Description
The success achieved in this financial period 2003-2004 was not without its challenges.
C HAI RMAN’ S MES S AGE
C O R P O R A T E REV I EW
We have good reason to be pleased with the
performance of Malaysian Airline System Berhad
(MAS) for the financial year ended 31 March
2004. MAS recorded an after-tax profit of
RM461.1 million for the period, the highest
profit attained since the Airline was listed in
1985 on Bursa Malaysia. This has been the
second consecutive financial period that MAS
has achieved a profit since the Widespread
Asset Unbundling scheme was undertaken in
November 2002. While it is undeniable that the
innovative financial restructuring exercise has
made the turnaround possible, credit should
be given to the Airline’s management and staff
at all levels for their commitment towards the
recovery programme.
Most of all, our gratitude goes to the late Tan Sri
Azizan bin Zainul Abidin, whose visionary leader-
ship brought MAS to where we are now. His
sudden demise has left the nation without
one of its most distinguished, dedicated and
honourable sons, and the Airline without a
most dedicated and exemplary leader. Tan Sri’s
strength and resoluteness, buttressed by his
strict code of ethics and softened by a true
humility, contributed much to MAS’ reputation
and integrity as a professional corporate entity.
He guided the Airline through a turbulent period
and brought it back to being an international
airline of world-class standard. This success is his
legacy, one that the Board of Directors and I will
strive to uphold and build upon.
The success achieved in this financial period
2003/2004 was not without its challenges. MAS’
operations felt the impact of the outbreak of
Severe Acute Respiratory Syndrome (SARS) in
the region. Worldwide political uncertainties and
terrorism were destabilising factors in all aspects
of life. There was also much frustration with
the unilateral safety and security regulations
imposed by the United States administration on
the aviation industry, which added to the cost
of doing business. It has been fortunate that,
despite these challenges, the confidence to
travel by air continued to grow, which has
helped us in sustaining our profitability.
The strategies put in place over the last two
years to move MAS forward have proven to
be successful, as evidenced by the number of
service-related international awards won by
our cabin and technical crew. It is the intense
focus on service and customers that sets MAS
apart from its competitors. MAS’ success during
the financial period was also internationally
recognised in other aspects. The Institutional
Investor Research Group Asia ranked the Airline
highly in three out of four categories in the
Best Company Investor Relations awards.
MAS was declared the ‘Most Improved
Company in the Sell-Side View (Industrial
Section)’, the ‘Most Improved Company of
Malaysia for Sell-Side View’ and the ‘Most
Improved Company of Malaysia for Buy-Side
View’. These awards are testimony to the
strong investor confidence in the Airline’s
financial management, corporate governance
and risk management.
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Such awards were the result of much hard
work, bolstered by confidence in our ability to
maintain the Airline’s recovery momentum and
a strong belief in our capability to deliver a high
quality of service to our customers. These factors
will continue to put us in good stead as MAS
positions itself for further growth. Air travel
worldwide is forecasted to grow at an annual
rate of four per cent, with air travel in Asia
expanding by six per cent. We have been
building up our capacity in the Asian region
through regional alliances to take advantage
of the opportunities that will arise. In doing so,
we have been mindful of our social responsibility
towards the nation. As such, our market growth
strategies, devised to meet business objectives,
have also been aimed at building the Kuala
Lumpur International Airport as an important
international hub and developing other
Malaysian airports as secondary hubs or
international gateways into Malaysia. We
have also been aligning some of our product
and service development with port and rail
facilities to promote the seamless movement
of both cargo and passengers.
In addition to routes and destinations, product
enhancements form a major aspect of MAS’
mission to provide an air travel service that ranks
among the best in the world in terms of safety,
comfort and punctuality. We will be closer
towards fulfilling this mission when a major
upgrading programme of our fleet of aircraft,
unveiled during the financial year, is completed
and when we take delivery of the recently
ordered Airbus A380-800 aircraft. Such
initiatives to help the Airline maintain its
position as a premier brand in the aviation
industry include utilising the power of the
Internet and technology to reach out to
potential and existing customers.
While we savour our successes and look forward
to a better future, it is important that we remind
ourselves of the time when we suffered losses for
five years, lest we start resting on our laurels
and become complacent. MAS is doing business
in a very demanding environment, in which the
Airline is in relentless competition with others
to provide air travellers with state-of-the art
amenities and facilities, the best service and the
most reasonable prices. As we strive to meet
these exacting conditions, our customers are
growing more sophisticated and discerning.
It is therefore imperative that we do not let
our guard down. We have to continue being
aware and vigilant, open to change and
innovation, and committed to serving our
customers beyond their expectations.
It was in this light that the MAS Board was
presented with the Airline’s Refined Broad
Strategies in February 2004. Management is
confident that ‘Customer Focus’ has become
embedded in the Airline’s corporate culture.
The emphasis therefore can move on to the
Airline’s stakeholders, a term that covers
commercial customers, shareholders as well
as the Government, amongst others, and on
satisfying customers through product reliability
and hospitality. Our strategies will aim to
position MAS as a global carrier with a presence
in areas with growth potential and profitability.
Customer confidence in the Airline will be
maintained through its safe operations.
Human capital will be further enhanced since
the Airline’s staff are instrumental in forging
it towards continued success and technology
will continue to be a key business enabler.
Last but not least, profitability will be sustained
through a sound financial system.
These strategies will show management and
staff the way forward. For the present, I wish to
thank our staff, management, shareholders and
indeed all stakeholders, whose support and
loyalty have brought MAS through yet another
difficult period to achieve a commendable
performance. We have also much to thank the
previous Managing Director of MAS, Dato’ Md
Nor bin Md Yusof, for having steered MAS to
this point. He had successfully brought the
Airline out of its financial conundrum and
paved the way for it to become a robust entity.
His dedication and professionalism was an
inspiration to all who had worked with him.
Dato’ Md Nor’s term ended effective 1 April
2004 and we all wish him the best as he under-
takes yet another challenging responsibility as
Chairman of the Securities Commission.
The MAS management is now under the
capable leadership of Dato’ Ahmad Fuaad bin
Mohd Dahalan, who brings his extensive
experience in the Airline to the position of
Managing Director. He has served MAS since
July 1973 and has accumulated a wealth of
knowledge in international aviation. He has
taken on the mantle at a critical juncture of
the Airline’s growth, as MAS is now not only
faced with the continuing worldwide political
uncertainty but has to counter the financial
impact of fuel prices that began increasing in
April 2004. Nonetheless, with a committed
management team and a loyal and dedicated
staff force, MAS will continue to provide high
quality products and services in all aspects of
its operations and to record strong financial
results in the years ahead.
