Saturday, March 4, 2017

Malaysia Airlines - Improved load factor for quarter four 2016

Sepang, 1 March 2017: Malaysia Airlines Berhad (“MAB”) today reported a strong result for Q4 2016.  Malaysia Aviation Group Berhad Chief Executive Officer Peter Bellew said that bookings accelerated in the last quarter thanks to a focus on the premium business traveller and all-inclusive economy fares.


He added: ‘The last quarter saw a good performance in a challenging environment. Our staff have worked hard to improve customer service which is reflected in increased bookings. Our focus is to be a five star premium Asian airline, offering the best of “Malaysian Hospitality” to 15 million customers a year, travelling to 54 destinations in 21 countries. At the core of our brand is the “Golden Rule - treat customers as you would wish to be treated yourself”.  The Golden Rule will be supported by simpler customer service policies and a large investment in training in 2017.’ 
Passenger load factors improved in Q4 2016 to 81% year on year from 70% Q4 2015, achieving 90% in the month of December. Malaysia Airlines has maintained our fare discipline despite competitor fares dropping. We remain focused on cost control and have identified a further RM400 million of cost reductions in 2017 to offset US Dollar strength.  The airline finished 49% ahead of our budgeted loss for the year 2016.   
Malaysia Airlines will continue to offer great value on all-inclusive business and economy fares while most carriers around the world continue to add extra charges and unbundle their fares. We see enormous growth potential from inbound tourism from China to Malaysia.
Q4 performance 


Actual
Q3 2016
Actual
Q4 2016
Passengers (m)
3.6
3.8
ASK (m)
10,531.3
10,577.9
Passenger Load Factor (%)
79.3%
80.9%
Passenger Yield (sen)
21.7
21.5
On-Time Performance (%)
68%
70%

Commercial Progress
The focus in the first half of 2016 was on reducing cost and improving customer experience. The second half of 2016 saw a hard push on revenue generation with more aggressive sales and marketing initiatives.  This has translated to improvements in passenger load factors in the second half of 2016 at 80% against 72% in 2015. Load factor hit an impressive 90% for the month of December with the airline making a profit in this month. 
The Group continued its efforts to accelerate cost saving initiatives, which are tied to the KPIs of each business unit and subsidiary. These efforts are in tandem with a drive to realize cost savings as negotiated by the procurement division through its work on contract negotiations with all major suppliers.  
The airline and the Group finished the year ahead of budget and the Group’s turnaround initiatives are delivering positive results. Overall, the airline and the Group recorded a smaller loss than initially projected under the business plan for the fiscal year 2016. Looking forward, the Group remains cautious in the outlook for 2017, where the weaker Ringgit to the USD, overcapacity, and intense competition are expected to be the dominant themes for the year.  The Group continues to maintain strong year on year load performance and believes it will improve on targets for 2017, barring unexpected adverse declines in 2017 airfares due to overcapacity and intense competition.  
China expansion

The expansion plans to China successfully began in Q4 2016 with the launch of flights to Haikou.  Sales for Nanjing, Wuhan and Fuzhou also started in Q1 2017 with the first flight expected to commence in June 2017. The quarter also saw a service upgrade, for the morning Kuala Lumpur-Hong Kong sector, with the Airbus 330 replacing the Boeing 737.

Operational improvements continue

Mishandled baggage reduced by 15% based on incidents per 1,000 compared to 2015.  On time performance in the fourth quarter was impacted by congestion at the KLIA main terminal and the restructuring of the immigration service.
The Boeing 737 fleet are now operating with a 35 minutes turnaround time (TAT) effective 27 October 2016 for the new winter season.  This will reduce the Group’s aircraft requirement by up to four 737s in 2017.   
A total of 17 fuel initiatives were monitored and tracked for 2016, with overall savings of 22.15 mil kg from a target of 13.3 mil kg per annum.
Investing in the Customer
Customer satisfaction and experience are key for the future growth of the airline and Malaysia Airlines was rated a five-star airline by Skytrax.  We have returned to the Skytrax quality scheme in 2017 and our target is to restore our previous high ratings by the end of 2018. Malaysia Airlines has continued investing in aircraft, product, service and technology as a core principle of its transformation programme.  Customer satisfaction was up 7 percentage points compared to the corresponding quarter a year ago, and reached an all-time record in October 2016. 
Steady improvements continued with better food and beverage. The quarter saw the airline rolling out the well-received Dine Anytime service, to all Australia, New Zealand and North Asia destinations.   
Other enhancements included the completion of the Business Class lie-flat seats on all 15 A330s in December 2016, ahead of schedule and on budget.  
For a more seamless and efficient check in process the airline introduced the Self Print Baggage Tag for all economy class passengers out of KLIA. All kiosks at Level 5 KLIA have been equipped with the function to print the baggage tags. Moving forward the Group hopes to embark on more self service functions in order to streamline the check in experience further.   
2017 will see work commence on the upgrading of Malaysia Airlines’ lounges in KLIA and London Heathrow airport.   

