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MAS fuel-hedging strategy gets mixed reviews

MAS fuel-hedging strategy gets mixed reviews

By Presenna Nambiar
presenna@nstp.com.my
2009/06/15

ANALYSTS are mixed about whether Malaysia Airlines (MAS) (3786) is doing the right thing in its fuel contracts, but they agree that the outlook for the national carrier looks sombre.

"I do not find the mark-to-market losses it posted all that worrying because, it is something that most companies will have to go through come 2010, and MAS did take some measures to mitigate its affects," Maybank Investment Bank senior analyst Khair Mirza told Business Times.

"What I am more worried about is that the carrier does not seem to be reacting fast enough to passengers' needs. They are not doing enough.

"With the second quarter being traditionally its weakest quarter, and the H1N1 flu gathering more intensity, it is hard to imagine the carrier making a profit (in the second quarter of 2009)," he added.

Khair estimated that during the January-March period, MAS had lost 30 per cent of its passengers to its competitors.

On Friday, MAS reported a net loss of RM695 million in its first quarter ended March 31 2009, versus a year-ago net profit, largely due to its fuel hedging contracts.

Notwithstanding the RM640 million mark-to-market fuel hedging losses, the carrier posted RM138 million in operating loss.

It also said it had spent some RM400 million to restructure its hedging contracts into 2011.

Standard & Poor's Asian Equity Research analyst Shukor Yusof said MAS' mark-to-market losses is an indication of what to expect from the carrier in the coming months.

For MAS to be a trend setter, he believes that it should take a more proactive approach in its fuel hedging strategies.

"One of MAS' main problems is that it adopts a herd mentality when it comes to fuel hedges. There is no real vision and MAS is obviously afraid to take risks," Shukor said.

The airline could still make a profit in the second quarter, though, albeit not an operational one, again due to the airline's new accounting standard.

This is because just as how the airline saw a paper loss of RM640 million in the first quarter, it could see a paper gain of RM1.1 billion on fuel hedging if oil prices average US$66 a barrel in the second quarter.

Meanwhile, in a reply to a local blog posting on Rocky's Bru on Saturday, MAS executive director and chief financial officer Tengku Azmil Zahruddin said any business in which its major cost item doubles to US$180 per barrel in six months, only to fall to US$40 per barrel in the next six months, must take steps to protect itself against such volatility.

He added that because airlines typically sell seats six months into the future and sometimes even up to 340 days in advance, the need to hedge against the unpredictability of fuel price is critical.

"As with other airlines which hedge, MAS only enters into long fuel hedges, where we are buying fuel, and do not speculate by selling short in the fuel market, as may be the case with certain low-cost carriers," Tengku Azmil said.

Source: http://www.btimes.com.my/Current_News/BTIMES/articles/shukk/Article/index_html

MAS responds to hblogger's posting

SATURDAY, JUNE 13, 2009

MAS responds to hblogger's posting

Malaysia Airlines does the right thing. On Friday, June 5, I published in full an article by a reader entitled"Six Things MAS must do", here. The management of the national carrier has responded to that article and I am publishing it in full here.

In reference to the article titled “Six things MAS must do” posted on Friday, June 5, 2009, we would like to make the following clarification:

1. MSS

The writer claimed MAS should have spun off its Engineering & Cargo Division, ran a LIFO (Last in, First Out) instead of the MSS, and should use local experts to carry out third party audits/ recommendations.

He also claimed that although MAS’ staff numbers were reduced, staff costs escalated. He also alleged that MAS hired many new personnel with no aviation knowledge, and has become top heavy.

a. Spinning off E&M and MASkargo

For Malaysia Airlines, we have no reasons to spin off our Engineering & Maintenance (E&M) Division and MASkargo.

Over the last 3 years, both E&M and MASkargo have contributed positively to our bottom line. From just RM179 million revenue in 2005, E&M’s third party revenue hasincreased 100% from RM218 million in 2006 to RM438 million in 2008, and we have seen a 50% increase in the number of customers. In 2009, the target revenue set for E&M is RM520 million.