Dato’ Dr Mohamed Munir bin Abdul Majid
Chairman
...I wish to thank
our staff, manage -
ment, shareholders
and indeed all
stakeholders,
whose support
and loyalty
have brought
MAS through yet
another difficult
period to achieve
a commendable
performance”
“
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C O R P O R A T E REVI EW
13
MAN AGI N G DI REC T OR’ S REPORT
The financial year ended 31 March 2004 was
one of significant achievements for Malaysian
Airline System Berhad (MAS). The most notable
was the after-tax profit of RM461.1 million
attained for the period, the best performance
since the Airline was listed on Bursa Malaysia
in 1985. This achievement is all the more
commendable, given the worldwide scenario
that was marked by the onset of the American-
led war against Iraq and the outbreak of
Severe Acute Respiratory Syndrome or SARS.
We have succeeded in recording a profit for
two consecutive financial periods, after the five
years of losses suffered due to the Asian financial
crisis of the late 1990s. This is a sign that
MAS has made a definite turnaround, thanks
to the implementation of the Widespread
Asset Unbundling exercise in November 2002
and the strategies subsequently put in place
to bring MAS back to prominence in the
aviation industry.
Service Beyond Expectations
One of the reasons for our achievement was
our staff’s commitment towards ensuring that
MAS continues to be renowned for its personal
touch, warmth and efficiency and for providing
air travel service that ranks among the best in
terms of safety, comfort and punctuality. This
commitment is embodied in our vision and
mission, and formed the foundation of our
corporate strategy to be ‘Customer Focussed’.
Our service orientation was the central element
in the new MAS commercial advertisement,
‘Going Beyond Expectations’, that was launched
in October 2002 and aired in our domestic and
regional markets.
Our focus on quality customer service has
shown results as reflected in our bottom-line
as well as in the number of awards the Airline
and its staff were accorded during the financial
period. In a recent online survey conducted by
the German magazine ‘Reise & Preise’ amongst
over 8,000 seasoned jet-setters, 72 per cent of
whom had flown more than ten times in the
past, MAS was ranked second, outperforming
some of the major airlines in the region. The
survey was the biggest of its kind conducted in
Germany and other German-speaking countries
to assess the standard of the world’s airlines.
In an international air travel survey covering
a total of 4.4 million respondents of 80 national-
ities across the world, which was conducted by
Skytrax Research of London, United Kingdom,
MAS was voted one of the top five airlines in
the ‘Airline of the Year 2003’. This was the first
time that MAS had achieved such a standing.
The Airline was also voted second in the
international airline ranking for ‘Best Economy
Class 2003’ and third for ‘Asia’s Best Airline
2003’. In another survey of 1.8 million
respondents worldwide, also conducted by
Skytrax Research, MAS’ cabin staff were voted
the ‘World’s Best Cabin Staff 2003’ for the third
consecutive year. This award is regarded as the
most coveted award in the aviation industry.
MAS’ B747 pilots also did the Airline proud
during the financial period, adding to the
number of awards that attest to the Airline’s
exemplary service level in international air travel.
The pilots received a special award from the
Manchester Airport Authority in recognition
of their good track and performance records
while operating into and out of Manchester
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Airport. Our pilots were commended for
upholding safety and maintaining a 99 per
cent preferred route to minimise the noise
impact at the airport. One of the outcomes
of this commendation was that MAS achieved
second place out of 15 top airline achievers for
‘Best Departure Tracking’.
MAS’ exemplary service level is reflected in
cargo handling as well. During the financial
year, MASkargo received certification for
three of its world-class services by SIRIM-QAS
International Sdn Bhd. MASkargo’s Animal
Hotel, the only one in Asia and one of three
such facilities in the world that provides state-
of-the-art equipment to handle animals of
various types and sizes, received its ISO 14011
certification. The company’s dedicated one-
stop Express Handling Unit, which can provide
fast handling services within 90 minutes, and
Charter and Planning Unit, capable of freighting
any kind of special cargo trans-shipment to
any part of the world, both received their ISO
9001:2000 certification.
Innovating for
Competitive Advantage
MAS operates in a very dynamic business
environment that requires a constantly fresh
outlook and approach in meeting market
demands. For the Airline to remain competitive
and sustain its financial performance in the
years ahead, we need to continuously innovate
in terms of our product offerings. We have
already begun various initiatives to maintain
our position as one of the world’s premier
international airlines. In August 2003, MAS
unveiled a major programme to upgrade
32 aircraft serving medium and long-haul
destinations that will provide customers with
the ultimate in global air travel. The fittings
and amenities that will be put in place will
substantially boost the already high quality of
products on offer by the Airline. In addition,
we have redesigned our in-flight shopping
catalogue, Temptations, as part of our brand
positioning exercise, launched a check-in
facility for selected customer groups at the
MAS Golden Lounge at London Heathrow
Airport, and refurbished our central ticketing
office at Bangunan MAS in Kuala Lumpur.
We are also poised to enter the super aviation
league with the placement of an order by our
Holding Company, Penerbangan Malaysia
Berhad, of six Airbus A380-800 super-jumbo
passenger planes in December 2003. MAS
shall take delivery of the first plane in 2007.
This sophisticated aircraft uses leading edge
technology that will not only meet the future
demands and expectations of our customers,
but will also provide 15 per cent more range
than the largest aircraft flying today and 20 per
cent lower operating cost per seat kilometre.
While these initiatives are being put in place,
MAS has undertaken a number of innovations
that have added a new dimension to its
products and services. MASkargo’s website has
been enhanced with an interactive capability
that allows customers to transact online business
with the company. In May 2003, Malaysia’s
first air-sea trans-shipment service and the
world’s first ‘airport within a seaport’ concept,
MASkargo’s I-Port, was launched. This facility,
in allowing for the seamless movement of cargo
from regional destinations to Malaysia’s ports
via sea and then delivered to worldwide
destinations by air, should help shippers to
achieve a 40 per cent increase in cost efficiency
as well as faster customs processing and simpler
documentation.
