The Long Journey to Fix Malaysia Airlines Begins

Let’s be clear. While the loss of two 777s last year was absolutely awful for Malaysia Airlines (MAS) as a business, the airline was far from healthy even before that first airplane vanished. Like many a state-run airline, MAS was bloated and directionless. The two crashes last year may have served as a wake up call that something actually had to change, despite that being the case for several years prior. And that change is finally starting to happen.

MAS’s modern history began in 1972 when, after Singapore gained independence from Malaysia, airline assets were divided up. That led to the birth of Singapore Airlines and MAS. MAS, like most state-run carriers, was never particularly concerned about costs (though labor costs in Malaysia are quite low in general). The airline grew and lumbered along however the government saw fit. Not having to worry too much about competition, it focused on creating a good product but not one that stood up to the top carriers in the world. Consequently, it struggled to charge the premium it needed to justify its costs.

In the late 1990s, things started to turn south. That brought the first of many restructuring plans, some of which resulted in a couple of profitable years here and there but nothing more. It always ended up back in the red. Even when progress was made, something even bigger began working against the airline. For example, Malaysia was ground-zero for low cost carriers when, in 2001, Tony Fernandes bought a little airline named Air Asia. Today, Air Asia is a powerhouse and MAS is no match.

Since that time, MAS has tried pretty much everything it could imagine (much of it bad). It stopped flying a bunch of domestic routes and talked about partnering with Air Asia at one point (which the government shot down). It joined an alliance (oneworld). MAS took a regional airline and turned it into a low cost carrier (MASwings). It also put together a full service point-to-point airline (Firefly). And it cut flag-carrying routes that didn’t make financial sense, like its LAX flight, the only city it served in the US.

All this made it seem like MAS was just fiddling while Rome burned. But it was a slow burn and MAS didn’t seem like it would ever go away… until last year.

When the first 777 disappeared without a trace, people were already starting to book away. But when another 777 was shot down over Ukrainian airspace just months later, it turned into a full panic with bookings down by a third year-over-year. I can’t imagine we’ve seen a shock like that at any single airline since Pan Am 103 exploded over Lockerbie.

With the airline in a free-fall, you’d think it would have gone out of business. But remember, this is a majority government-owned entity. The piece not owned by the government was bought back and the airline was delisted from the stock market. Something had to change quickly or the government would have to give up at some point.

New CEOs get named at the drop of a hat when it comes to state-run airlines. Often it’s the sister or friend of some important person. Or it could be a family member, political donor, etc. So it was surprising when Malaysia actually appointed someone with street cred… Christoph Mueller.

Christoph is considered a turnaround expert, and his last stint at Aer Lingus was highly successful. His track record isn’t all roses (Sabena, most notably), but that’s because he’s a man who takes on the toughest challenges. Sometimes it works, sometimes it doesn’t. It’s not for lack of trying. And he’s good at what he does.

The simple fact that Christoph was chosen shows that Malaysia is serious about fixing this airline. Just consider the backlash that came with appointing a foreigner. Massive job cuts were planned, presumably as a prerequisite for Christoph even considering the job. But I was looking for something tangible to show that Christoph would actually be allowed to do the job he only just started.

At the end of April, that sign came. According to Leeham News, MAS has put a bunch of airplanes up for sale.

First, it’s selling all of its freighters and getting out of its MASCargo dedicated freighter business. Second, it’s selling 4 of its 13 777s. (Remember, it had 15 but saw 2 crash last year, so it will have only 9 out of the 15 it had flying a couple years ago.) Third, it’s selling all six of its A380s, an airplane it had no business buying in the first place.

The end result is an airline with 9 777s to fly a handful of long haul, higher demand routes, 15 A330-300s for other medium to long haul routes, and a bunch of 737-800s to fly short haul routes. That’s a major downsizing and one that’s entirely warranted.

This is certainly just the tip of the iceberg. After all, MAS has to find a way to compete with the likes of Air Asia. But convincing the government to sell its absurdly large flagship aircraft (the A380) is a huge step. It gives hope that the government is acting rationally and actually wants to fix this airline. There’s no guarantee that things are going to end well (odds are still slim in my mind), but the signs are pointing in the right direction so far.

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