New catering deal
MAS only to pay caterer what it takes for in-flight services
PETALING JAYA: Malaysia Airlines (MAS) is said to have re-negotiated its catering contract after nine years where it will no longer pay a guaranteed monthly amount for catering services and only for what it takes from LSG Sky Chefs-brahim’s Sdn Bhd (LSGB) for its in-flight catering services.
It is learnt that renegotiations have been concluded recently by the new team at MAS and will help MAS to restructure its cost base.
The amount MAS used to pay as the guaranteed figure under the catering contract is not known, but the contract between LSGB and MAS has long come under fire for the exclusivity as well as the long-term nature of the deal.
LSGB, an inflight catering service provider, had in 2003 signed an agreement with MAS for the exclusive right to supply and provide inflight catering and cabin handling services to MAS at both the Penang airport and the KL International Airport in Sepang for 25 years.
“It is a significant development for the airline as it no longer needs to pay for catering services based on the minimum baseline revenue (MBR) – a term used in the catering business – and that burden is now removed.
“With good inventory planning it will only uplift what it needs and this whole exercise helps it cut wastage and hopefully it translates in reduced cost for the airline,’’ said a source.
Another source said the contract was initially crafted to “include a guarantee amount because there was a need for certainty, and also for sustainability and profitability.”
During Brahim’s Holdings Bhd’s AGM recently, company officials side-stepped questions when asked if there was a renegotiation over the catering contract. The official then said: “Just wait for the announcement, we are always open to working together with MAS and I can’t say more.”
The MBR removal will have an impact on LSGB’S bottomline but the quantum is not known. As for Brahim’s, the MAS contract accounts
for about 80% of revenue. For 2011, Brahim’s earned Rm336mil in revenue, Rm314mil in 2010 and Rm294mil in 2009. The company is also diversifying to boost its revenues by 2015 by banking on its new venture into sugar refining.
The renegotiation of contracts is part of the recovery plan as outlined in MAS December 2011 business plan. In the plan, MAS said it was “acting on two key levers to reduce costs. First, we will renegotiate our procurement costs in catering, ground handling and maintenance ...”
MAS needs to bring down its cost as it is spending more than what it earns and the airline’s revenue per seat km is 20 sen while its cost per seat km is 26 sen.
How much savings MAS will receive from renegotiating its catering contract is not known, but in its business plan MAS did say that “our base case target is for the core business (passenger airline without cargo, catering and other ancillary businesses) to generate a significantly reduced loss of approximately Rm340mil in 2012.”
Besides the catering contract renegotiation, MAS has also made significant improvements on its customer service front and once it takes delivery of its flagship A380 aircraft, there will be a host of new initiatives in a bid to push for higher sales, sources said.
MAS is expected to release its financial results for the first three months ended March 31, 2012 soon and analysts are expecting another quarter of losses to the tune to Rm330mil. The airline in 2011 reported a net loss of Rm2.5bil and analysts expect MAS to only return to the black in 2013.