The seamless concept has also been introduced
in the transport of passengers from Kuala
Lumpur city to the Kuala Lumpur International
Airport (KLIA) and vice versa. With the appoint-
ment of MAS as the worldwide General Sales
Agent for the KLIA express train service effective
January 2004, the Airline has been able to offer
a one-stop ticketing facility to all its passengers
globally. On a broader scale, this seamless mode
of travel is helping to advance the national
objective of providing greater cohesion between
air and rail travel in Malaysia for both domestic
and international travellers.
These product and service innovations are being
made possible through the enabling use of
technology. In this respect, MAS has joined
the ranks of airlines that provide customers
with Internet booking. This facility was launched
in January 2004 for travel between selected
domestic destinations and will be gradually
introduced to other domestic routes.
Extending Horizons for
Market Reach ch
Always bearing in mind our responsibility as
Malaysia’s national airline, the need to further
develop KLIA as an international hub is a critical
element of our sales and marketing strategies.
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In doing this, we have to take note of the
aggressive developments in neighbouring
countries to promote their respective airports.
At the same time, it is important to follow the
growth of the region’s low-cost carriers to pre-
vent them from encroaching into our markets.
Therefore, as we continuously improve our
already high quality service level and product
offerings, we are extending our market reach
and enhancing connectivity by increasing flight
frequencies and adding new destinations. We
have also begun developing other Malaysian
airports, such as Penang, Kota Kinabalu,
Kuching and Langkawi, as secondary hubs or
international gateways into the country.
While Asia has not opened up its skies to the
extent of Europe or the United States of
America, aviation in the region is becoming
increasingly liberalised. At MAS, we are re-
evaluating and redesigning our network to
maximise opportunities arising from bilateral
agreements. We have been actively developing
strategic regional alliances, examples of which
are the alliance with Garuda to tap the vast
potential of the Indonesian market and with
ANA to pave the way for MAS penetration into
the Japanese market. At the global level, we
continue to review the strategic considerations
and processes inherent in a global alliance
before making any long-term commitment
towards such an arrangement. We expect to
resolve our position on this matter soon.
As we develop our markets, we are resolute in
our position to remain a premier international
airline of high quality. Our sales tactics, as such,
do not include discounting fares although we
will offer fire sales from time to time to counter
market activities. Reactionary fare discounting
will have a negative impact on our profitability
and our focus, therefore, will continue to be on
reducing costs, developing new fare structures
to meet the needs of a wider market spectrum,
innovating and introducing new product and
service offerings. We will also further develop
our distribution channels to achieve our business
and marketing objectives, and the recent
availability of Internet booking for our customers
is a move in this direction.
Our efforts at rebuilding our charter services
were rewarded when we succeeded in winning
back the contract to operate charter flights for
the Haj 2004 season. We had pioneered this
business in 1974 and had operated the service
for many years. The agreement with Lembaga
Tabung Haji was signed in January 2003,
providing for MAS to operate 126 flights in
two phases. We are appreciative of the trust
being placed in the Airline to undertake
this momentous responsibility of helping
thousands of Muslim pilgrims in fulfilling
their sacred obligation.
Business Challenges & Strategies
Our business plan and strategies are geared
towards tapping new opportunities, with a
primary focus on China, India, the Middle East
and Japan. China is regarded by the entire
aviation industry as the greatest area of
opportunity and it is critical that we take
advantage of our proximity, the attractiveness
of Malaysia as a tourist destination and the
special relationship that our government and
people have with the country. We expect to
be inaugurating new destinations, adding
capacity and increasing frequencies to existing
ones in the near future.
The success of the first ever ‘MAS Travel Fair’
in Kuala Lumpur in early 2004 had generated a
phenomenal response from both the trade and
public. The positive publicity and strong sales
will ensure that we continue with this very viable
marketing approach. We will also be stepping
up promotions for the young travellers’ market
segment through our re-launched Grads
programme to increase our brand recognition
as well as to retain these customers as they
grow into adulthood.
For the coming years, we will have to increasingly
depend on the quality of our customer service
and our product offerings to protect our market
position and ensure our profitability. The develop-
ment of our markets will be premised on a
strategy that emphasises MAS’ comfort and
reliability. While the performance of our crew has
been rated as very good in various international
surveys and our own Customer Satisfaction Index,
we do not want to be complacent in other service
aspects of our business like seating comfort, in-
flight entertainment and food quality.
The upgrading exercise of our aircraft mentioned
earlier will substantially help to increase
customers’ satisfaction in regard to seats and
in-flight entertainment. The quality of food served
on the Airline should see further enhancements,
as 70 per cent of MAS Catering Sdn Bhd is now in
the hands of Gubahan Saujana Sdn Bhd, a joint-
venture between Bumiputra entrepreneur Fahim
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Capital Sdn Bhd and LSG Skychefs, the world’s
largest in-flight service provider.
At the broader level, MAS still needs to factor
in the continuing worldwide political uncertain-
ties in its business plans and strategies. These
uncertainties have already generated an
increase in the price of oil, which threatens to
significantly affect our revenue. At the Airline,
a short-term levy measure has already been
instituted to help counter such effects.
Over the past two years, MAS has succeeded
in reinventing and re-energising itself, and the
foundation of a new corporate environment
has been laid. Much of this success was due to
the leadership of the late Tan Sri Dato’ Seri
Azizan bin Zainul Abidin, who had been an
inspiration to us all at MAS. I was privileged to
work for Tan Sri for a number of years and, in
the last few months in particular, have greatly
benefited from his wise guidance and strategic
thinking. He steered us through a difficult
period in our corporate history, provided us
with a new focus, supported our many initiatives
at improving our operations and enhancing
our products and services. And he did it all
with such integrity and humility. I am sure that
everyone at MAS shares my deep sense of loss
at Tan Sri Azizan’s passing away. It is now our
responsibility to ensure that Tan Sri’s efforts
in rebuilding MAS have not been in vain and
that we will continue with the legacy that he
left behind.
As we close the books on this financial year,
I wish to express my appreciation to my
predecessor, Dato’ Md Nor bin Md Yusof, for his
strong leadership, the Board of Directors for its
confidence in the Airline’s management and
staff, the shareholders for their support, as well
as my MAS colleagues for their commitment
towards our initiatives.
