MAS’s operational cost target a tall order: HLIB

PETALING JAYA: Malaysian Airline System Bhd's (MAS) target to match its operational cost to regional and Middle East full service carriers and regional low cost carriers is a relatively tall order to achieve, said Hong Leong Investment Bank (HLIB) Research.
"We believe the targets set by MAS to be a relatively tall order to achieve, judging from the past records of lack of capable top managements, fragile support and morale of the staff, and weak political will," it said in a research note yesterday.
"Nevertheless, the new company has the full support of the current government to fully revamp its cost structure."
Last Friday, the national carrier's biggest shareholder with a 69% stake Khazanah Nasional Bhd unveiled a 12-point recovery plan to turnaround the ailing carrier, which includes an injection of RM6 billion to be pumped in over three years.
The plan also includes the creation of a new company to house the "new MAS", a new CEO, renegotiation of supply contracts, 6,000 jobs slashed and moving its headquarters from Subang to Kuala Lumpur International Airport.
The "radical" restructuring plan aims to return MAS to profitability within three years of its de-listing, which is expected by year-end, with a potential relisting between end-2017 and end-2019.
HLIB Research said MAS is expected to cut unprofitable routes, focus on regional and domestic routes including fleet restructuring. It aims to improve unit revenue by 10% to 15%.
"Routes rationalisation exercise will likely improve its yield-cost gaps. We expect MAS to cut long haul capacity (cut loss making routes and leverage on oneworld alliance) and focus more on regional and domestic capacity (build up economy of scales and provide strong connectivity to oneworld alliance).
"The plan also addressed the need for leaner operational cost structures. Despite several initiatives mentioned, we believe it's relatively hard for MAS to achieve its targets, especially the benchmark against low cost carriers," it said.
HLIB Research added that MAS has significant low employee productivity compared with other airlines and needs to cut its employee headcount by 30% or 6,000 people, out of its existing 20,000 people.
"The delisting exercise will smoothen the restructuring process, as MAS will not be subject to the requirement and scrutiny of the Securities Commission and Bursa Malaysia as well as the public. Furthermore, any strategic plans and actions will not be easily grasped by close competitors," said HLIB Research.
It maintained its sell call on MAS with unchanged target price of 27 sen based on offer price. MAS share price closed at 25.5 sen yesterday, up 2% from the 25 sen closing price last Thursday prior to the announcement of the restructuring plan.
A total of 42.44 million shares traded hands yesterday with a one-day range of 25.5 sen to 26 sen.