set a new customer service standard for my airline, witnessed by my employees and the global flying public whose confidence must be won back.”

NYCA Associate Editor Eric McKirdy is also a pilot and head of customer engagement for a major internet search engine. Feel free to get in touch with him on Twitter.

About the Author

Eric McKirdy



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