On behalf of my management and staff,
I would like to take this opportunity to welcome
Dato’ Dr Mohamed Munir bin Abdul Majid as
our new Chairman. Being already a member of
the Board prior to this appointment, Dato’ Dr
Mohamed Munir is familiar with our business
and operations. We look forward to further
benefiting from his extensive economic and
financial expertise and, with his guidance and
foresight, we will continue to sustain our
enthusiasm for change and innovation, which
will translate into greater growth prospects in
the years ahead.
Dato’ Ahmad Fuaad bin Mohd Dahalan
Managing Director
Over the past two
years, MAS has
succeeded in
reinventing and
re-energising
itself, and the
foundation of a
new corporate
environment has
been laid
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Dato’ Md Nor bin Md Yusof joined Malaysian
Airline System Berhad (MAS) on 15 February
2001 with the singular objective of turning the
Airline around. Within weeks, he unveiled a
blueprint for corporate recovery. By 30 July
2002, he announced the Widespread Asset
Unbundling plan and the reorganisation of the
Group’s corporate structure. In a short span of
time, he won management and staff support in
re-energising the Group to move forward.
MAS’ return to profitability over the last and
this financial year is a testament to this success.
Having realised his objective at MAS, Dato’ Md
Nor moved on to the Securities Commission as
Chairman effective 1 April 2004. His humility,
kindness and courtesy is greatly missed. While
displaying a high degree of dedication and
discipline as he carried out his responsibilities,
Dato’ Md Nor never failed to acknowledge all
staff, regardless of their rank, whom he met in
the course of his duties.
Dato’ Md Nor was always conscious that he
was entrusted with revitalising a national icon
and he recognised that there was a tremendous
will to preserve MAS. He believed in the Airline’s
intrinsic merit, its professionalism and the
unrivalled quality of its services. These were
elements that could not be copied because
they were personalised and reflected a
Malaysian charm. This belief was the source
of his confidence in realising his objective.
During his brief but strong stewardship,
Dato’ Md Nor succeeded in repositioning
MAS as a premier global airline with an award-
winning quality of service. The momentum
that he created will continue in the capable
hands of his successor, Dato’ Ahmad Fuaad
bin Mohd Dahalan.
D ATO ’ MD N OR BI N MD YUS O F :
DI S T I NC T I V E AND S T RO NG S TE W A R D S H I P
C O R P O R A T E REV I E W
C O R P O R A TE C ALENDAR OF EVENT S
April 2003
Malaysia Airline System
Berhad’s (MAS)
Widespread Assets
Unbundling restructuring
exercise was named the
‘Asian Corporate Finance
Deal of the Year’ by
Airfinance Journal,
the leading financial
magazine serving
the commercial
aviation industry.
1 April 2003
MAS signed an
agreement with Thales
Training & Simulation
for the purchase of
another B747-400 flight
simulator.
2 April 2003
MASkargo signed new
Cargo Sales Agency
Agreements with freight
forwarding agents.
16-17 April 2003
MAS’ Worldwide Business
Forum was held at the
Malaysia Airlines (MAS)
Academy, Kelana Jaya,
Selangor.
May 2003
MAS’ in-flight satay
was voted ‘Best Airline
Signature Dish 2003’
by Skytrax Research, UK,
in its Onboard Services
Awards Category.
20 May 2003
MAS announced an
after-tax profit of
RM339.1 million for
the financial year ended
31 March 2003.
27 May 2003
MASkargo’s I-Port, the
first air-sea transhipment
service, was launched by
the Minister of Transport,
Dato’ Seri Ling Liong Sik.
28 May 2003
MAS Golden Holidays
unveiled ‘Great
Getaways’, a new
marketing package
to boost domestic
tourism to 22
selected destinations
within Malaysia.
June 2003
MAS was conferred
the ‘Best Cabin Staff
2003’ award by
Skytrax Research.
12 June 2003 6
The Minister of Culture,
Arts & Tourism, Dato’
Paduka Abdul Kadir
Sheikh Fadzir, launched
‘Showcase Malaysia VI’,
a collaborative effort
between MAS and
ground operators to
increase tourist arrivals
into the country.
19 June 2003
MAS and Garuda
Indonesia signed a
Memorandum of
Understanding (MOU)
in Jakarta, Indonesia,
for higher-level coopera-
tion and collaboration
between the two airlines.
8 August 2003 5
MAS unveiled a major
programme to upgrade
32 aircraft serving
medium and long-haul
destinations at a signing
ceremony with B/E
Aerospace Incorporated
(USA) and Matsushita
Avionics Systems
Corporation.
15 August 2003 6
Signing of Marketing
Agreement between MAS
and Jeppesen Academy,
a subsidiary of Boeing
Aviation Services’
business unit, giving
MAS the rights to
market Jeppesen’s
courses and conduct
them at the Malaysia
Airlines Academy.
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C O R P O R A T E REVI E W
4 September 2003 5
A ten-year Information
Technology Partnership
Agreement was signed
between MAS and IBM
for the latter to provide
services to support MAS’
future business and
technology initiatives.
8 September 2003
MAS’ 32nd Annual
General Meeting.
25 September 2003 5
Signing of an agreement
with Lembaga Tabung
Haji for MAS to operate
Haj charter flights
between Malaysia and
Jeddah, Saudi Arabia,
for three Haj seasons
commencing 2004.
25 September 2003 6
Finalisation of the sale by
MAS of a 70% share in
MAS Catering Sdn Bhd
to Gubahan Saujana
Sdn Bhd, a joint-venture
between Fahim Capital
Sdn Bhd and LSG Asia
GmbH, a subsidiary of
LSG Lufthansa Service
Holding AG (LSG
Sky Chefs), the world’s
largest provider of
in-flight catering.
27 November 2003
MAS was awarded
‘The Most Improved
Company’ in three of
the four ‘Best Company –
Investor Relations’
categories in the 2003
Annual Institutional
Investor Research
Group Asia Equities
Investment Report.
29 January 2004
MAS announced the
upgrading of its website,
www.malaysiaairlines.com,
to incorporate an online
booking facility.
13 February 2004 5
The ‘Grads’ programme,
offering a student
discount scheme
and product offerings
to tap into this market
segment, was re-
introduced by MAS
at Bukit Bintang Walk,
Kuala Lumpur.
31-31 March 2004
MAS’ Worldwide
Business Forum was
held in Kuala Lumpur.
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2 September 2003 6
MAS signed a Master
Agreement with Garuda
Indonesia to enhance
commercial cooperation
in various areas, includ-
ing joint development of
networks, products,
services and marketing
programmes.
doc_232814359.pdf
The success achieved in this financial period 2003-2004 was not without its challenges.
