Moving the World's Cargo

O P E R A TIONS REVIEW : CARGO 74 MOVING THE WORLD’S CARGO A Better Performance MASkargo continued its revenue growth and consolidated its position in major markets during the financial year. The market situation was very volatile for the cargo business due to the SARS outbreak, the Middle East crisis, the appreciation of the Euro against the US dollar and the escalation in fuel prices. Nonetheless, a series of initiatives put in place, such as realigning the Company’s freighter services to dominate certain key markets, expanding the Priority Business Centre to Penang and exploiting e-commerce, helped the Company in registering double-digit growth. The Company also added three more leased B747-200 freighters into service during the financial year, making it a fleet of eight B747-200F. The eighth B747-200 freighter entered service in late March 2004. For the year under review, MASkargo recorded an 18% increase in profit over that of the previous financial year. Cargo volume increased by 10.4% to 569,068 tonnes, a commendable growth when compared with the industry’s average annual growth of around 4% to 5%. Trans-shipment growth increased from 49.8% to 53.8%, which augurs well for the development of Kuala Lumpur International Airport (KLIA) as a major trans-shipment hub. Such growth was driven by a combination of tonnage growth and stabilising improvements in value creation. Load tonne kilometer (LTKM) and revenue for belly domestic flights increased due to the introduction of wide-body flights into East Malaysia. The improvement in operational quality at the Advanced Cargo Centre, which saw the reduction of mishandled cargo to an 75 During the year under review , the Advanced Cargo Centre (ACC) at KLIA was already operating at about 85% capacity and exceeding 90% during peak periods A promise to be better internationally acceptable level of 0.19%, also Warehousing Capacity 76 helped. The sudden surge in capacity had put tremendous pressure to yield and load factor. During the year under review, the Advanced The surge in cargo demand happened during Cargo Centre (ACC) at KLIA was already the traditional peak periods of November operating at about 85% capacity and exceeding and part of December. However, throughout 90% during peak periods. The existing the year, demand out of Europe continued warehouse is reaching its capacity limit of to be weak. 650,000 kg per annum. Plans are underway to extend the ACC, scheduled for completion The demand for airfreight is expected to grow by 2007, to accommodate the projected strongly. The forecasted world average cargo increase in cargo volume. There is also a dire traffic annual growth rate for the next 20 years need for immediate expansion to achieve the is 5.5% (Airbus Industrie air cargo forecast of objective for KLIA to be a trans-shipment centre. 12 August 2003). Asia will lead the growth in As an interim measure, the establishment of airfreight demand. The fastest growing airfreight offshore hubs will ease the congestion at KLIA. markets have been, and will remain, those The percentage of trans-shipment cargo linking the Asia-Pacific region to Europe and flowing through KLIA ACC has increased from North America. Seven of the top ten flows serve 30% in the last financial year to 53.8% during this region. MASkargo freighter services will this review period. further build on its strength in the Orient stations, with emphasis on the Chinese markets to improve yield and overall revenue. The main trade lanes will be from the Orient and Far East into Europe and Australia. The demand for airfreight is expected to grow strongly . The forecasted world average cargo traffic annual growth rate for the next 20 years is 5.5% (Airbus Industrie air cargo forecast of 12 August 2003) Priority Business Centres 77 In line with the Government’s objectives, the added airfreight capacity combined with the consistent efficiency of the KLIA ACC will be the catalyst to further develop KLIA into a viable cargo hub for this region. The role of the Priority Business Centre (PBC) will be further enhanced to achieve this target. First introduced in 2001 at KLIA, the PBC has proven to be successful and was replicated in Penang in 2003, in line with the expansion of the warehouse facility and the renaming of the whole cargo and Free Commercial Zone complex into Penang Cargo Centre (PCC). During the review period, there were 70 appointed agents in KLIA, with the eight PBC members in Kuala Lumpur contributing approximately 70% of the total revenue. The value-added services and membership status of the PBC will be continually reviewed. Products and Services MASkargo’s additional aircraft will place it in 78 a better position to capitalise on the lucrative The introduction of additional direct flights charter business. Traditionally, MASkargo has from Penang to Europe, Japan and Hong Kong been flying the charter flights for the F1 and have resulted in a more than 50% year-on-year MotoGP events. The ISO 9001:2000 standard