More revenue is expected as the E&M division which is also a subsidiary; MAS Aerospace Engineering has made its first foray overseas. We are working on a 50:50 JV for an Airframe Maintenance, Repair and Overhaul (MRO) company in Hyderabad, India.

The cargo business has been profitable for the past 5 years. In 2007, it recorded a net profit of RM132.1 million and last year, it made RM14.5 million despite the very tough operating environment.

The cargo and passenger services are two core revenue streams of the airline business. The two revenue stream complements each other to make the route profitable. It would be better to keep the two together as belly space is the product of passenger aircraft.

b. LIFO

The MSS is not a retrenchment exercise and as such, the principle of Last in, First out (LIFO) is not applicable.

MSS stands for Mutual Separation Scheme. It starts with MAS inviting eligible employees to apply for MSS. The employee then decides whether to apply. If the employee accepts the invitation, MAS then decides whether the employee should be retained or allowed to leave the company based on specific operational needs and the critical skills required keeping MAS efficient and effective.

A total of 2,621 employees were successful – none were critical staff whose services were still required. No employees with 12 months or less left to retirement were accepted under the MSS. There was only one exception and the compensation paid to this individual was less than had this individual worked until retirement.

The compensation given was agreed based on consultation and inputs from all the unions and associations using the respective collective agreements and memorandums of understanding.

The money used to compensate these employees were from the Government’s compensation to MAS, based on legal obligation as a result of the Government’s early termination of the domestic service agreement through the so-called rationalisation of the domestic network. The compensation would have been payable to MAS even if MAS had not carried out the MSS exercise.

For those who remained with MAS, it meant that they now have to assume the duties of their departing peers. To compensate for this additional work, and as agreed with the unions and associations, these employees were given salary increases based on their performance and the amount of additional work they had to take on.

c. Engaging local experts instead of foreign consultants

We did not use any external consultants for the MSS.

We do engage the services of foreign consultants; selectively and on a limited basis. These consultants bring with them the global aviation know-how and shared the best practices of other airlines with us. They provide the structure and framework for our key projects and work hand-in-hand with our staff to deliver solutions to ensure our competitiveness.

Increase in staff cost in 2007

We made a net profit of RM851 million in FY2007, the highest ever profit in our corporate history.

Accordingly, our staff cost went up in 2007 as we were paying salary increments which was part of the collective agreement with the unions and associations, and bonuses.

Providing incentives to our employees also play a big part in changing the mindset to focus on performance. In December 2005, we found we were only getting about 10% of what we should be entitled to under excess baggage. The industry is collecting about 70%. We wanted to collect 70% to 100% of our entitlement and so, we incentivized the people who are doing the collecting.

In 2007, we collected excess baggage allowance of RM61.5 million and paid employees some RM770,000.

We have also revised upwards the salaries for approximately 1,900 employees with monthly salaries of less than RM1,000. The cost of living has gone up and we want to make sure that the employees are taken care of. And they continue to enjoy the existing allowances and salary increments stipulated in the collective agreements.

Hiring external new personnel

Despite the writer’s allegations, we have only hired 9 senior management personnel (the position of Assistant General Manager and above) since January 2006.

When we bring in new senior personnel, we recruit those who bring with them specialized skills or subject matter experts to make the airline stronger, and to set the foundation for MAS’ future growth.

There are different skill sets required in an airline, not every personnel require airline experience to make the airline successful. At the same time, we have also recruited those who are leaders in their respective fields.

Many of the professionals we hired have worked with MNCs, and have global if not regional experience, making them the ideal candidates to take MAS to the next level. As MNCs pay more and have a highly attractive benefit and compensation package, many of the new hires took a huge pay cut to work alongside existing employees to turnaround the airline.

They should receive accolades, not criticisms.

2. Capital injection

Examining MAS’ cash flow for 2007, one will note that the majority of the increase in cash was attributed the profit before tax of RM880 million and write back from non cash items such as depreciation and provisions of RM800 million.