C HAI RMAN’ S MES S AGE
C O R P O R A T E REV I EW
We have good reason to be pleased with the
performance of Malaysian Airline System Berhad
(MAS) for the financial year ended 31 March
2004. MAS recorded an after-tax profit of
RM461.1 million for the period, the highest
profit attained since the Airline was listed in
1985 on Bursa Malaysia. This has been the
second consecutive financial period that MAS
has achieved a profit since the Widespread
Asset Unbundling scheme was undertaken in
November 2002. While it is undeniable that the
innovative financial restructuring exercise has
made the turnaround possible, credit should
be given to the Airline’s management and staff
at all levels for their commitment towards the
recovery programme.
Most of all, our gratitude goes to the late Tan Sri
Azizan bin Zainul Abidin, whose visionary leader-
ship brought MAS to where we are now. His
sudden demise has left the nation without
one of its most distinguished, dedicated and
honourable sons, and the Airline without a
most dedicated and exemplary leader. Tan Sri’s
strength and resoluteness, buttressed by his
strict code of ethics and softened by a true
humility, contributed much to MAS’ reputation
and integrity as a professional corporate entity.
He guided the Airline through a turbulent period
and brought it back to being an international
airline of world-class standard. This success is his
legacy, one that the Board of Directors and I will
strive to uphold and build upon.
The success achieved in this financial period
2003/2004 was not without its challenges. MAS’
operations felt the impact of the outbreak of
Severe Acute Respiratory Syndrome (SARS) in
the region. Worldwide political uncertainties and
terrorism were destabilising factors in all aspects
of life. There was also much frustration with
the unilateral safety and security regulations
imposed by the United States administration on
the aviation industry, which added to the cost
of doing business. It has been fortunate that,
despite these challenges, the confidence to
travel by air continued to grow, which has
helped us in sustaining our profitability.
The strategies put in place over the last two
years to move MAS forward have proven to
be successful, as evidenced by the number of
service-related international awards won by
our cabin and technical crew. It is the intense
focus on service and customers that sets MAS
apart from its competitors. MAS’ success during
the financial period was also internationally
recognised in other aspects. The Institutional
Investor Research Group Asia ranked the Airline
highly in three out of four categories in the
Best Company Investor Relations awards.
MAS was declared the ‘Most Improved
Company in the Sell-Side View (Industrial
Section)’, the ‘Most Improved Company of
Malaysia for Sell-Side View’ and the ‘Most
Improved Company of Malaysia for Buy-Side
View’. These awards are testimony to the
strong investor confidence in the Airline’s
financial management, corporate governance
and risk management.
8
9
10
Such awards were the result of much hard
work, bolstered by confidence in our ability to
maintain the Airline’s recovery momentum and
a strong belief in our capability to deliver a high
quality of service to our customers. These factors
will continue to put us in good stead as MAS
positions itself for further growth. Air travel
worldwide is forecasted to grow at an annual
rate of four per cent, with air travel in Asia
expanding by six per cent. We have been
building up our capacity in the Asian region
through regional alliances to take advantage
of the opportunities that will arise. In doing so,
we have been mindful of our social responsibility
towards the nation. As such, our market growth
strategies, devised to meet business objectives,
have also been aimed at building the Kuala
Lumpur International Airport as an important
international hub and developing other
Malaysian airports as secondary hubs or
international gateways into Malaysia. We
have also been aligning some of our product
and service development with port and rail
facilities to promote the seamless movement
of both cargo and passengers.
In addition to routes and destinations, product
enhancements form a major aspect of MAS’
mission to provide an air travel service that ranks
among the best in the world in terms of safety,
comfort and punctuality. We will be closer
towards fulfilling this mission when a major
upgrading programme of our fleet of aircraft,
unveiled during the financial year, is completed
and when we take delivery of the recently
ordered Airbus A380-800 aircraft. Such
initiatives to help the Airline maintain its
position as a premier brand in the aviation
industry include utilising the power of the
Internet and technology to reach out to
potential and existing customers.
While we savour our successes and look forward
to a better future, it is important that we remind
ourselves of the time when we suffered losses for
five years, lest we start resting on our laurels
and become complacent. MAS is doing business
in a very demanding environment, in which the
Airline is in relentless competition with others
to provide air travellers with state-of-the art
amenities and facilities, the best service and the
most reasonable prices. As we strive to meet
these exacting conditions, our customers are
growing more sophisticated and discerning.
It is therefore imperative that we do not let
our guard down. We have to continue being
aware and vigilant, open to change and
innovation, and committed to serving our
customers beyond their expectations.
It was in this light that the MAS Board was
presented with the Airline’s Refined Broad
Strategies in February 2004. Management is
confident that ‘Customer Focus’ has become
embedded in the Airline’s corporate culture.
The emphasis therefore can move on to the
Airline’s stakeholders, a term that covers
commercial customers, shareholders as well
as the Government, amongst others, and on
satisfying customers through product reliability
and hospitality. Our strategies will aim to
position MAS as a global carrier with a presence
in areas with growth potential and profitability.
Customer confidence in the Airline will be
maintained through its safe operations.
Human capital will be further enhanced since
the Airline’s staff are instrumental in forging
it towards continued success and technology
will continue to be a key business enabler.
Last but not least, profitability will be sustained
through a sound financial system.
These strategies will show management and
staff the way forward. For the present, I wish to
thank our staff, management, shareholders and
indeed all stakeholders, whose support and
loyalty have brought MAS through yet another
difficult period to achieve a commendable
performance. We have also much to thank the
previous Managing Director of MAS, Dato’ Md
Nor bin Md Yusof, for having steered MAS to
this point. He had successfully brought the
Airline out of its financial conundrum and
paved the way for it to become a robust entity.
His dedication and professionalism was an
inspiration to all who had worked with him.
Dato’ Md Nor’s term ended effective 1 April
2004 and we all wish him the best as he under-
takes yet another challenging responsibility as
Chairman of the Securities Commission.
The MAS management is now under the
capable leadership of Dato’ Ahmad Fuaad bin
Mohd Dahalan, who brings his extensive
experience in the Airline to the position of
Managing Director. He has served MAS since
July 1973 and has accumulated a wealth of
knowledge in international aviation. He has
taken on the mantle at a critical juncture of
the Airline’s growth, as MAS is now not only
faced with the continuing worldwide political
uncertainty but has to counter the financial
impact of fuel prices that began increasing in
April 2004. Nonetheless, with a committed
management team and a loyal and dedicated
staff force, MAS will continue to provide high
quality products and services in all aspects of
its operations and to record strong financial
results in the years ahead.