improvement in revenue and more than 50% certification for the Charter and Planning increase in market share. This strategy was not section, as well as Express Handling unit, only limited to Penang. With the introduction will be an added boost to the improvement of more wide-body passenger aircraft into Kota in service levels. Kinabalu and Kuching, capacity and sales planning will be intensified to take advantage of the Special Cargo additional capacity out of these stations. MASkargo is reputed to be able to fly any cargo The “sea to air”, I-port programme, introduced to anywhere in the world. On 24 Arpil 2003, to simplify procedures for trans-shipment cargo it safely transported a homograft transplant that uses a multimodal mode of transportation (human tissue) for Hepshibah Jeyabalan, who through Malaysia, will be more aggressively was suffering from heart problems. The journey marketed to make KLIA an attractive regional began at Los Angeles International Airport via cargo hub. A series of road shows were Malaysia Airlines and landed in Penang. The conducted in Semarang, Surabaya and Jakarta handling of such a sensitive cargo requires in Indonesia, and in Vietnam and Cambodia. For special care and proved that MASkargo is up to the period under review, the I-port programme the task of ensuring safe and smooth passage was expanded to the Port of Tanjung Pelepas of such items. (PTP) in Johor on 24 May 2003 and to the Port of Kuantan on 19 January 2004. While the MASkargo was fully involved in the passage expansion to PTP will take advantage of the of about 60 horses and their grooms for the Indonesian market, the Kuantan I-Port will allow inaugural Kuala Lumpur International Grand airlines flying into KLIA to tap into the lucrative Prix, a major equestrian event, in late September Indo-China market. During the financial year, 2003. MASkargo provided special care for the more than 1.2 million kilos of cargo have been horses to ensure that they were always safe moved through this innovative initiative. and comfortable throughout their journey. 79 The “sea to air”, I-port programme, introduced to simplify procedures for trans-shipment cargo that uses a multimodal mode of transportation through Malaysia, will be more aggressively marketed to make KLIA an attractive regional cargo hub O P E R A TIONS REVIEW : SAFETY, SECURITY & QUALITY 80 F L YING SAFELY, SECURELY & RELIABLY A Resource Management Programme, initially introduced to flight crew to reduce incidents related human factors, has been extended to all categories of employees A commitment to excel 81 Safety and Security The establishment of a Board Safety and Security Security issues have been given an unprecedent- Committee and Corporate Safety and Security ed focus in the aviation industry. Heightened Department reflects Malaysia Airlines’ intent at security measures continued to be enforced. ensuring customers’ confidence in air travel. Information sharing with local and international Both the committee and the department security authorities is ongoing to ensure that monitor the Airline’s safety and security threats are assessed and countered. In addition, compliance with commercial and regulatory the ‘one passenger one bag’ policy has been requirements, as well as that of its contracted implemented to ensure passenger safety in the service providers, through the Safety and cabin. The checking of passenger identification Security Enhancement Action Plan. At the for domestic flights will be introduced to same time, an open and active safety and eliminate security breaches. A Critical Incident security culture is being promoted amongst Stress Management group has been formed to all employees. Staff are continually reminded provide peer support to employees experiencing to openly report any related concerns or traumatic stress at the workplace. deficiencies that may need to be acted upon. At MASkargo, plans are underway to install A Corporate Safety and Security Management x-ray machines at Kota Kinabalu, Kuching and manual is available to assist departments in Penang airports. KLIA ACC will be equipped formulating operating procedures that conform with x-ray facilities to accommodate lower deck to corporate policies. A Safety Management pallets, which will allow early uplift of cargo System is being put in place in line with best without the cooling period requirement. The aviation practices. A Resource Management CCTV installation already introduced in Penang Programme, initially introduced to flight crew will be expanded to KLIA, allowing speedier to reduce human-related incidents, has been cargo tracing via the Internet. extended to all employees. The performance of flight crew has been further reinforced To reinforce the Company’s commitment with the implementation of Flight Operations towards safety and security, MASkargo Quality Assurance and Line Operations Safety appointed Safety Executives and initiated various Assurance programmes.

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