Izham Ismail, Group CEO of Malaysia Airlines, tells Airlines. editor that the aviation value chain must be restructured to help airline resilience
Having ridden the storm of the SARS virus nearly two decades previously, Izham Ismail recognized the importance of planning for business continuity.
How did Malaysia Airlines react as the crisis unfolded?
I saw the crisis coming in December 2019 when the virus first appeared in Wuhan. I was Director of Operations when SARS hit in 2003 and it reminded me of that. At that time, we didn’t have a good pandemic plan in place, so we subsequently prepared a manual for such an emergency.
So, in December 2019, I told my team to use the Christmas period to prepare for a crisis. By the first week of January 2020, the airline was on code yellow (out of yellow, amber and red) and we had activated our crisis center.
Because our priority was customers going to and from China, we even started a project called Feed China that involved converting some passenger aircraft into cargo.
Business was still okay. In fact, in January we were 4% ahead of budgeted net income after tax (NIAT) and if that had continued we would have been breaking even in early 2021. The long-term business plan we were following prior to COVID was 18% ahead of schedule.
Then Malaysia issued what we call a Movement Control Order (MCO) which started to close borders. By late March we had lost 96% of capacity although we had an obligation as a national carrier to operate key destinations. We continued to serve the nation and our network by maintaining domestic and international connectivity mostly to facilitate essential movements. We mounted rescue and repatriation flights worldwide to bring citizens back to their home countries despite the difficulty organising these with governments and embassies. We also ensured global supply chains are maintained for the most time-sensitive supplies via our cargo arm, MABkargo.
By April, we had to take drastic measures to cut costs as we knew that cash was an issue. It wasn’t easy as we were already lean, operating 106 aircraft with just 12,500 people. We offered unpaid leave and induced salary cut of between 10-50% among employees in order to sustain the company’s cash flow. This is to protect those in the lower income bracket, and to avoid possible job cuts in our effort to trim costs further.
The measures were able to sustain us for a few months. But, of course, you reach a point where you realize that it can’t continue.
We knew we had to use the time to re-evaluate our plans and our decision was to restructure
What is your strategy to regain your financial strength in the years ahead?
We knew we had to use the time to re-evaluate our plans and our decision was to restructure. Creditor negotiations are tough but more than 50% have helped us. I hope in time 100% will see what we are seeing and help us to achieve our goals.
The airline group cannot be fully dependent on point A to B air travel. We need to be a global travel group that provides travel services across a multitude of platforms, particularly digital. We must diversify and there will need to be more verticals.
We are already exploring the cargo and retail businesses and want to get involved beyond the normal industry boundaries. The group’s offering could encompass far more than aviation-related products.
In terms of the airline, we will retain the premium brand and look to regain market share in domestic and ASEAN markets. Flexibility is essential. Customers will be very selective in future. They will be cautious about booking and so the airline has introduced flexible options that give customers the confidence to book. We want to talk to our customers regularly rather than on a transactional basis.
Aircraft utilization and configuration is another area we are looking at. Petronas, the Malaysian oil company, moves around 30-40 people regularly but they charter a 737 due the distances involved. Even so, it needs to make a few stopovers. Removing seats means we can do some of the longer trips with just one stop. It’s much better for them and us.
Partnerships among airlines will be key too as they also provide flexibility for the customer. And they will help airlines to mitigate shocks, especially if they are regional in nature. So, we are looking at developing partnerships across the board.
And as we look ahead, we are factoring into our plans a major crisis once every 10 years. Aviation always has a crisis to contend with, from economic shocks to volcanic ash clouds to pandemics. Every airline should be prepared.
Of course, it is a tough road ahead. This is the mother of all crises. I was Director of Operations when we had the tragedies of MH17 and MH370 and in terms of the impact on demand the COVID outbreak is far greater.
But the spirit in the airline is excellent. We will come out of this stronger.
The personal biosafety measures may be temporary but using digital services and better sanitization in the airport and on the aircraft will become the new norm”
How confident are you that demand for air travel will return in the Asia-Pacific region in the short term?