Dato’ Dr Mohamed Munir bin Abdul Majid
Chairman
...I wish to thank
our staff, manage -
ment, shareholders
and indeed all
stakeholders,
whose support
and loyalty
have brought
MAS through yet
another difficult
period to achieve
a commendable
performance”
“
11
12
C O R P O R A T E REVI EW
13
MAN AGI N G DI REC T OR’ S REPORT
The financial year ended 31 March 2004 was
one of significant achievements for Malaysian
Airline System Berhad (MAS). The most notable
was the after-tax profit of RM461.1 million
attained for the period, the best performance
since the Airline was listed on Bursa Malaysia
in 1985. This achievement is all the more
commendable, given the worldwide scenario
that was marked by the onset of the American-
led war against Iraq and the outbreak of
Severe Acute Respiratory Syndrome or SARS.
We have succeeded in recording a profit for
two consecutive financial periods, after the five
years of losses suffered due to the Asian financial
crisis of the late 1990s. This is a sign that
MAS has made a definite turnaround, thanks
to the implementation of the Widespread
Asset Unbundling exercise in November 2002
and the strategies subsequently put in place
to bring MAS back to prominence in the
aviation industry.
Service Beyond Expectations
One of the reasons for our achievement was
our staff’s commitment towards ensuring that
MAS continues to be renowned for its personal
touch, warmth and efficiency and for providing
air travel service that ranks among the best in
terms of safety, comfort and punctuality. This
commitment is embodied in our vision and
mission, and formed the foundation of our
corporate strategy to be ‘Customer Focussed’.
Our service orientation was the central element
in the new MAS commercial advertisement,
‘Going Beyond Expectations’, that was launched
in October 2002 and aired in our domestic and
regional markets.
Our focus on quality customer service has
shown results as reflected in our bottom-line
as well as in the number of awards the Airline
and its staff were accorded during the financial
period. In a recent online survey conducted by
the German magazine ‘Reise & Preise’ amongst
over 8,000 seasoned jet-setters, 72 per cent of
whom had flown more than ten times in the
past, MAS was ranked second, outperforming
some of the major airlines in the region. The
survey was the biggest of its kind conducted in
Germany and other German-speaking countries
to assess the standard of the world’s airlines.
In an international air travel survey covering
a total of 4.4 million respondents of 80 national-
ities across the world, which was conducted by
Skytrax Research of London, United Kingdom,
MAS was voted one of the top five airlines in
the ‘Airline of the Year 2003’. This was the first
time that MAS had achieved such a standing.
The Airline was also voted second in the
international airline ranking for ‘Best Economy
Class 2003’ and third for ‘Asia’s Best Airline
2003’. In another survey of 1.8 million
respondents worldwide, also conducted by
Skytrax Research, MAS’ cabin staff were voted
the ‘World’s Best Cabin Staff 2003’ for the third
consecutive year. This award is regarded as the
most coveted award in the aviation industry.
MAS’ B747 pilots also did the Airline proud
during the financial period, adding to the
number of awards that attest to the Airline’s
exemplary service level in international air travel.
The pilots received a special award from the
Manchester Airport Authority in recognition
of their good track and performance records
while operating into and out of Manchester
14
Airport. Our pilots were commended for
upholding safety and maintaining a 99 per
cent preferred route to minimise the noise
impact at the airport. One of the outcomes
of this commendation was that MAS achieved
second place out of 15 top airline achievers for
‘Best Departure Tracking’.
MAS’ exemplary service level is reflected in
cargo handling as well. During the financial
year, MASkargo received certification for
three of its world-class services by SIRIM-QAS
International Sdn Bhd. MASkargo’s Animal
Hotel, the only one in Asia and one of three
such facilities in the world that provides state-
of-the-art equipment to handle animals of
various types and sizes, received its ISO 14011
certification. The company’s dedicated one-
stop Express Handling Unit, which can provide
fast handling services within 90 minutes, and
Charter and Planning Unit, capable of freighting
any kind of special cargo trans-shipment to
any part of the world, both received their ISO
9001:2000 certification.
Innovating for
Competitive Advantage
MAS operates in a very dynamic business
environment that requires a constantly fresh
outlook and approach in meeting market
demands. For the Airline to remain competitive
and sustain its financial performance in the
years ahead, we need to continuously innovate
in terms of our product offerings. We have
already begun various initiatives to maintain
our position as one of the world’s premier
international airlines. In August 2003, MAS
unveiled a major programme to upgrade
32 aircraft serving medium and long-haul
destinations that will provide customers with
the ultimate in global air travel. The fittings
and amenities that will be put in place will
substantially boost the already high quality of
products on offer by the Airline. In addition,
we have redesigned our in-flight shopping
catalogue, Temptations, as part of our brand
positioning exercise, launched a check-in
facility for selected customer groups at the
MAS Golden Lounge at London Heathrow
Airport, and refurbished our central ticketing
office at Bangunan MAS in Kuala Lumpur.
We are also poised to enter the super aviation
league with the placement of an order by our
Holding Company, Penerbangan Malaysia
Berhad, of six Airbus A380-800 super-jumbo
passenger planes in December 2003. MAS
shall take delivery of the first plane in 2007.
This sophisticated aircraft uses leading edge
technology that will not only meet the future
demands and expectations of our customers,
but will also provide 15 per cent more range
than the largest aircraft flying today and 20 per
cent lower operating cost per seat kilometre.
While these initiatives are being put in place,
MAS has undertaken a number of innovations
that have added a new dimension to its
products and services. MASkargo’s website has
been enhanced with an interactive capability
that allows customers to transact online business
with the company. In May 2003, Malaysia’s
first air-sea trans-shipment service and the
world’s first ‘airport within a seaport’ concept,
MASkargo’s I-Port, was launched. This facility,
in allowing for the seamless movement of cargo
from regional destinations to Malaysia’s ports
via sea and then delivered to worldwide
destinations by air, should help shippers to
achieve a 40 per cent increase in cost efficiency
as well as faster customs processing and simpler
documentation.
