9 January 2020

MALAYSIAN aviation has seen nearly everything in the past decade — irrational price wars, multiple heart-wrenching tragedies, the birth of a new regulator and, soon, its impending end.

Navigating turbulence, tragedies and shifting runways
Navigating turbulence, tragedies and shifting runways

Already the region’s largest budget carrier in 2010, AirAsia Group Bhd has continued to fly high. Its fleet size has grown 57%, from 90 planes in 2010 to 141 at end-2018, with more new orders in the pipeline.

But Malaysia Airlines Bhd tells a different story. The national carrier is marking the second full decade since its renationalisation and in that time, saw yet another turnaround attempt fail only to begin a third programme that is also failing.

Along the way, it hired not one but two non-Malaysian CEOs for the first time in history after it was delisted in December 2014.

Plunging oil prices from mid-2014 was no relief either as a cutthroat price war also began among domestic carriers. AirAsia and the now-defunct Malaysian Airline System Bhd (MAS) even attempted to swap shares early in the last decade but antitrust concerns shot the idea down.

Both airlines were struck by tragedies in 2014, the sector’s annus horribilis. For MAS, one plane disappeared and another was shot down, while AirAsia’s flight QZ8501 crashed. There were no survivors on any of these flights.

On the ground, the last decade began with optimism that later faded. After its groundbreaking in 2010, the klia2 terminal began operating in May 2014. However, its cost escalated to over RM4 billion amid complaints about land subsidence and ponding issues, prompting a public uproar.

A long-running public quarrel between Malaysia Airports Holdings Bhd (MAHB) and AirAsia — which grew to be MAHB’s biggest customer and primary user of klia2 — was renewed over infrastructure and services at klia2.

Amid AirAsia’s complaints that there was no independent regulator to mediate the dispute, the Malaysian Aviation Commission (Mavcom) came into being in 2016. However, among the key reforms driven by Mavcom was raising klia2’s airport taxes to match those of other terminals, which alienated AirAsia and sparked another public squabble.

But the change of government in May 2018 has shifted the ground considerably. The underlying theme heading into the new decade is one of a reset, not least after the shortcomings of the Civil Aviation Authority of Malaysia (CAAM) led to a downgrade of Malaysia’s air safety rating by the US Federal Aviation Administration in 2019.

For the first time, the government has admitted defeat in trying to turn around Malaysia Airlines and is looking for private investors to take control.

MAHB’s near-monopoly over airports is also on the chopping block as the government seeks to bring in new players. And Mavcom is poised to be disbanded in 2020 as Putrajaya signals its intention to favour entrepreneurs over bureaucrats.

Tan Sri Tony Fernandes

The co-founder and group CEO of AirAsia Group Bhd was never far from the limelight in the past decade. A running theme was his constant fighting on what is AirAsia’s home ground.

Tan Sri Tony Fernandes
Tan Sri Tony Fernandes

On the corporate front, Fernandes and his team piloted AirAsia from strength to strength to consolidate its position as the region’s biggest budget carrier.

Even after the Malaysia Airlines-AirAsia partnership was shot down, he pushed for the back-to-back listing of long-haul carrier AirAsia X Bhd and Tune Insurance Holdings Bhd, raising RM1.2 billion overall.

The listings were among many key monetisation deals over the years. But minority shareholders may remember a rights placement in 2016 when the stock was at record lows. The rights were placed to Fernandes and AirAsia co-founder Datuk Kamarudin Meranun. Record dividends were announced soon after.

The last decade saw Fernandes remain at the forefront of a public quarrel with MAHB, one that was renewed as klia2 was finished and its shortcomings emerged.

He also called for an independent regulator to settle disputes and finally got his wish when Mavcom was set up in 2016. However, their relationship later devolved into another public fight.

Near the end of the decade, however, Fernandes flew into controversy ahead of the 14th general election.

The picture of a blue AirAsia plane, instead of its iconic red, flying then prime minister Datuk Seri Najib Razak emerged on social media, creating an uproar. Fernandes also appeared in a video thanking Barisan Nasional for helping AirAsia become a success. After the election, Fernandes apologised and revealed that he was under pressure from the ousted government.

A year and a half since the election, the tables have turned in AirAsia’s favour — Mavcom is being disbanded and MAHB is likely to soon lose its near-monopoly.

Malaysia Airlines Bhd

The ailing national carrier had long been flying through turbulence since its renationalisation in 2000. In the last decade, it saw five CEOs attempt to achieve sustainable profitability.

Tengku Datuk Seri Azmil Zahruddin (MD, 2009-2011)

Coming in near the tail end of 2009, Azmil inherited RM5.6 billion in accumulated losses and a turnaround plan begun by his predecessor, Datuk Seri Idris Jala, who left to join the Cabinet.