In September 2007, we raised RM1.5 billion of addition funds via a rights issue and RCPS. This additional capital was earmarked for the fleet renewal exercise and can only be used for the fleet renewal.

The management has been prudent in ensuring that MAS has a cash pile. In the tough economic situation the industry is in where over 30 airlines have gone bankrupt and where credit is tight, cash is King. If we only have RM2 billion in cash today when we are facing a quadruple squeeze of falling oil prices, fuel hedging, global economic crisis and the fears over the H1N1, we would be bankrupt.

The writer claimed that “as clearly illustrated that in FY2007, profit of RM852 million was not gained from operations but ‘creatively’ generated by selling her fixed assets and borrowings of RM859 million.”

That is factually wrong and the following chart shows that Malaysia Airlines FY2007 profit was driven by operational improvement (not one-off gain).

Complaints about MAS by ex-Tourism Minister

The writer highlighted a quote from the ex-Tourism Minister regarding MAS’ services, about the need to balance the issue of profitability with the effects on the country’s tourism industry.

For MAS, bringing tourists into Malaysia is a critical selling factor for us. All these years, we have been supporting Tourism Malaysia in bringing in tourism dollars into the country. Tourist arrivals into Malaysia has increased from 16.4 million (2005) to 22.05 million (2008) as we turned the loss making airline into a profitable entity, RM1.3 billon losses (2005) to RM244 million (2008).

We have a 4 pillar strategy to bring in tourists:

1. Improve connectivity to Malaysia via our hub-and-spoke network – growing the number of destinations connected from 1,283 (2005) to 2,039 (2008).
2. Provide low fares
3. Aggressively promoting and advertising Malaysia, in collaboration with Tourism Malaysia
4. Having our MH=Malaysian Hospitality customer value proposition to provide customers with seamless and convenient travel. We have close to 740 initiatives to repair service and product breakages across the system.

In addition, our hub-and-spoke strategy has induced more flights from other carriers into KLIA. From 47 foreign airlines which operated out of KLIA in 2006, this has grown to 55 in 2008. Accordingly, the weekly flight frequency has increased 30% from 562 in 2006 to 747 in 2008 even though we reduced our capacity by 7% in 2006 under our business turnaround plan.

Khazanah: Turnaround in operations of MAS and Proton not enough

We absolutely agree with Tan Sri Azman Mokhtar that for MAS to be a regional champion, we must look for other opportunities to grow.

International Air Transport Association (IATA) has revised its airline financial forecast for 2009 to a global loss of US$9 billion, which is nearly double its March estimate of a US$4.7 billion loss, reflecting a rapidly deteriorating revenue environment. IATA also revised its loss estimate for 2008 to US$10.4 billion from the previous estimate of US$8.5 billion.

It is even more critical for Governments in Asia to seriously consider the benefits of opening up airline ownership.

Q&A: Fernandez pours out his frustrations

We would like to highlight that since 2002, Malaysia Airlines have not been bailed out.

When Dato’ Sri Idris Jala first joined the airline and held the first town hall in December 2005 where over 700 employees were gathered, the then PM, Dato' Seri Abdullah Ahmad Badawi addressed the employees and categorically said that the Government will not bail out MAS.

We have remained profitable and made a net profit of RM244 million for FY2008 in spite of the highly challenging times.

3. Continued purchase of A380 and the late decision on B737-800 orders in 2008

The writer alleged that we should have cancelled the orders for A380.

The past MAS administration ordered the planes and we have inherited the planes, and have plans for them in our network.

We believe that the timing for the B737-800 orders is just perfect. Should we have ordered them earlier, we would be taking delivery of the new planes at a time of global crisis and would have problems filling up the new planes. We hope that by the time we take delivery of the planes in the last quarter of 2010, the economy would have recovered.

4. Safety issues

The writer made some serious allegations regarding safety of the E&M operations.