The seamless concept has also been introduced
in the transport of passengers from Kuala
Lumpur city to the Kuala Lumpur International
Airport (KLIA) and vice versa. With the appoint-
ment of MAS as the worldwide General Sales
Agent for the KLIA express train service effective
January 2004, the Airline has been able to offer
a one-stop ticketing facility to all its passengers
globally. On a broader scale, this seamless mode
of travel is helping to advance the national
objective of providing greater cohesion between
air and rail travel in Malaysia for both domestic
and international travellers.
These product and service innovations are being
made possible through the enabling use of
technology. In this respect, MAS has joined
the ranks of airlines that provide customers
with Internet booking. This facility was launched
in January 2004 for travel between selected
domestic destinations and will be gradually
introduced to other domestic routes.
Extending Horizons for
Market Reach ch
Always bearing in mind our responsibility as
Malaysia’s national airline, the need to further
develop KLIA as an international hub is a critical
element of our sales and marketing strategies.
15
In doing this, we have to take note of the
aggressive developments in neighbouring
countries to promote their respective airports.
At the same time, it is important to follow the
growth of the region’s low-cost carriers to pre-
vent them from encroaching into our markets.
Therefore, as we continuously improve our
already high quality service level and product
offerings, we are extending our market reach
and enhancing connectivity by increasing flight
frequencies and adding new destinations. We
have also begun developing other Malaysian
airports, such as Penang, Kota Kinabalu,
Kuching and Langkawi, as secondary hubs or
international gateways into the country.
While Asia has not opened up its skies to the
extent of Europe or the United States of
America, aviation in the region is becoming
increasingly liberalised. At MAS, we are re-
evaluating and redesigning our network to
maximise opportunities arising from bilateral
agreements. We have been actively developing
strategic regional alliances, examples of which
are the alliance with Garuda to tap the vast
potential of the Indonesian market and with
ANA to pave the way for MAS penetration into
the Japanese market. At the global level, we
continue to review the strategic considerations
and processes inherent in a global alliance
before making any long-term commitment
towards such an arrangement. We expect to
resolve our position on this matter soon.
As we develop our markets, we are resolute in
our position to remain a premier international
airline of high quality. Our sales tactics, as such,
do not include discounting fares although we
will offer fire sales from time to time to counter
market activities. Reactionary fare discounting
will have a negative impact on our profitability
and our focus, therefore, will continue to be on
reducing costs, developing new fare structures
to meet the needs of a wider market spectrum,
innovating and introducing new product and
service offerings. We will also further develop
our distribution channels to achieve our business
and marketing objectives, and the recent
availability of Internet booking for our customers
is a move in this direction.
Our efforts at rebuilding our charter services
were rewarded when we succeeded in winning
back the contract to operate charter flights for
the Haj 2004 season. We had pioneered this
business in 1974 and had operated the service
for many years. The agreement with Lembaga
Tabung Haji was signed in January 2003,
providing for MAS to operate 126 flights in
two phases. We are appreciative of the trust
being placed in the Airline to undertake
this momentous responsibility of helping
thousands of Muslim pilgrims in fulfilling
their sacred obligation.
Business Challenges & Strategies
Our business plan and strategies are geared
towards tapping new opportunities, with a
primary focus on China, India, the Middle East
and Japan. China is regarded by the entire
aviation industry as the greatest area of
opportunity and it is critical that we take
advantage of our proximity, the attractiveness
of Malaysia as a tourist destination and the
special relationship that our government and
people have with the country. We expect to
be inaugurating new destinations, adding
capacity and increasing frequencies to existing
ones in the near future.
The success of the first ever ‘MAS Travel Fair’
in Kuala Lumpur in early 2004 had generated a
phenomenal response from both the trade and
public. The positive publicity and strong sales
will ensure that we continue with this very viable
marketing approach. We will also be stepping
up promotions for the young travellers’ market
segment through our re-launched Grads
programme to increase our brand recognition
as well as to retain these customers as they
grow into adulthood.
For the coming years, we will have to increasingly
depend on the quality of our customer service
and our product offerings to protect our market
position and ensure our profitability. The develop-
ment of our markets will be premised on a
strategy that emphasises MAS’ comfort and
reliability. While the performance of our crew has
been rated as very good in various international
surveys and our own Customer Satisfaction Index,
we do not want to be complacent in other service
aspects of our business like seating comfort, in-
flight entertainment and food quality.
The upgrading exercise of our aircraft mentioned
earlier will substantially help to increase
customers’ satisfaction in regard to seats and
in-flight entertainment. The quality of food served
on the Airline should see further enhancements,
as 70 per cent of MAS Catering Sdn Bhd is now in
the hands of Gubahan Saujana Sdn Bhd, a joint-
venture between Bumiputra entrepreneur Fahim
16
Capital Sdn Bhd and LSG Skychefs, the world’s
largest in-flight service provider.
At the broader level, MAS still needs to factor
in the continuing worldwide political uncertain-
ties in its business plans and strategies. These
uncertainties have already generated an
increase in the price of oil, which threatens to
significantly affect our revenue. At the Airline,
a short-term levy measure has already been
instituted to help counter such effects.
Over the past two years, MAS has succeeded
in reinventing and re-energising itself, and the
foundation of a new corporate environment
has been laid. Much of this success was due to
the leadership of the late Tan Sri Dato’ Seri
Azizan bin Zainul Abidin, who had been an
inspiration to us all at MAS. I was privileged to
work for Tan Sri for a number of years and, in
the last few months in particular, have greatly
benefited from his wise guidance and strategic
thinking. He steered us through a difficult
period in our corporate history, provided us
with a new focus, supported our many initiatives
at improving our operations and enhancing
our products and services. And he did it all
with such integrity and humility. I am sure that
everyone at MAS shares my deep sense of loss
at Tan Sri Azizan’s passing away. It is now our
responsibility to ensure that Tan Sri’s efforts
in rebuilding MAS have not been in vain and
that we will continue with the legacy that he
left behind.
As we close the books on this financial year,
I wish to express my appreciation to my
predecessor, Dato’ Md Nor bin Md Yusof, for his
strong leadership, the Board of Directors for its
confidence in the Airline’s management and
staff, the shareholders for their support, as well
as my MAS colleagues for their commitment
towards our initiatives.
