Listen in as Aviation Week Network's David Casey sits down for an exclusive interview with Malaysia Airlines and Malaysia Aviation Group (MAG) managing director Izham Ismail to discuss the carrier's international network designs, fleet strategy, potential joint ventures and challenges moving forward.

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Rush Transcript

David Casey:

Hello, everyone. Thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm Routes Editor in Chief, David Casey. Welcome aboard. For this week's episode, we're recording from Routes Asia 2024, taking place in Langkawi, Malaysia. I'm delighted to be joined by Captain Izham Ismail, Group Managing Director of Malaysia Aviation Group and Malaysia Airlines. Thanks for being here today.

Malaysia Airlines, in your own words, Captain Ismail, has had a bit of a checkered history over the past two decades or so, but has made a strong financial and operational recovery from the COVID-19 crisis, allowing it to turn its focus to customer and fleet investments. Perhaps we could just start off by discussing that turnaround in fortunes for the carrier, because it really feels like you've exited the pandemic in a position of strength.

Izham Ismail:

Thank you, David, for having me today with you. Indeed, very delighted to be talking to you. Welcome to hot Langkawi. But it's sunny skies currently, and do enjoy the beaches after your session today.

Indeed, Malaysia Airlines had a very checkered journey over the last two decades. Not to blame anyone, but the market environment then was really undisciplined, to a certain extent. Airlines, per se, the industry lost focus on what they have to deliver and how to make them profitable and sustainable for the future. I would say a lot of restructuring has taken place in Malaysia Aviation Group, specifically Malaysia Airlines. And to count, we have gone through a total of five transformation exercises.

Why is this different compared to the other four? The previous four transformation, we had very tough issues to stabilize our balance sheet, our liabilities. COVID, to a certain extent, brought crisis to the whole entire world, but it gave us an opportunity for us to really sit down with our creditors, to have a conversation with them, whether they believe in Malaysia Airlines. If they believe in Malaysia Airlines, come to the table with us and have a really strong, participative conversation with us to make Malaysia Airlines profitable in the future, which indirectly they will benefit.

Hence, for us, from that restructuring, it was a very ambitious target that we set that across. The liability that we inherited previously accumulated to 1.25 billion ringgit, sen Kedah. Coming out from the restructuring, we were able to meet in the middle with our 75 creditors, but the restructuring is not yet complete. During the restructuring, any suppliers or partners, which is critical to our operations, we do not put them into that same credit bucket.

We finish off the scheme arrangement in the UK courts. Then, 2021 onwards, we started having deep negotiation with individual suppliers. There are many of them. I believe one of them that the market would know of is our recent catering contract. What has that entailed? That has entailed to Malaysia Aviation Group delivering a very agile balance sheet, but that does not end there.

As you know, the airline business is a razor-thin margin. At best, you make 1%, 1.5% margin. Most of the time, you're always bordering towards negative, right? How do you make an airline sustainable for the future? Hence, the operating cost is very important. It is very important that the group reverse itself into a model of variable components upholding a lot on variable costs, productivity-driven, incentive-driven to the employees in this context.

We will do our best to keep the fixed costs as low as possible, akin to a low-cost carrier, but we are mindful that we are a premium product, premium airline, premium carrier. We offer premium product. We need to deliver premium services, but this will be covered under the available cost components. The organization itself has also changed its culture, where it is productivity-driven, and execution is very key. I have to say that it's a bit of a journey that we're going through at this current time, trying to change the organization culture to be more consistent.

David Casey:

Absolutely. Thank you for that. So it's a case of being laser-focused on cost while still delivering that service?

Izham Ismail:

Definitely a laser-focus on cost. And most importantly, to deliver the service that you promise to the consumers.

David Casey:

Let's talk a little bit then about the market in Malaysia at the moment. We saw the demise of MYAirline last year. It seems to be a very competitive marketplace. How are conditions at the minute? Are you seeing strong levels of demand?

Izham Ismail:

The capacity in domestic Malaysia is heading towards overcapacity again. That was what impacted Malaysia Airlines, specifically here, over the last two decades, mainly driven by low-cost carriers. So low-cost carriers in this context, it is not Malaysian-based airlines, but definitely airlines in the ASEAN region as well. At Malaysia Airlines, we understand the potential overcapacity, which weakens the yield of your business, and so we have to take ourselves away from that environment.

In 2021, when we reentered the market post-pandemic, we were very clear that Malaysia Airlines should be serving more on international market. Do we compete in the domestic market? The answer is yes and no. But Malaysia Airlines, being a national airline, we have to uphold our obligation to the nation. We do still continue our domestic services, which is deemed to be important to the nation, but the focus is a lot more on international flow. So the network design of the airline is important for us to circumnavigate the outlook that I mentioned to you earlier, that domestic Malaysia and the ASEAN region especially is headed towards another overcapacity environment which will not manifest itself in 2024, possibly in the very near future.