In Malaysia Airlines, we give top priority to safety. In respect to the alleged case the writer mentioned, we performed the C Check on the Air Atlanta aircraft in September 2007 and the incident happened 6 months later. During our checks, the aircraft was inspected in accordance with Boeing’s approved procedures. The investigation by the authorities is ongoing, so it is not appropriate for us to comment further.

5. Fuel Hedging

No one purchases a life insurance that covers him/ her for only for 3 months. Similarly, airlines hedged against fuel as it protects the airline against the volatility of fuel prices. This is important as fuel is the single largest cost item for an airline.

Any business whose major cost item doubles to USD180/ barrel in six months only to fall to USD 40/ barrel in the next six months must take steps to protect itself against such volatility.

And because airlines typically sell seats six months into the future and sometime up to 340 days in advance, the need to hedge against the unpredictability of fuel price is critical. As with other airlines who hedge, Malaysia Airlines only enters into long fuel hedges (where we are buying fuel) and do not speculate by selling short in the fuel market (as may be the case with certain low cost carriers).

6. I rest my case!

Cobbling different news clippings and opinions over a period of years to formulate an argument about how an airline should be run will not present an objective view of how the airline performed.

The airline is a highly complex business, and it’s important to be able to understand how all the different aspects of the business come together to ensure the success of the airline. As they said, the proof of the pudding is in the eating.

We do agree that we need to work together in order to overcome the challenges the industry is facing. This involves sharing of ideas openly as well as challenging the way we do things. This may include changing radically our outlook, strategies and processes. We also agree that we need world class management, and have very selectively recruited people to strengthen the organization.

Despite the challenging circumstances, we are hopeful of beating the odds and aim to emerge as one of the winners.

Tengku Azmil Zahruddin

Executive Director/ Chief Financial Officer

Malaysia Airlines

Source: http://rockybru2.blogspot.com/2009/06/mas-responds-to-hbloggers-posting.html

Six things MAS must do

FRIDAY, JUNE 5, 2009

Six things MAS must do

A Malaysia Airlines insider sent me this article the other day. I think it's worth sharing.

TIME TO ACT AND REACT, 1MALAYSIA!

Two very serious accidents happened on 2^nd June 2009 that really stunned me. One was the missing Air France A330 airliner enroute from Rio to Paris (may have caused a loss of more than 200 lives and an aircraft worth approximately RM400 million) and another was the collapse of the stadium’s roof in K.Trengganu (possibly another RM 200 million loss)

Many reasons and assumptions have been put forward but one thing was definite, it was due to ‘something’ that had seriously affected the QUALITY. This is the single factor that I have been dissecting, scrutinizing, analyzing, researching but sadly being human, we tend to forget easily and take things for granted most easily.

I will post my research on “Organisational Behaviour” for public consumption depending on the responses I received from my article below.

I have talked a lot about it, written a lot about it and now it is time to act on it.

I have waited more than 6 years to do this; my conscience is troubling me while my “fardhu kifayah” is urging me.

So, here goes something, wish me luck, Malaysia!

6 MAJOR THINGS THAT MAS SHOULD HAVE HEDGED INSTEAD.

1. MSS – MAS Mutual Separation Scheme

Rather than retrenching the staff that cost the PUBLIC a cool RM 500 million in 2006, MAS could have adopted the following strategy (still relevant now) to resolve MAS problems faced then by:

1. Spinning off Engineering and Cargo Division (thus reducing the staff numbers by nearly 6000 but with ZERO cost)

2. LIFO: Last in, First Out (NOT FIFO. First in, first out whereby many employees who were near retirement age were retrenched according to one standard formula instead of another alternative option)
3. Engaging the much proven local expert to carry out third party audit / surveillance and propose recommendations (NOT the expensive and yet unproven Foreign Consultant)

Based on the FY2007 Financial report, MAS employees strength were reduced from 18,641 (2006) to 17,991 (2007) but staff costs escalated from RM 1.872 billions (2006) to RM 2.001 billions (2007). So where are the cost cutting measures?