On behalf of my management and staff,
I would like to take this opportunity to welcome
Dato’ Dr Mohamed Munir bin Abdul Majid as
our new Chairman. Being already a member of
the Board prior to this appointment, Dato’ Dr
Mohamed Munir is familiar with our business
and operations. We look forward to further
benefiting from his extensive economic and
financial expertise and, with his guidance and
foresight, we will continue to sustain our
enthusiasm for change and innovation, which
will translate into greater growth prospects in
the years ahead.
Dato’ Ahmad Fuaad bin Mohd Dahalan
Managing Director
Over the past two
years, MAS has
succeeded in
reinventing and
re-energising
itself, and the
foundation of a
new corporate
environment has
been laid
17
Dato’ Md Nor bin Md Yusof joined Malaysian
Airline System Berhad (MAS) on 15 February
2001 with the singular objective of turning the
Airline around. Within weeks, he unveiled a
blueprint for corporate recovery. By 30 July
2002, he announced the Widespread Asset
Unbundling plan and the reorganisation of the
Group’s corporate structure. In a short span of
time, he won management and staff support in
re-energising the Group to move forward.
MAS’ return to profitability over the last and
this financial year is a testament to this success.
Having realised his objective at MAS, Dato’ Md
Nor moved on to the Securities Commission as
Chairman effective 1 April 2004. His humility,
kindness and courtesy is greatly missed. While
displaying a high degree of dedication and
discipline as he carried out his responsibilities,
Dato’ Md Nor never failed to acknowledge all
staff, regardless of their rank, whom he met in
the course of his duties.
Dato’ Md Nor was always conscious that he
was entrusted with revitalising a national icon
and he recognised that there was a tremendous
will to preserve MAS. He believed in the Airline’s
intrinsic merit, its professionalism and the
unrivalled quality of its services. These were
elements that could not be copied because
they were personalised and reflected a
Malaysian charm. This belief was the source
of his confidence in realising his objective.
During his brief but strong stewardship,
Dato’ Md Nor succeeded in repositioning
MAS as a premier global airline with an award-
winning quality of service. The momentum
that he created will continue in the capable
hands of his successor, Dato’ Ahmad Fuaad
bin Mohd Dahalan.
D ATO ’ MD N OR BI N MD YUS O F :
DI S T I NC T I V E AND S T RO NG S TE W A R D S H I P
C O R P O R A T E REV I E W
C O R P O R A TE C ALENDAR OF EVENT S
April 2003
Malaysia Airline System
Berhad’s (MAS)
Widespread Assets
Unbundling restructuring
exercise was named the
‘Asian Corporate Finance
Deal of the Year’ by
Airfinance Journal,
the leading financial
magazine serving
the commercial
aviation industry.
1 April 2003
MAS signed an
agreement with Thales
Training & Simulation
for the purchase of
another B747-400 flight
simulator.
2 April 2003
MASkargo signed new
Cargo Sales Agency
Agreements with freight
forwarding agents.
16-17 April 2003
MAS’ Worldwide Business
Forum was held at the
Malaysia Airlines (MAS)
Academy, Kelana Jaya,
Selangor.
May 2003
MAS’ in-flight satay
was voted ‘Best Airline
Signature Dish 2003’
by Skytrax Research, UK,
in its Onboard Services
Awards Category.
20 May 2003
MAS announced an
after-tax profit of
RM339.1 million for
the financial year ended
31 March 2003.
27 May 2003
MASkargo’s I-Port, the
first air-sea transhipment
service, was launched by
the Minister of Transport,
Dato’ Seri Ling Liong Sik.
28 May 2003
MAS Golden Holidays
unveiled ‘Great
Getaways’, a new
marketing package
to boost domestic
tourism to 22
selected destinations
within Malaysia.
June 2003
MAS was conferred
the ‘Best Cabin Staff
2003’ award by
Skytrax Research.
12 June 2003 6
The Minister of Culture,
Arts & Tourism, Dato’
Paduka Abdul Kadir
Sheikh Fadzir, launched
‘Showcase Malaysia VI’,
a collaborative effort
between MAS and
ground operators to
increase tourist arrivals
into the country.
19 June 2003
MAS and Garuda
Indonesia signed a
Memorandum of
Understanding (MOU)
in Jakarta, Indonesia,
for higher-level coopera-
tion and collaboration
between the two airlines.
8 August 2003 5
MAS unveiled a major
programme to upgrade
32 aircraft serving
medium and long-haul
destinations at a signing
ceremony with B/E
Aerospace Incorporated
(USA) and Matsushita
Avionics Systems
Corporation.
15 August 2003 6
Signing of Marketing
Agreement between MAS
and Jeppesen Academy,
a subsidiary of Boeing
Aviation Services’
business unit, giving
MAS the rights to
market Jeppesen’s
courses and conduct
them at the Malaysia
Airlines Academy.
18
C O R P O R A T E REVI E W
4 September 2003 5
A ten-year Information
Technology Partnership
Agreement was signed
between MAS and IBM
for the latter to provide
services to support MAS’
future business and
technology initiatives.
8 September 2003
MAS’ 32nd Annual
General Meeting.
25 September 2003 5
Signing of an agreement
with Lembaga Tabung
Haji for MAS to operate
Haj charter flights
between Malaysia and
Jeddah, Saudi Arabia,
for three Haj seasons
commencing 2004.
25 September 2003 6
Finalisation of the sale by
MAS of a 70% share in
MAS Catering Sdn Bhd
to Gubahan Saujana
Sdn Bhd, a joint-venture
between Fahim Capital
Sdn Bhd and LSG Asia
GmbH, a subsidiary of
LSG Lufthansa Service
Holding AG (LSG
Sky Chefs), the world’s
largest provider of
in-flight catering.
27 November 2003
MAS was awarded
‘The Most Improved
Company’ in three of
the four ‘Best Company –
Investor Relations’
categories in the 2003
Annual Institutional
Investor Research
Group Asia Equities
Investment Report.
29 January 2004
MAS announced the
upgrading of its website,
www.malaysiaairlines.com,
to incorporate an online
booking facility.
13 February 2004 5
The ‘Grads’ programme,
offering a student
discount scheme
and product offerings
to tap into this market
segment, was re-
introduced by MAS
at Bukit Bintang Walk,
Kuala Lumpur.
31-31 March 2004
MAS’ Worldwide
Business Forum was
held in Kuala Lumpur.
19
2 September 2003 6
MAS signed a Master
Agreement with Garuda
Indonesia to enhance
commercial cooperation
in various areas, includ-
ing joint development of
networks, products,
services and marketing
programmes.
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