India is very interesting and is generating a very handsome GDP and CPI and so forth. We want to be part of the success journey of India. Important markets for Malaysia Airlines today are India, Australia, and eventually China. A lot of focus will be put into a network design that feeds this market. India, in particular, is very strong, but there are tough challenges on bilaterals, especially affecting metro cities in India. We believe very strongly that Malaysia Airlines should explore secondary cities. Henceforth, the recent last Quarter 4, we launched Trivandrum, Ahmedabad, and Amritsar.

Initially, it was quite a risk because the average historical load factor for these three points was hovering around 60% plus. But with the right commercial levers, with the right product interplay, and with the right asset to be used, and with the current cost structure, we were able to deliver a handsome load factor for these three new routes averaging at 88%. So India is key. Australia is key. Primarily, historically, Malaysia Airlines serve what we call these Kangaroo Routes from Australia right up to Europe. Of course, that remain relevant until today.

Of course, we have strong competitors from the Middle Eastern airlines, the likes of Qatar, Emirates, and so forth, that fly directly to Australia and beyond Europe, but it is important for Malaysia Airlines to generate new flows. The new flows that we are focusing a lot today is Australia, India. However, they are also spill capacity, spill demand, meaning from Australia to North Asia. Of course, you have Qantas, Korean Airlines, Asiana that flies directly into Australia. However, because of the capacity limited, driven by supply chain, the aircraft cannot come online much earlier. There are potential of spill capacity that Malaysia Airlines can capture and generate in that North Asia flow.

To reiterate, Malaysia Airlines has reinvented itself. In any airline key fundamental of whether it is profitable or not, number one is its cost structure, number two is its network design, and thirdly is scheduling of that network for you to spread the asset to ensure that it delivers optimum productivity. There's a lot of moving parts. Thus far, I am very proud of my team, the whole entire MAG family, Malaysia Aviation Group family, about 12,000 people. They are striking the right notes. No doubt, David, Malaysia Airlines today have its own challenges on time performance. It's very unstable, driven by a lot of issues on supply chain, on maintenance, spare parts, and so forth.

As I mentioned earlier, with regards to airplane deliveries. That doesn't all go well because Malaysia Airlines aspires to be top 10 airline in the world by 2030. The hardware product is very important, so any derailment of the timeline for us to launch new product hardware, to a certain extent, develop challenges to us. And we have to circumnavigate it with delivering more empathy on our services to our customers.

David Casey:

And so you mentioned then you've got an order, I know, for 25 Boeing 737 MAXs. I think you've got three in service at the minute, which, as we know, have been delayed. Can you just give us, one, a timeline on when you expect to get more Maxes in the fleet and what that may do for your route network, but also, two, just a bit more color on the narrowbody strategy going forward?

Izham Ismail:

25787-8s are due to be delivered, completion by 2027 circa. We are currently launching our second batch of narrowbody campaign. That will bring us to a total of narrow-body by 2033 to 50 airplanes minimum. The remaining 25 narrowbodies, we are agnostic to aircraft type. A narrowbody can also deliver a premium product, provided you design the LOPA that fits your product delivery, the promise of product that you intend to deliver to the market. We hope to complete this campaign by end of Quarter 2. It cannot be delayed because if you are delayed with this campaign for the narrowbody, you will not get any more aircraft slots. The earliest slots possible is 2032, thereabout, so it is time-sensitive.

With regards to the widebody expansion, the fleet program, we are at the tail-end of making a decision whether we want to exercise the 20 options that we ordered for the A330neos, or the first batch. The first airplane is arriving this Quarter 3 this year, September. And we are hoping that with the timeline, we should be introducing four A330neos this year. The -8 that we're bringing in and the subsequent narrowbody campaign is meant to replace our aging fleet, including the first 20 batch of the A330neo is replacement of our current A330ceo. The remaining 20 options that we are making a decision soon is for growth.

So, where do Malaysia Airlines flies to with these 20 additional airplanes? Where market is, if the strategy continues to be credible, what Malaysia Airlines has come to put into place since 2021, we will increase capacity or frequency to induce this load. Case in point, Australia, India. If you want a seamless product from Australia, you want the customer to enjoy the same product services to India. So naturally, it has to be a widebody operation from Sydney, Kuala Lumpur, beyond to India. We also have this ambition to increase our frequency to Australia, to all major points in Australia three times a day, Sydney, Melbourne, Adelaide, Perth, and we are reintroducing Brisbane in the very near future. That entails 20 additional A330neos.

We do have seven A350-900s, and that will continue to be part of our signature fleet. But there, we have additional 20 A330neos, where the product is consistent, to a certain extent, with the A350. I'll come back to the A350-900 retrofit of our cabin, and we can deploy the 350 to beyond and more destinations in Europe. And possibly Manchester, David. That's where you come from, right? Our ambition is by 2027, we will bring down, one by one, the A350, and we will reconfigure the cabin to be similar to theA 330neo. From a customer experience standpoint, you're agnostic to the aircraft type. You into the airplane cabin, it's the same cabin. Consistency, right? That's our fleet plan and our network growth plans.