After all the over hype BTP (Business Transformation Plan), sure enough they are now facing bigger problems because instead of looking on intrinsic quality and efficiency, they brought it more new personnel (again with zero aviation knowledge), so much so that MAS is now top heavy, sluggish and rather than being the leader, they tend to trail Air Asia business strategies(remember the advertisement colour scheme, ELF (Everyday Low Fares) etc, etc.

Source: New Strait Times

Wednesday August 30, 2006

Is rewarding failure a new Malaysian way of life?

I am referring particularly to the exorbitant RM495.5mil recent payouts by MAS under its Mutual Separation Scheme.

A news report on Aug 24, said a MAS employee received a whopping RM699,000 “golden handshake.”

The other payouts include 39 employees receiving between RM500,000 and RM600,000; 79 employees between RM400,000 and RM500,000; 323 employees between RM300,000 and RM400,000; 635 employees between RM200,000 and RM300,000; 781 employees between RM100,000 and RM200,000 and 742 employees up to RM100,000.

MAS is in its present state mainly because of the failure on the part of its management and as such the management, especially the top management, should be held accountable and take a big cut in their salaries.

Instead of retrenching workers through a voluntary or mutually agreed separation scheme, it could cut salaries starting from the top and redeploy its workers.

As one would reward success with bonuses and promotions and other perks, it is only logical and prudent to institute some form of “punishment” for corporate failures.

The MAS “golden handshake” is unprecedented and it is ultimately taxpayers' money, as the Government is a major stakeholder.

Obviously it is not the MAS directors' own money that is being paid out but public funds.

We should not encourage a culture where we reward failure; decision makers must take the rap for their actions.

Otherwise we will have (if it is not being widely practised already) recalcitrant company bosses paying very high salaries to underserving employees through favouritism or other shady means and unscrupulously sacking or forcing good workers into resigning.

2. Capital injection of RM 3.67 billions in 2007.

With reference to MAS 5 year financial performance ended 2007, there was a huge increase in Cash & Bank balances in 2007 in excess of 3.67 billion as compared to 2006.

Questions:

a. Where does the huge capital injection of RM 3.67 billioncomes from?

b. Why MAS need to borrow 859 millions when they have sold fixed assets for 594 million and increase the shareholders equity to 3.9 billions in 2007 from 1.8 billion in 2006?

c. Why do MAS need to hold 5.25 billion in Cash & Bank balances whereas in the past 5 years, their average balances were only around 2 billions?

From the above performance, it clearly illustrated that in FY 2007, profit of RM 852 million was not gained from operations but ‘creatively’ generated by selling her fixed assets and borrowings of RM 859 millions.

Source: New Strait Times November 12, 2008

Complaints on MAS for cabinet meeting

By : Jennifer Gomez in London

"They (Malaysia Airlines) may be trying to raise profits, but they are a government-linked company. They must balance the issue of direct profitability with the effects on the country's tourism industry." Azalina said instead of cutting down on international flight frequencies and service levels, MAS should increase them. She said the move by MAS to reduce flight frequencies only benefited neighbouring countries' airlines.

"Singapore Airlines has increased the frequency of flights to London. MAS' fares are also quite high and the service is not very good.

Source: The Star 20 January 2009

Khazanah: Turnaround in operations of MAS and Proton not enough

“Khazanah managing director Tan Sri Azman Mokhtar said yesterday although MAS had been restructured with leadership and capital structure in place, these were not enough to turn it into a regional champion. “We’ve been quietly active in the last 18 months, scanning the world and talking to parties including Qantas,” he added after a media briefing yesterday.

On Khazanah’s participation in MAS’ rights issue last year, he said it was not a bailout as it was participation via the open market. “We don’t do that lightly. We made sure they had right leadership in place and right business turnaround plan in place,” Azman added.

Source: Malaysiakini 29 January 2009

Q&A: Fernandes pours out his frustrations

In terms of bailout, we've seen a lot of that. The entire banking industry in America (was bailed out) and America is virtually a socialist economy now. So it is all about if you have faith in a company and its ability to manage itself. I can't guarantee you that this is the case. But I'll just let our track record speak for itself. MAS has been bailed out three times.”

