MAHB embarks on aggressive cost-cutting move

Airport operator embarks on aggressive 18-month cost-cutting plan

LIKE it or not, the coronavirus (Covid-19) is here to stay, at least for the time being.

Among all the businesses that the pandemic has wreaked havoc on, it is to no surprise that the aviation industry has been hit the hardest.

With travel and movement restrictions imposed by governments on top of national border closures, airlines and airport operators were hit with almost no activity from the end of March until May.

When times are bad like this, cash is truly king as it determines the survivability of a company when it starts burning at a rate higher than it can generate.

And in the case of Malaysia Airports Holdings Bhd (MAHB), which manages 39 airports in Malaysia, including five international airports, failure is not an option.

The operator has since gone down the path of an 18-month aggressive cost optimisation plan to preserve its cash.

The group has utilised around Rm400mil from its cash reserves in the first quarter of the year, which saw its cash position declining from Rm3.2bil as at Dec 31, 2019 to Rm2.8bil as of March 31, 2020.

This is still an ample amount of cash for MAHB but to ensure that it has deep enough liquidity to roll in, the group has another Rm3.2bil ready for them to use in the form of a Rm1.7bil credit line and an untapped sukuk facility with a Rm1.5bil ceiling.

As much as it could, the group will be using its own internal cash flow before it decides to tap on the available resources.

The credit line is readily available for MAHB to drawdown anytime while the group is confident about its sukuk should it need to carry out an issuance because it is rated AAA with a stable outlook.

Covid-19 impact

Either a double-edged sword or a blessing in disguise, Covid-19 has definitely carved out a window for MAHB which allows it to take a step back to review and put on hold major development projects.

This saw the group slashing 82.22% of its 2020 capital expenditure from Rm1.8bil to only Rm320mil, the bulk of which includes major development plans such as the Penang International Airport (PIA) expansion.

The expansion of the northern airport is to the tune of Rm1bil but the portion that was initially allocated this year was only around Rm20mil because it is still at the preliminary stage.

MAHB usually plans for airport expansions when it reaches a utilisation rate of 80%

Looking at how Covid-19 is affecting passenger movement at airports, this gives MAHB a bit of time to monitor the current situation before activating its expansion plans again.

Taking cognisance of the severity of the pandemic, the group arrived at a substantially reduced capex of Rm320mil which comprises critical projects of replacing ageing assets and systems.

Looking at how demand and passenger traffic would not be returning to normalcy anytime within the short to medium term, it could not have been a better time for MAHB to carry out the upgrading works with minimal disruptions.

This includes replacing the replacement of its aerotrains and baggage handling system, runway rehabilitation, toilet refurbishment and commercial reset, which will proceed in phases to ensure the readiness of the airport once traffic resumes to normal.

Digital agenda

Prior to the pandemic, MAHB began embarking on a digitalisation journey with the Airports 4.0 initiative with the aim to provide a better experience for its passengers.

Again, taking advantage of the slower business due to the pandemic, the group expedited many initiatives for a more seamless and contactless experience moving forward as it recovers from the pandemic.

Group chief executive officer Datuk Mohd Shukrie Mohd Salleh told a post-agm briefing that the company’s airports are now equipped with facial recognition technology, self-check in and selfbag drop facilities, contactless security screening procedures and automated UV disinfection methods.

MAHB has also completed the network migration to a new core network architecture early this year, something that costs the group around Rm50mil.

This replaced the entire network system that infamously caused chaos in KLIA and klia2 in August last year due to technical glitches, which delayed dozens of flights, affected the flight information display system (FIDS), checkin-counters, baggage handling systems (BHS) and Wifi availability at both airports.

The new network is compatible with state-of-the-art technologies like 5G, Wifi6 and Internet of Things (IOT) and has at least 10 times the capacity of the previous network.

MAHB is also currently undertaking the Airport Collaborative Decision Making (ACDM) project, a system which will allow the airport to collaborate more effectively by sharing real time information with airlines to improve operational efficiency.

Shukrie says essentially, the ACDM will allow MAHB to sweat existing assets and facilities and gain more efficiency such as in flight operations.

Cost optimisation

MAHB’S 18-month plan seeks to reduce the group’s operating cost by 20% to keep the group relatively stable in terms of operations and finances as it sees through the pandemic.

This will be done through the consolidation of under-utilised airport areas, deferral or cancellations of non-critical expenditure and containment of staff costs through shift adjustments and recruitment freeze.

During the AGM, shareholders raised questions as to why the group is targeting only a 20% cost reduction and not higher, to which

Shukrie says MAHB has to keep all their airports running.

Like how Pos Malaysia Bhd is unable to close down any of its post offices, closing down non-performing airports is never a choice for MAHB.

Airlines also have the options of grounding their aircrafts and reducing manpower accordingly but in the case of MAHB, the airports have to run even if there is only one flight for the day, which speaks volumes about its constraints in bringing down the costs.

All the airports under MAHB in Malaysia never stopped operating throughout the movement control order (MCO) except for the ones in Ipoh and Melaka because there were completely no flights.

The group’s Istanbul Sabiha Gokcen International Airport in Turkey was also an exception, as it was allowed to be closed for around two months due to zero activities.

Looking at how MAHB is aggressively slashing its costs coupled with its digitalisation plan, the group has no plans to lay off its workers and will try to retain as many of them as possible.

One is because the Civil Aviation Authority of Malaysia (CAAM) has regulations providing for the number of employees for certain airport sizes and operations.

The other reason is, MAHB will need them the moment demand picks up again.

“As far as the internal plan is concerned, and as far as we can afford, we will try to keep these 10,000 people.

“For us, it’s just holding on until such a time that the number is up again,” Shukrie says.

Herculean task

Being a company that has never posted losses for the whole financial year, at least since 1999 when MAHB was listed on Bursa Malaysia, it may see its streak ended this year.

The MCO only hit two weeks out of the first quarter ended March 31, 2020 (1Q20) and this resulted in MAHB recording a net loss of Rm20.39mil, its first quarterly loss since the fourth quarter of 2015.

It is no rocket science that the losses will widen in 2Q20, even the management expects it to be as they took on the full impact of the MCO at the peak of the crisis with very little movements.

The aviation industry has been one of the hardest hit by this pandemic and the greatest challenge remains the uncertainty in the timeline for recovery, especially as the vaccine is still being developed.

Recovery will largely depend on the state of the economy, disposable income levels and public confidence amidst the risk of infection.

It would be perfectly logical to argue that national borders cannot be closed forever until and unless Covid-19 dies a natural death.

Over the last 20 years, MAHB has survived various virus outbreaks, only to register higher passenger movements each year.

The only time there was a decrease was in 2001 with a 1.64% decrease to 32.36 million passengers.

The September 11 attacks in the United States that year sparked fears in air travel globally.

The figure started growing in 2002, which saw MAHB reaching an all time high of 105.26 million passengers last year, something that it will not replicate this year.

“This time around, inevitably it will drop.

“Why? The only difference this time around aside from the fear of Covid-19 is people are not allowed to travel in the first place.

“Throughout our history, we have seen that despite all sorts of incidents, passenger traffic continues to grow over the years,” Shukrie says.

And it is with this hope that MAHB is clinging on to as the airport operator tries to make a dash to the finish line towards the end of the year.

“As far as the internal plan is concerned, and as far as we can afford, we will try to keep these 10,000 people. For us, it’s just holding on until such a time that the number is up again.” Datuk Mohd Shukrie Mohd Salleh