A380s for the Haj and Umrah
The Group is working towards finalising plans for the formation of a new airline, utilising six A380 aircraft, to service the Haj and Umrah market.  Interviews for key positions, for this airline, have already been initiated with plans underway with Airbus to increase the seat capacity to 720 seats on the aircraft.  

Technology driven company
The new passenger sales system from Amadeus is on target to be completed by June 2017.  Testing has already commenced with the US region successfully migrating to the new system in February 2017.  Once completed the airline will be able to offer customers a superior customer experience with enhanced speeds and convenience across all touch points. 
The quarter also saw the launch of the Malaysia Airlines Travel Hackathon. Malaysia Airlines was the first airline in the country to embark on this approach aimed at harnessing innovation and creativity amongst the digital community to improve the customer experience whilst attempting to increase the efficiency of the airline’s operations. 

Enhancing corporate governance
The Group’s Business Integrity unit achieved several milestones in the quarter towards a more transparent and accountable Group.  This included the introduction of a Knowledge Management Unit, set up to ensure understanding by staff on all policies within the Group including fraud and wildlife trafficking. A new automated system was also introduced for the declaration of gifts and conflicts of interest now done online. 

Investing in a talent pipeline and local succession planning
Talent development continued in the quarter with the aim that the future generation of leaders for the airline will be recruited entirely from within the Group.  The succession for the Group’s key senior managers has been identified, and programmes are in place to ensure a smooth transition. Leadership talent profiling and training intervention for Assistant Managers and above, and leadership skills training for Supervisors, Executives and Senior Executives, were completed this quarter 
The Works Council continued meetings in the quarter. The monthly meetings has enabled swift identification and resolutions to many employee issues. 
Malaysia Airlines also strengthened the Senior Management team with the appointment of a new Head of Marketing and Head of Sales in the quarter. 
FireFly  
Malaysia Aviation Group holds a 100% stake in FireFly which operates services from Subang Airport, close to Kuala Lumpur’s city centre.  FireFly reduced its operational fleet to 12 aircraft from 18 in Q4 to address financial losses.   Price competition for flights from Subang is particularly intense on the domestic market and FireFly will work to increase its average yield in Q1 2017 in a challenging market place.
MASwings  
 
Malaysia Aviation Group holds a 100% stake in MASwings which operates a fleet of 16 aircraft on turbo prop services domestically in the states of Sabah and Sarawak.  This airline operates services to some very remote parts of East Malaysia and is a key lifeline to many of its customers.   The operations breakeven with the assistance of financial support from the Federal Government under a Rural Air Services (RAS) agreement renewed approximately every 5 years.  The current agreement ends in  September 2017 and it is expected that it will be renewed, with a reduction in the level of services to cover 14 aircraft commencing in October 2017.   MASwings is in final discussions with the Ministry of Transport and the Malaysian Aviation Commission (MAVCOM) on the final RAS for the next five years and hopes to conclude an agreement in Q1 2017.
MASKargo
 
MASKargo  Malaysia Airlines Group holds a 100% stake in MASKargo which operates three Airbus A330 freighters and a logistics trucking service. MASKargo has changed its operations to focus on regional operations covering ASEAN, China and Kazakhstan. MASKargo reduced its losses in 2016 and is close to breaking even in 2017.   The company is focusing increasingly on the intra-ASEAN ecommerce industry and China where there are many growth opportunities for a specialist cargo operator with access to the belly space of Malaysia Airlines’ strong network.
Outlook
The Group remains cautious in its outlook for the fiscal year 2017.  We have delivered a solid 2016 but a weak Malaysian Ringgit, overcapacity in the Malaysian market and any potential price war will make 2017 a challenging year.  Delivery of our first Airbus A350 is expected to be delayed by Airbus by one to two months to December 2017.   Malaysia Airlines may potentially seek additional widebody aircraft from either Airbus or Boeing for introduction in Q1 2018 to increase seats and improve product quality available on existing routes.  We expect yields to decline in the second half of the year due to irrational competition but our focus will be on reducing costs to maintain our financial position.  Across the Group we expect to carry over 17 million customers in 2017 and we see an opportunity to grow our position as a five star full service airline into 2018 with confidence. 

-Malaysia Airlines.

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