The pre-COVID marketplace was growing strongly, about 5% per annum, so I think the market will rebound. We are already seeing that in travel to China and other North Asian destinations. But it will take time. The domestic and ASEAN market will be first but international routes will take a lot longer.
It is difficult to judge as we are seeing a resurgence of infection and governments are implementing travel restrictions again.
Turnaround of the business will be anchored on delivering the following five key strategic pillars:
- The establishment of a premium and profitable APAC network carrier
- The reset of the domestic and ASEAN short-haul business
- Driving deeper commercial partnerships with both airline and non-airline players
- Diversifying revenue by accelerating portfolio growth in businesses such as cargo, MRO, and ground handling
- Embracing the digital agenda as a cornerstone for the business
Looking back over your management of the crisis, is there anything you would have done differently now you know the extent and duration of the pandemic?
Cash is the master of any business and so I would establish better fences around the company to absorb shocks. But I would also invest more in digital and more in reskilling my staff. The mindset needs to be prepared for a digital leap.
How important has cargo been to the airline and will it take on greater importance in the future?
From March until October 2020, over 33,000 tonnes of medical equipment and disaster-relief provisions, which includes ventilators, surgical gloves, sterile isolation gowns and protection suits with goggles for various organisations were transported on 1,067 flights via Passenger-to-Cargo (P2C) aircraft and Cargo in Cabin (CIC).
But our network was designed with a passenger focus and a few years back we reduced our freighter fleet. But the network should have considered the bellyhold capacity. We will do that going forward. We have to cater to both passenger and cargo markets. It’s especially important for us with our links to China. There are so many small shipments thanks to Alibaba.
As with the passenger market, air cargo in Asia-Pacific will probably bounce back faster and sooner than other regions and we’re helped by plenty of open skies agreements. And, generally speaking, the economic signs are encouraging.
30-40- Petronas, the Malaysian oil company, moves around 30-40 people regularly but they charter a 737 due the distances involved. Removing seats means we can do some of the longer trips with just one stop
Should governments have been more supportive to aviation during the crisis?
The aviation industry is a critical catalyst in supporting not only the growth of economies during bullish times but also the recovery of markets during a crisis such as the one we are currently facing.
Airlines are typically large employers with links to many high-value industries, such as aerospace and various trade sectors. In times of crisis, having adequate support from the government will be paramount to resuscitating the airline industry and will also go a long way to supporting the jump start of a nation’s economy.
Government support can come in many forms, including ensuring that the aviation eco-system, such as market capacity, is healthy and sustainable.
Do you believe the biosafety measures are temporary or will they become a regular part of the travel experience?
We are on the cusp of a new world regarding air travel. Masks won’t be necessary forever, but passengers will be more aware of hygiene in general. I think passengers will look and say, “is this aircraft clean, is my seat clean?” And they will demand contactless activities.
The personal biosafety measures may be temporary but using digital services and better sanitization in the airport and on the aircraft will become the new norm.
We have made a strong commitment with our oneworld partners to net zero carbon emissions by 2050”
Where will you prioritize investment in terms of technology?
Ultraviolet cleaning is something we are looking into that could be very important. The shopping experience is another area I am keen to explore with the best digital service. If we can create better customer loyalty it gives you a great base to recover and to shape a sustainable business.
But there hasn’t been time to fully evaluate everything because we are too busy dealing with the day-to-day at the moment. Thinking about the longer term is a luxury.
Obviously, though, technology will be vital to success. Generally, we are looking at four key areas: a digital travel platform, ground operations, aircraft operations, and improving workforce productivity.
With the day-to-day so important, can the industry meet its environmental goals?
We have made a strong commitment with our oneworld partners to net zero carbon emissions by 2050. Actually, the airline had a new sustainability program that was about to launch when COVID hit but it was put on hold.
But we have more than 40 initiatives ongoing, including looking at new fuel-efficient aircraft to reduce our carbon footprint. We are also equipping buildings with solar panels that will offset more than 50,000 tonnes of CO2 by 2050. And we are working with Petronas on biofuels and focusing on the airport too.
Once we get our restructuring done, sustainability is the first thing we will turn to.