Introduction When Idris Jala was brought In to save MAS, he did what any simple minded businessman would do as a simple way out; sell its assets to get the balance sheet in order. Never in MAS history have it ever tried to improve its business dealings and activities. The Malaysia Airline System (MAS) reported a loss of over RMI . 3 billion for the Financial Year 2005. It was unacceptable to many parties such as the stakeholders and the government especially the announcement was made at the same time as some of MAS regional competitors reported strong profits in the same year.
We will write a custom essay sample
on Mas Assignment or any similar
topic specifically for you
The airlines was expected to cut up to 5,000 Jobs and spend a maximum of 850 million ringgit (US$236 million) In compensation packages as part Its plan to return to profitability, making it one of the country’s biggest corporate retrenchment exercise. The retrenchment was a measure to reduce cost due to crippling fuel prices and lower load factors. The carrier was also battling a cash shortage, overstaffing and an Inefficient and unprofitable route network. According to the Managing Director, Datuk Sen Idris Jala 60% of MAS routes were unprofitable.
For Instance, the pricing of the KL Manchester route was so dysfunctional that it had to be 140% full Just to break even. Thus, the three-year turnaround plan calls for extensive cost-cutting and axing of unprofltable routes aimed at achieving profits of 500 million ringgit In 2008, which would be an all-time record for the carrier. 2. The Financial Crisis Despite all the notable achievements and excellence in services, MAS faces major financial problems. By the year 2002, MAS struggled under a debt load of RM 9. 2 billion.
During the first half of 2001, losses nearly doubled In the first six months of 2001 with the Kuala Lumpur-based carrier reporting It was RM 772. 9 million (USD $203. 3 million) in the red. For the financial year ended 31 March, 2001, MAS reported a pre-tax loss of RM 1. 303 billion. This was the fourth consecutive year MAS had been registering losses. In the year 2005,Malaysia Airlines reported a loss of RMI . 3 billion. Revenue for the financial period was up by 10. 3% or RM826. 9 million, compared to the same period for 2004, driven by a 10. 2% growth in passenger traffic.
Page 2 Mas Assignment Essay
International passenger revenue Increased by RM457. 6 million or 8.4%, to RM5. 9 billion, while cargo revenue decreased by RM64. 1 million or 4. 2%, to RMI . 5 billion. Costs increased by 28. % or RM2. 3 billion, amounting to a total of RM 10. 3 billion, primarily due to escalating fuel prices. Other cost increases included staff costs, handling and landing fees, aircraft maintenance and overhaul charges, Widespread Assets Unbundling (WAU) charges and leases. on 1 December 2005 the Malaysian Government appointed Datuk serl Idris Jala as the new CEO to execute changes in operations and corporate culture.
Idris was the former managing director of Shell (MDS) Malaysia Sdn. Bhd. and on a three year contract with MAS. Several weaknesses in airline operations were Identified as the causes of the RMI . 3 billion loss. These Included esclatlng fuel prices, increased maintenance and repair costs, staff costs, low yield per available seat kilometer (“ASK”) via poor yield management and an inefficient route network. I OF6 unaer tne leaaersnlp 0T larls Jala, Malaysla Alrllnes launc ea I n ts Buslness Turnaround Plan in 2006, developed using the Malaysian Government’s Government- linked company (GLC) Transformation Manual as a guide.
The most substantial factor in the losses was fuel costs. For the period, the total fuel cost was RM3. 5 billion, representing a 40. 4% increase compared to the same period in 2004. Total fuel cost increases comprised RM977. million due to higher fuel prices and another RMI 57. 6 million due to additional consumption. In the third quarter, fuel costs were RMI . 26 billion, compared to the RMI . 01 billion in the corresponding period in 2004, resulting in a 24. 6% increase or RM249. 3 million. Another factor for the losses was high operating costs. MAS substantially lagged its peers on yield.See More on Airline