3. Continued purchase of A380 and late decision on B737-800 orders in 2008.

Eventhough A380s were ordered circa 2005, MAS missed a golden opportunity to cancel the order in 2007 because of manufacturing defects faced by Airbus. MAS has been extremely lucky that the A380 were further delayed to 2012. Imagine what would happen if MAS had the aircrafts now especially with the severe global economic downturn, we could have been worst off compared to SIA, Qantas and Emirates.

A former MAS MD who has been keeping a very close eye on MAS had said in June 2006 that “their argument is that SIA, Emirates and Qantas have it, so we too must have it to be (in sync) with the market” demonstrates poor business sense and justification.

Source: MAS to finalise aircraft purchase by 1Q
By Gan Yen Kuan Email us your feedback at fd@bizedge.com

01-02-2008

SEPANG: Malaysian Airline System Bhd (MAS), which unveiled its Business Transformation Plan (BTP2) yesterday, expects to finalise the details of its aircraft purchase plan by the end of first quarter this year.

However, the national carrier had not decided on the type of aircraft and whether they would be from Airbus or Boeing, said MAS managing director and chief executive officer Datuk Seri Idris Jala.

On the delayed delivery of the A380 aircraft, Tengku Azmil said MAS would conclude the negotiations with Airbus by end-March.

For 2008, MAS has three sets of internal earnings targets, namelyRM400 million to RM550 million, RM551 million to RM650 million, and RM651 million to RM1 billion or above, all assuming that jet fuel price stands at US$100 (RM324) per barrel.

4. Safety Issues

Two very serious incidents caused by MAS in 2008 which involved Saudi Arabia's B747-300 (wet leased from Air Atlanta) that caught fire in Bangladesh (subsequently written off due damaged beyond repair) and another Saudi Arabia B777's extremely expensive damages on both engines.

Yet, not many personnel have been informed about the real cause of these expensive and potentially fatal incidents and the preventive measures to be taken to avoid similar incidence.

Further reference:

Saudi plane catches fire at ZIA

26 March 2008

Passengers of a Saudi Arabian airliner had a close shave yesterday afternoon when an engine of the Boeing 747-300 aircraft caught fire during landing at Zia International Airport (ZIA).
However, about 15-20 panic-stricken passengers suffered a few cuts and bruises during the half-hour-long ordeal of descending from the emergency exits, said a security official of ZIA while speaking with The Daily Star.
The Saudi Arabian Airlines aircraft (flight number SV 810), leased from Air Atlanta, arrived in Dhaka from Jeddah via Madina, a flight operations official at Biman Bangladesh Airlines said.
Sources at the ZIA said engine number 3 on the right side of the aircraft caught fire as it was landing at around 2:27pm.
A security official of ZIA said the accident could have been worse if the engine fire spread to the fuel reservoirs of the aircraft

5. Fuel Hedging

As at 19 February 2009, the Group has entered into various fuel hedging transactions for periods up to 31 December 2011 in lotstotaling 17,350,000 barrels.

The accounting policy adopted is to charge related expenses as fuel cost in the financial statements upon the expiry of fuel hedging contracts.

The fuel hedging programme is closely monitored and is subject to the vagaries of the market such as geopolitical events, the economic situation and weather conditions.

Source: http://biz.thestar.com.my/news/story.asp?file=/2009/3/5/business/3405345&sec=business

Thursday March 5, 2009

PETALING JAYA: Malaysia Airlines (MAS) stands to chalk up close to RM3bil in hedging costs over the next two years while its competitor AirAsia Bhd enjoys the benefits of lower crude oil prices, analysts say.

An analyst estimated that MAS was currently sitting on a collective paper loss of around RM2.8bil for financial year 2009 and 2010 as a result of its hedging activities.

MAS has hedged 64% of its fuel requirements for financial year (FY) ending Dec 31 at US$100 per barrel and 40% of FY10 at US$95 per barrel while crude oil is hovering around US$40 per barrel. The analyst estimates MAS using up to 16 million barrels of crude oil per year.