David Casey:

Let's move on then to talk a little bit more about Kuala Lumpur. You've obviously built KLIA up to be your hub, but we know that the Malaysian government is progressing with the redevelopment of Subang Airport and the regeneration of the region. What will that mean for Malaysia Airlines going forward? How do you see your strategy evolving at Subang?

Izham Ismail:

Malaysia Aviation Group supports the policymakers of regenerating Subang. However, it is important to note and to caution all the rest, it's not walk in the park. The commercial name for Subang is actually SkyPark. Henceforth, it is not walk in the park for SkyPark. Stakeholders, industry players need to really balance capacity deployment between KLIA Terminal 1, Terminal 2, and SkyPark. It is very key. If we don't do that there will be cannibalization. So, the Subang generate a network flow of connectivity. Primarily, it will be serving point-to-point traffic.

We envision that Subang or SkyPark is a premium airport. Malaysia Airlines, we know it is not an easy journey going to SkyPark. But we're very clear if it's a premium airport in SkyPark, henceforth, Malaysia Airlines will have a better chance of success deploying our premium asset to be deployed out of SkyPark. But the challenge part is how does Malaysia Airlines balance its capacity between Terminal 1 in KLIA and SkyPark? In summary, David, overall strategy of SkyPark, which entails stakeholders and the industry players itself, it's not really cast in stone yet. It's still a work in progress. There are a lot of iteration that need to be discussed and agreed upon.

Now, probably let me touch base a bit on KLIA. That will probably be your next question. Yes, KL International Airport, the hub is actually positioned in a very peculiar position geographically. I normally coin the word, it's sandwiched. KLIA is actually in no man's land. It's sandwiched between Changi and Suvarnabhumi of Bangkok. So, it's quite tough. It's quite tough for KLIA to be a mega-hub. Nevertheless, I will not discount the possibility of KLIA as an international, a strong hub, especially if you have a strong player like Malaysia Airlines that plays a role in connecting the world, all regions all over the world, either directly with one of our own metal or with our partners.

But as we speak, KLIA itself, I would say it has reached its designed life. There's a lot of work left to be done. I know for sure that the management team of MAHB [Malaysia Airports Holdings Berhad] is on the matter and doing a lot of stuff to improve the product services of KLIA infrastructures, queue time, kiosks, support things like common prayer room for all faith, a children's play area. There are many more product services that KLIA need to upgrade itself while Malaysia Airlines does its path inducing traffic movement into KLIA, but MAHB will have to really drive hard on regenerating not only SkyPark, they have to regenerate KLIA itself as well.

It's a mammoth task, but I believe the current management team, the current organization in MAHB, all the people are rallying towards it. And Malaysia Airlines will continue to support that move wherever Malaysia Airlines can play a role to improve or to make KLIA as a hub, a recognizable hub, sandwiched between Changi and Suvarnabhumi. And as I always say, that to get this thing moving, it's not one entity, one person, it's a strength of a united team. I always coin the word Malaysia, Inc. That need to work hand in hand to make sure to deliver a world-class airport that I hope will compliment SkyPark as a secondary airport.

David Casey:

I suppose then, finally, you mentioned during that about your airline partnerships. Could you tell us more about Malaysia Airlines' plans when it comes to developing joint ventures with other carriers?

Izham Ismail:

The only joint business we have now, currently, is Japan Airlines. Our ambition is to grow our joint business with many other airlines. Of course, joint business is not an easy task for us to get approval from regulators, not only regulators in Malaysia, the regulator of the home country of the airline, too. But the whole idea of a joint business, not only to drive profitability for Malaysia Airlines, it's also to induce economic generator to the country.

Give a case in point, Japan Airlines. With joint business between Japan and Malaysia, Japan Airlines is committed to ensure that the joint business is successful. Henceforth, if they are committed, henceforth, beyond Narita, example, beyond Narita, what else can Japan Airlines serve Malaysia Airlines? North America, domestic Japan. Now, what is it to Japan Airlines on Malaysia Airlines? This is what we call behind and beyond. Behind Narita for Japan Airlines is North America. Beyond Kuala Lumpur for Japan Airlines is domestic Malaysia, and to a certain extent, South Asia or Australia flow.

When we look at a business partner to drive it to a strong business, to a certain extent, you have to see where the network overlap. Not overlap, support each other. Cathay was one of our recent ambition trying to get a joint business, but due to technicalities that I don't know whether this is the right forum for me to mention, is not kind palatable by regulators, so we decided to pull the plug on the journey of a joint business with Cathay Pacific.

Yes, today we are continuing to have deep conversation with three other carriers on joint business, which I cannot reveal them today. We hope that we will model our joint business more aggressively in the future. That does not discount, in the next 12 months, or maybe less, or maybe 24 months, for us to revisit Cathay Pacific again. Joint business is a very important pillar to partnership. It's a very important pillar to our business plan moving forward.

David Casey:

I just want to say thank you very much for joining us today. It's been a pleasure talking to you. I wish you further success in 2024 and beyond. Thanks to you, our listeners. And remember to follow us on Apple Podcasts or wherever you listen. Until next week, this is David Casey disembarking from Window Seats.