MAS: Christoph Mueller, the new man in the cockpit

Malaysia Airline System (MAS) will have a new chief come March 1st. The appointment of German national, Christoph R Mueller, which has been heavily criticised due to him being a foreigner may be one of the last trump cards that its 100% owner, Khazanah Nasional Berhad has.

Mueller, who was previously the chief of Irish airline, Aer Lingus, has 25 years of experience under his belt. His wealth of experience has made him of the most suitable candidates for the job which has been dubbed as one “of the toughest CEO jobs” in the world.

He was also instrumental in the turnaround at Germany’s full service airline, Lufthansa from 1994 to 1999. MAS had suffered twin tragedies in 2014 with the disappearance of flight MH370 and flight MH17 being shot down.

MAS has been in the red for the last four financial years and the latest turnaround announced by Khazanah on Aug 29 last year, involving an injection of RM6 billion and the reduction of 6 thousand jobs.

MAS currently has a cash burn rate of RM5 million per day according to a report by Maybank IB.

MAS recorded a net loss of RM935 million for FY2013 and Maybank estimates its losses to balloon to RM1.2 billion for FY14.

In 2013, MAS successfully drove up the daily utilization hour of narrow-body planes from 9 to 11 hours.

The turnaround includes the creation of Malaysia Airlines Berhad (MAB) which would witness the renegotiation of lopsided contracts which did not favour the national airline.

One of the major issues that Mueller has to tackle is the falling yields at the airline. It was evident from last year’s financial performance was that MAS had good load factors running into 70 to 80 per cent but it had very low yields.

One of the reason for the low yields was that it had to compete with low cost carrier such as AirAsia and hybrid airline, Malindo Air. MAS had to lower its pricing to gain load factor advantage at the expense of falling yields.

One of the advantages that Mueller has in his favour are the current low oil prices which will boost the profitability of the airline as fuel accounts for 50% of the cost of MAS.

According to Maybank’s projection, MAS consumed 15.8 millions barrels of jet fuel in 2014. A US$ 1 per barrel decrease in jet fuel prices on a full-year accounted basis would save RM51.4 million to costs.

“Any benefit from oil price decline would depend on the hedging of policy of MAS,” a head of research of a local stockbroking company told Astro AWANI.

When asked about Mueller’s appointment , the head of research said that “it was too early to judge him and many local analysts had only heard about him through the media and it would be improper to comment on him.”

Mueller has his hands full with his appointment but the right strategy in choosing the right routes to ply (route rationalisation) and improvement of yields, MAS turnaround could be a success story.