“It is paying higher for crude as it has locked positions at US$100 and US$95 a barrel whereas the current price is only around US$40 a barrel,’’ the analyst said.

Source: http://www.themalaysianinsider.com/index.php/business/20844-asia-pacific-airlines-at-a-loss-over-fuel-hedges

Friday March 20, 2009

“Personally, airlines should not hedge their fuel price too far forward. They should look at their business model,” said a veteran trader, who declined to be named. “Most airlines sell their tickets about two to three months in advance, and I believe that airlines should then hedge two to three months forward,” said one veteran trader. “Never one to two years in advance — I’d call thatspeculative trading.” — Reuters

6. I rest my case!

As at Dec 31, 2007, MAS had RM 5.25 billion in cash and bank balance and as at Dec 31, 2008, MAS had a cashpile of RM3.57bil.Where has the RM 1.68 billion gone to ????

Why buy an airline that normally gives a return of 2 – 5% p.a.? The cash will be better spent if MAS buys back GE Engine Services which can easily give a return of 20 – 30 % p.a.?

Source: http://biz.thestar.com.my/news/story.asp?file=/2009/4/16/business/3701260&sec=business

Thursday April 16, 2009

MAS with RM3.57bil surplus cash eyeing to buy another airline

BY TEE LIN SAY

PETALING JAYA: Malaysia Airlines (MAS) is looking to acquire another airline with its surplus cash. As at Dec 31, 2008, MAS had a cashpile of RM3.57bil.

Managing director Datuk Seri Idris Jala said tough economic times presented opportunities for consolidation. Companies with huge financial muscle will have the flexibility to act should opportunities come knocking.

“People always ask why we keep so much cash. We are positioning ourselves so that when the chance comes, we will be ready to grab it. In the next two to three years, if the economic downturn persists, we won’t even have to go looking. Opportunity will present itself to us,” he told StarBiz after the launch of MAS’ Stimulus Package yesterday.

Jala said as early as two years ago, MAS had been doing studies on some 30 airlines. The two key criteria that MAS looked at were strategic fit and synergy value. “When looking at the synergy value, 1+1 must be 3. If 1+1 is 2, then we won’t do it,” he said.

While 2008 had been especially tough for the airline industry with many companies having downsized, undergone restructuring and even gone bust, Jala said MAS was ready because it had been running this “marathon” over the last three years.

For 2009, MAS is aiming to save some RM700mil through continuous cost-cutting and efficiency measures. Over the last three years, MAS has reduced cost by a total of RM2.3bil. “I am quite convinced that MAS has the stamina and is built to ride through the current times. We are doing everything we possibly can to counter this economic downturn,” Jala said.

“We have completed the structural changes that were needed for MAS. If you notice, other airlines are now only embarking on their cost-cutting and manpower measures. With these issues out of the way, MAS can focus solely on innovating and achieving its target of being a five-star value carrier.”

“I’ve always been hearing people saying that they get cheaper first-class tickets for their international flights. I feel that our flights are just as competitive. So I challenge these people now. If you can show me the proof (through a ticket that has been purchased within the last three months), then we will match that price,” he said.

Meanwhile, MAS confirmed that there were no more discussions with Qantas with respect to the maintenance, repair and overhaul joint venture since the memorandum of understanding expired recently. MAS adopts a competitive hedge policy, where it hedges its fuel requirement based on what its competitors are also doing. About 64% of its fuel requirement has been hedged at US$100 per barrel.

The challenges and recommendations.

a. These incomprehension has to be contained, if not eradicated at all costs or it will lead to a vicious cycle of self-destruction.

b. We must welcome challenge and conflict as a source of creativity and learning opportunities.

c. We need above all else, world-class management and work practices. We need to routinely consider the unthinkableand the business we are in, even when things appear to be going well.

d. Ultimately, we are responsible for what we do and for what we don’t do

Source: http://rockybru2.blogspot.com/2009/06/six-things-mas-must-do.html