A. Top heavy’ MAS faces uphill task
Written by Ben Shane Lim
Wednesday, 09 November 2011 11:24
KUALA LUMPUR: Malaysian Airline System Bhd (MAS) is expected to remain in the red for 3QFY11 ended Sept 30. Analysts do not rule out the likelihood of further losses in the coming quarters.
Apart from volatile fuel costs, one of MAS’ biggest problems is said to be its staff costs.
Some analysts noted that while MAS has cut its unprofitable routes and flight frequencies over the years to reduce costs, this will not boost earnings if the national carrier still has to maintain a big pool of staff.
A recent report by OSK Research said it expects MAS to continue cutting capacity, notably on Asean and domestic routes as demand for full-service travel on these routes declines.
“Frankly, MAS is already in survival mode and must make hard decisions; take drastic action and trim fat,” said an analyst with an investment bank.
In the latest annual report for FY10 ended Dec 31, MAS reported staff costs of RM2.16 billion for its 20,000-strong workforce. That works out to an average cost of about RM108,000 per employee, compared with revenue per employee of RM670,000 for the year.
Interestingly, MAS’ staff strength has gone to 20,000 from 19,094 in FY08 despite its efforts to cut routes and frequencies to certain parts of the world.
Across the causeway, Singapore Airlines Ltd (SIA) had 22,282 employees with available passenger capacity of 108 billion seats per km, against MAS’ capacity of just 50.8 billion seats per km.
SIA’s revenue per employee was S$660,308 (RM1.6 million) and cost per employee stood at S$99,560 for FY11 ended March 31.
Compared with MAS’ partner AirAsia Bhd, the figures appear more alarming. While MAS’ revenue of RM13.41 billion was 3.4 times higher than AirAsia’s RM3.95 billion, its total staff costs were six times higher. Moreover, MAS’ average staff cost per employee was some 41% higher than the low-cost carrier’s.
AirAsia’s staff costs totalled RM360.79 million for its 4,702 staff in FY10 ended Dec 31, which translated to an average cost of RM76,762 per employee.
Some quarters may argue that this is not a fair comparison as one is a budget airline and the other a full-service carrier.
Malaysian Airlines System Employees Union (MASEU) secretary-general Ab Malek Ariff said the national carrier is “top heavy”. He believes that if MAS were to chop jobs, it should start from the top.
“If anything, I believe it is top heavy. MAS has about 2,000 employees of executive manager level and above for its 18,000 staff of supervisor and below,” he told The Edge Financial Daily.
“That is roughly a 10-to-one ratio of staff to executive managers, and that number is much too high. If MAS needs to trim, it will have to be at the top,” he said.
MASEU represents 15,000 MAS employees.
“We were told at a recent town hall meeting with management that there would be no trimming [of staff] yet. If MAS wants to lay off staff, they can do so through a mutual separation scheme [MSS], but they will have to pay compensation,” said Malek.
Some analysts believe MAS’ large workforce is not isolated to top management alone, citing that the carrier has 15 pilots per aircraft compared with the industry average of about 10.
Analysts said it is hard to believe that MAS, as a government-linked company, will make a decisive move to heavily trim staff, although many agree this a bitter pill it has to swallow.
With the ballooning losses, an analyst said MAS’ cash pile might be enough to last for just another two quarters of losses.
“MAS does have a significant cash pile, but the cash is meant for renewing its ageing fleet. Its current pace of losses is unsustainable,” the analyst told The Edge Financial Daily.
Any MSS could put a strain on MAS’ balance sheet, although it has a cash balance of RM1.58 billion, said analysts.
The national carrier implemented a voluntary separation scheme in 2006 aimed at laying off 3,000 to 5,000 staff. The scheme was expected to cost RM850 million. However, there was lukewarm response to the scheme, with only 4,500 employees opting for it.
Labour issues have proven to be one of the most challenging problem for all airlines, including MAS.
Australia’s national carrier Qantas has been battling with unions over a possible restructuring to cut 1,000 jobs from its workforce of 32,500.
Strikes escalated in length and intensity since July, at a huge cost to the world’s 10th largest carrier as result of hundreds of cancelled flights. The industrial dispute reached its peak when management implemented a complete lockout on Oct 29 only to resume flights on Oct 31 after an Australian court intervened.
The lockout is estimated to have cost Qantas A$20 million (RM64 million) a day.
MAS has been mostly mum on its turnaround plans since the collaborative agreement with AirAsia was signed, noted several industry analysts.
It is learnt that MAS’ new CEO Ahmad Jauhari Yahya will be revealing his game plan to turn around the struggling airline in about two weeks, when MAS releases its third quarter results on Nov 22.
Rationalisation of the workforce is expected to be one of the highlights of its turnaround plan.
Will the national carrier take a different path to get out of the turbulence? Jauhari and the new board certainly have their work cut out for them.
This article appeared in The Edge Financial Daily, November 9, 2011.
B. Hong Leong Bank offers VSS to staff
Written by Sharon Tan
Thursday, 03 November 2011 11:05
KUALA LUMPUR: Hong Leong Bank Bhd has embarked on a voluntary separation scheme (VSS) as part of its consolidation exercise towards growing its newly enlarged entity.
The VSS payment formula is based on a VSS multiplicand that ranges from 1.4 (for executives) to 1.6 (for non-executives) multiplied by the length of service (capped at a maximum of 22 years) multiplied by the basic salary or 50% of total monthly salary until retirement, whichever is lower.