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New generation of CEOs bring changes at Southeast Asian airlines

Luc Citrinot, Etn Senior Managing Editor Asia (in Bangkok)  Dec 23, 2009

It is a silent but real revolution. For years, airlines in Southeast Asia were considered by politicians in power as a tool to national identity, economic development and…to their own benefits! Leaders of Southeast Asian nations frequently melted into the management of airlines, changing CEOs and Presidents according to their own agenda and desires. Examples of past collusions: in the early nineties, an official State visit from Malaysian Prime Minister Mohammad Mahathir to Mexico was immediately followed by Malaysia Airlines opening flights between Kuala Lumpur and Mexico. Without looking at rationals behind such a route… Same for Thai Airways opening a non-stop Bangkok-New York in 2006, just for the sake of competing with Singapore Airlines…

It sounds like normal practice as most Southeast Asian carriers are State-owned. Except that the finishing decade has seen most of those airlines plunging into the red due to mismanagement. And today, due to more limited resources, governments are increasingly reluctant to bail out their airlines.

At least crisis had a positive outcome: political intervention seems to have diminished while a new generation of CEOs took over national carriers, infusing a new sense of independence. One of the most radical turn-around is experienced by Malaysia Airlines. Following the appointment of Idris Jala as its new CEO, MAS published in 2006 its Business Turnaround Plan. The airline’s weaknesses were widely exposed with a looming possibility for bankruptcy. Getting the promise that the Government would not interfere into the airline’s management, M. Jala successfully turned around MAS fortunes. Measures to lower costs were introduced such as the cut of unprofitable routes –over 15 routes have been closed, the fleet reduced, the productivity of employees as well as aircraft daily use increased.

From 2006 to 2008, seat capacity was down by 10% with total passengers’ number declining by 11% to 13.75 million. In 2007, MAS managed to be back into the black with a profit of US$ 265 million, following two years of losses (US$ -377 million in 2005 and -40.3 million in 2006). Although the airline is likely to make a loss in 2009 due to the recession (US$ -22.2 million from January to September 2009), MAS expects to be profitable again in 2010. Chief Executive Tengku Datuk Azmil Zahruddin announced to further focus on lowering costs, generating revenues and enhancing customer satisfaction. Compensating a further reduction in its long-haul network (closure of New York and Stockholm), MAS is however looking to expand to Australia, China, South Asia, the Middle East and ASEAN countries. New aircraft are due to delivery from next year with the first of 35 Boeing 737-800 coming onto the fleet, while the delivery of six Airbus A380 is now planned for the middle of 2011.

Another remarkable renaissance is experienced by Indonesian national carrier Garuda. The arrival of Emirsyah Satar as a CEO was followed by a dramatic downsizing of the airline. “The business model was not coherent: human, financial and operational resources did not work anymore,” recalls Satar. The airline was then forced to close all its Europe and USA routes, to reduce its fleet from 44 to 34 aircraft as well as its workforce from 6,000 to 5,200 employees.

“We are more dynamic today as we have been able to hire a younger generation of executives to look for the airline’s destiny,” adds Satar. Garuda embarked into a consolidation phase which was turned into a rehabilitation and consolidation strategy in 2006/2007 which culminated in 2008 into a sustainable growth strategy. Following IATA safety audit certification in 2008, Garuda was moved out of the list of banned airlines into the EU during summer 2009. This achievement comes at the most favourable time as Garuda recorded two consecutive net profits in 2007 (US$ -6.4 million) and in 2008 (US$ 71 million).

Expansion is now back: “We will take delivery of 66 planes with the target of having a fleet of 114 aircraft by 2014. We will rather concentrate on three types of aircraft: Boeing 737-800 for the regional and domestic network, Airbus A330-200 and Boeing 777-300ER for our long-haul flights. We will then replace the Airbus A330 through either the B787 Dreamliner or the A350X,” adds Garuda CEO.

Garuda ambitions remain realistic, far from the excesses of the Suharto era when the airline had to fly all around the world: “We see rather a demand for point-to-point traffic rather than a big hub operation. Anyway, our airports in Jakarta, Bali or Surabaya would not be able to cope with large hub operations,” tells Satar. But 2010 will mark Garuda return to Europe with its first flights to Dubai-Amsterdam with a possible addition of Frankfurt and London in the following years. More flights to China, Australia and the Middle East are also planned. “We aim to triple our international passengers’ traffic until 2014. And we are seriously looking to join Skyteam by 2011 or 2012,” says Satar.

The positive evolution of both MAS and Garuda seems to push Thai Airways International for changes. The carrier is probably today the last still suffering the from politicians’ interferences. New Thai President, Piyasvasti Amranand, is however committed to restructure the airline and get rid of any intervention. “I think that the general public is fed up of this situation at Thai Airways, which is very damageable for the airline’s and the country’s reputation”, he says. “We will always face pressure from the outside. But if we stand united and strong, we will be able to defend ourselves better against external intervention.”

Amranand recognizes that resilience came often from the Board of Directors, most of its members being under political influence. And they have been able to demoralised TG best elements. Amranand already won a first battle by having Thai Airways restructuring plan being endorsed by both the board and employees with an objective to be among Asia’s top five carriers. A review of the product and all services has been carried under the TG 100 Strategic Plan. Improvements will be made in customers-related services such as better connectivity and flight schedule, service on board and on the ground as well as in distribution and sales channels. “What happened over the past 40 years will not be changed over night. But we already fixed targets,” tells Amranand. Cost reduction should help to save some US$ 332 million with a modest profit predicted for 2010.

The new President wants also to promote the best staff within his airline by empowering them instead of following the current culture of ‘seniority’ and nepotism. But Amranand is likely to face here the heaviest resilience from Board members or Unions within the airline.

Amranand will right now see how far he can change mentalities as Thai Airways is again embattled into a new corruption case. Thai Airways executive chairman Wallop Bhukkanasut is now under allegations of having escaped to pay customs and excess baggage fees when carrying 390 kg from Tokyo to Bangkok. According to the Bangkok Post, Wallop is close to the Minister of Transport and it must now be seen how talented Piyasvasti Amanand can be to solve what -once again- looks like a typical Thai Airways’ story…

New generation of CEOs bring changes at Southeast Asian airlines

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