Saturday, November 25, 2006

UMNOmics

Do we have some economically clueless ministers and legislators running this country or what?

Malaysia Airline System (MAS), our national carrier which has degenerated close to being a bankrupt airlines over the past decade due to severe mismanagement and excessive inappropriate government interference is still in the midst of executing a business turnaround plan.

For the year 9-months ending 2005, MAS made astronomical losses of RM1.3 billion. The losses was more than the 3 prior consecutive years of profits added together from April '02 to March '05, amounting to RM1.12 billion. Prior to that MAS also made 2 consecutive years of losses amounting to RM1.25 billion.

For the current year, in the midst of its turnaround plan, MAS has accumalated losses of RM470,000 based on the first two quarters. The market is expecting continued lossess for the remainder of the year, despite obviously recovery from the excesses of the past.

Idris Jala, a high-flyer from Petronas, was given the thankless task of turning around the airlines within a 2-3 year period and he duly launched the Business Turnaround Plan in February this year. So far, he seems to be doing a fairly decent job, despite criticisms of certain policies such as the payouts for the Voluntary Separation Scheme (VSS) launched.

However, over the past week, worrying trends seem to be emerging again. Members of Parliament (MPs) from the Barisan Nasional component parties were crying foul over some of the proposed fare increases in the domestic flights. Some, like Datuk Bung Mokhtar Radin of Kinabatangan criticised insufficient flights between Kuala Lumpur and Kota Kinabalu. It's again headline news in the Star today, whereby Transport Minister Datuk Seri Chan Kong Choy said the national carrier agreed to re-look certain sectors after a two-and-a-half hour meeting at his office here yesterday, in response to the criticisms.

What is our government trying to do? Is it adamant in screwing up our national airlines and offering more bail out schemes to save it each time? Our government appears to have forgotten that the market dynamics for airlines have changed drastically over the past decade or so, such that it is critical for the airlines to manage it's own price-volume strategies in order to cope with the competition (Air Asia) and the drastic increase in fuel costs.

Claims of insufficient flights to Kota Kinabalu by the MPs are absolute nonsense. In the past when MAS had a virtual monopoly of domestic flights, there were at most 5 to 6 flights a day between the cities each way. And a return flight would have set you back RM400 or so. Today, Air Asia alone offers 6 flights daily, in addition to 5 flights from MAS. As for poorer Malaysians, an Air Asia return ticket inclusive of surcharges costs as low as RM120! And it's no gimmick, I've secured the lowest fares umpteen times in travelling my favourite airline.

MAS, due to its nature as a premium airline, has to position and price itself as such relative to the competition. A direct attempt to compete on price with Air Asia will only result in tragedy. The bottomline is, there are more flights between the capital cities today than ever before, at prices which would have been unbelievable then. What's the complaint?

The Transport Minister's action will have two very serious repercussions. Firstly, it will result in derailing the critical implementation of the MAS turnaround plan. When that happens, the only outcome will be further bailouts by the Government with tax payers' funds.

Secondly, and possibly more critically, the Minister's actions will be bound to dampen investors', both local and foreign, interest with MAS and other Malaysian stocks. Government adhoc interference, especially due to irrational demands by legislators, will provide no predictability and confidence to investors in the Malaysian companies and markets.

Come on! Where are the economic brains in the Government?
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