Tengku Datuk Seri Azmil Zahruddin
Tengku Datuk Seri Azmil Zahruddin

In a 2010 interview, he told The Edge, “We have got to run a very tight ship.” His priorities were to increase revenue by aggressive marketing overseas while maintaining tight cost control. However, Malaysia Airlines’ troubles would not go away and he left in 2011.

Ahmad Jauhari Yahya (MD, 2011-2015)

Ahmad Jauhari came in with a new plan — he wanted Malaysia Airlines to regain market share that had been steadily lost to ascendant low-cost carriers such as AirAsia. He introduced the “load-active, yield-passive” strategy that prioritised filling up planes over yield.

Ahmad Jauhari Yahya
Ahmad Jauhari Yahya

However, the losses worsened and critics speculated whether Malaysia Airlines had resorted to charging below cost to fill some flights. As twin air tragedies struck in 2014, Malaysia Airlines began a restructuring in a new turnaround plan and Ahmad Jauhari left once the new structure was in place.

Christoph Mueller (CEO, 2015-2016)

The first non-Malaysian to helm the newly reset Malaysia Airlines in history, Mueller came in as a renowned aviation turnaround specialist. He cut 6,000 jobs (from 18,000), shrank the airline’s bloated supply chain from 20,000 to 4,000 vendors and slashed unprofitable routes.

Christoph Mueller
Christoph Mueller

In February 2016, Malaysia Airlines posted its first monthly profit in years but two months later, the airline announced that Mueller was leaving due to “changing personal circumstances” and he was gone after a six-month notice period.

Peter Bellew (CEO, 2016-2017)

Brought in by Mueller as chief operating officer in 2015, Bellew subsequently took over after the former left in 2016. They knew each other from the Irish aviation landscape — Bellew came from Ryanair while Mueller headed its competitor, Aer Lingus.

Peter Bellew
Peter Bellew

Bellew tried to steady Malaysia Airlines on the course set by Mueller’s turnaround plan. However, he later resigned to rejoin Ryanair, a decision that the Malaysia Airlines board called “unexpected”.

Captain Izham Ismail (CEO, 2017-present)

Izham replaced Bellew as CEO in 2017, having risen through ranks. However, Malaysia Airlines subsequently missed multiple deadlines for profitability and Izham eventually proposed a new long-term business plan to Khazanah Nasional.

Captain Izham Ismail
Captain Izham Ismail

Following the federal government change in May 2018, the new administration signalled that it was no longer keen on continuing the long-running turnaround attempt at Malaysia Airlines and was seeking strategic partners to take over the airline.

Mavcom and CAAM

For the most part, the aviation industry regulators only made waves in the second half of the last decade. Mavcom was not born until 2016, whereas CAAM was formerly the Department of Civil Aviation (DCA) up to February 2018.

Datuk Seri Azharuddin Abdul Rahman

The DCA was front and centre amid Malaysia Airlines’ flight MH370 disappearance in March 2014, led by then chairman Azharuddin.

For years, Azharuddin was the face of the investigation into the missing flight. In 2016, he also oversaw the then-DCA’s first revision of fees and charges in 40 years. This led to an increase of up to tenfold in some charges for airlines operating out of Malaysia.

Datuk Seri Azharuddin Abdul Rahman
Datuk Seri Azharuddin Abdul Rahman

Azharuddin stepped down in July 2018 as subsequent inquiries revealed that certain some standard operating procedures had not been followed — though these did not cause the Flight 370 tragedy.

Things came to a head at CAAM as the nation’s air safety rating was downgraded from Category 1 to Category 2 by the US Federal Aviation Authority in November 2019. CAAM admitted that its shortcomings had led to the downgrade. A task force was swiftly formed to look into the issues raised in the FAA findings.

Dr Nungsari Ahmad Radhi

After the May 2018 change in government, the question was whether Mavcom would be abolished. Two months later, economist and former MP for Balik Pulau Nungsari was appointed as executive chairman, signalling that the commission was staying.

However, the subsequent months saw Mavcom increasingly at odds with the transport minister over policy with regard to air transport.

Dr Nungsari Ahmad Radhi
Dr Nungsari Ahmad Radhi

Since its establishment in March 2016, Mavcom had pushed for changes based on upholding passenger rights, including more pricing transparency and a higher quality of service at airports.

However, a key change was the increase in airport taxes for passengers flying out of klia2, which Mavcom said was to ensure a fair playing field for airlines departing from the main Kuala Lumpur International Airport terminal.

That said, the increase in klia2 airport taxes meant that its passengers were paying the same amount for inferior facilities and services — a persistent point of contention with low-cost carrier AirAsia.

Nungsari eventually became the face of Mavcom’s fundamental disagreements with AirAsia and later, the transport ministry amid Mavcom’s plans to roll out a new mechanism to govern airport expansion and upgrades that is seen to favour MAHB.

In December 2019, the government announced that Mavcom would be disbanded, with its functions absorbed into CAAM by the latter half of 2020.

Source: theedgemarkets.com

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