Captain at the helm

Malaysia Airlines has its third CEO for its turnaround plan. Captain Izham Ismail has a lot to fix.

CAPTAIN Izham Ismail has been a career man with Malaysia Airlines Bhd (MAS) for 38 years, starting off as a cadet pilot and rising through the ranks to management positions. Over the years, he has learnt from the many chief executive officers (CEOs) that have helmed the troubled airline.

It is precisely this experience, plus the tough childhood he had, that have made him realise what he needs to do to turn things around.

His appointment as group CEO of the national carrier was an abrupt one after Peter Bellew left for Ryanair.

Bellew had taken over from Christoph Mueller, who had originally, together with some others, penned the airline’s turnaround plan (the 12-point MAS Recovery Plan or MRP 2014) to steer it to profitability by end-2017. Just as the plan – which was designed to cut cost to keep the airline aloft – got under way, Mueller had to leave and Bellew came in with his touch to steer the airline to profitability.

By all accounts, that mark will not be met and this was realised early on when Mueller changed the goalpost to 2018.

For Izham, it is not about pointing fingers at what went wrong. In fact, he has talked to most of the previous CEOs, including Tan Sri Idris Jala, who told him “you just landed yourself the toughest corporate job”.

“I am clear on what I am supposed to do to fix MAS, although it is not an easy task. It needs to be strengthened structurally and only then can there be sustainability in profitability.

“We hope and feel confident that we can cross 2018 and take the company forward,” Izham tells StarBizWeek in his first interview with the media after his appointment as group CEO of MAS and its parent, Malaysia Airlines Group.

He says he has his own plan and it is in sync with the MRP, which is on track. However, “there are just too many things that need to be done.”

His plan is to address five areas; the people within, customer service, revenue and profitability, operational efficiency and safety.

It comes down to pushing for higher staff productivity, deploying assets in the right markets, procurement efficiencies, enhancing customer experience especially in food, driving fuel and cost efficiencies and optimisation.

“To be competitive in the premium segment of the market, in which MAS is in, we cannot simply drop ticket prices as rampantly as we had done in the first and second quarters of this year at the expanse of yields.

“We have to manage and drive cost efficiencies to ensure our RASK (revenue per seat km) and CASK (cost per seat km) gap is widened,” Izham says.

MAS’ CASK was 15 sen before the fuel cost, and passenger RASK was 17.5 sen as at the third quarter of 2017. But after accounting for other variables, it is clear that the airline continues to spend more than what it earns. This has been a perennial problem for it.

From 2001 to the third quarter of 2014, before the old MAS was delisted, the airline reported RM2.9bil in profits and RM7.27bil cumulatively in losses.

How will Izham and his team meet the profit target set by the turnaround plan?

“We are on track, but there are challenges too. We are entering a phase where there will be excess capacity, intense competition and volatile foreign exchange (forex) and fuel price swings. Those are contributing factors that may impact our progress in 2018 to become profitable or even break even,” Izham says.

He adds that “we have been reporting a profit for the past two to three months. I can’t tell you how much. The first quarter is normally a slow period but we are going to be pushing hard to improve on our yields.”

While MAS has a lot of work to do, its peers and rivals are enjoying a higher RASK and are not about to slow down on their efforts to win customers. MAS’ RASK in US dollar terms is about 4.4 cents compared with eight cents for Cathay Pacific, Singapore Airlines (6.9), Thai International (6.2), Garuda (6) and AirAsia (3.5). AirAsia’s CASK is 3.01 US cents and that is why it makes a huge profit every quarter.

A 10-sen rise in the US dollar impacts MAS by RM100mil and a US$1 rise in fuel cost impact is around RM50mil, says Izham.

Izham is mindful of all that. This is why he is not putting all his eggs in one basket and deploying the assets to where there is demand.

“We are not going to be relying too much on the China or Australia markets for growth. There has to be equal distribution all over and using the right aircraft type. So, we will be watching the macro-economic issues carefully and monitoring the supply and demand needs in each market,” he says.

By 2020, Izham says “the airline should stabilise”.

By 2022, he projects MAS to report RM1bil in net profit on the back of RM10bil-RM12bil in revenue, provided the macro-economic conditions remain good, demand for travel surges, forex and fuel is not too volatile and its costs are kept in check.

That forecast is also based on a 3% capacity growth every year, and next year, the airline hopes to fly to three to four new destinations.

The International Air Travel Association has projected the net profit for the global industry to rise to US$38.4bil in 2018, an improvement from US$34.5bil in 2017. Its forecast is based on passenger traffic increasing to 4.3 billion in 2018. It did say that the biggest challenge to profitability in 2018 would be rising cost.

Izham knows he has to deliver as per the MRP, although it is not a

promise he has made.

He has to unite those within the organisation as he cannot do it alone. Interestingly, everyone he meets these days says “we are here to support you”. While he finds solace in their words, he has told them to stop saying that. “Instead, go back to your unit and do something. I have set the direction and strategy, work on it as we have to deliver results.”

These are strong words coming from a soft-spoken man, but he is not mincing his words. “I am watching you, I am referring to the non-performers, and in 100 days if you get a letter from me, that means you are not helping MAS deliver on its promise. If you cannot be part of the team, then you will have to leave,” he says.

He feels a lot of things have to fall into place for MAS to report a profit, and he needs everyone to chip in, including the vendors.

“We cannot make compromises... we must ensure that our contract management with vendors is strong and we will not hesitate to leave them (the vendors) if the airline’s interest is not served efficiently,” he says.