Managing Director's Report and Review
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40 Malaysian Airline System Berhad Annual Report 04/05 (10601-W) MANAGING DIRECTOR’S REPORT AND REVIEW Korea The daily A330-200 services to Seoul were increased to 9x weekly in Northern Summer 2004 and revised to operate on A330-300 aircraft. Subsequently these services were increased to 10x weekly effective 1 May 2004. The 10x weekly A330-300 services into Seoul were reduced to 7x weekly effective 31 August 2004 and were operated as 3x Kuala Lumpur-Seoul return, 2x Kuala Lumpur-Kota Kinabalu-Seoul-Kuala Lumpur and 2x Kuala Lumpur-Seoul-Kota Kinabalu-Kuala Lumpur. Taiwan The 5x Kuala Lumpur-Kota Kinabalu-Kaohsiung services were increased to 7x weekly from 28 March 2004. China and Hong Kong The services to Beijing were increased from 5x weekly to daily in Northern Summer 2004 and those to Shanghai were raised to double daily. The Kuala Lumpur-Xiamen return flights were increased from 2x to 3x weekly while the service through Kota Kinabalu to Xiamen was withdrawn. In the case of Hong Kong, the services became double daily from 7x weekly while the Hong Kong flights via Kota Kinabalu/Kuching were increased from 4x to 6x weekly. In line with the expansion to China, the following new services were introduced: 2x weekly Kota Kinabalu-Shanghai effective 28 March 2004 2x weekly Kuala Lumpur-Chengdu effective 4 September 2004 3x weekly Kuala Lumpur-Kunming effective 15 January 2005 2x weekly Kuala Lumpur-Xi’an effective 15 March 2005 Middle East The services to Beirut operated through Dubai were increased from 2x weekly to 3x weekly in Northern Summer 2004. To improve the capacity to the Middle East, the 2x weekly Kuala Lumpur-Cairo-Istanbul services were delinked so that both Cairo and Istanbul have a 2x weekly direct service to Kuala Lumpur. For Dubai, its frequencies were increased from 7x to 8x weekly through the additional Kuala Lumpur-Dubai-Beirut service in Northern Summer 2004. However, with the rerouting of Newark services through Stockholm instead of Dubai, its total frequency was reduced to 5x weekly in Northern Winter 2004. Malaysian Airline System Berhad Annual Report 04/05 41 (10601-W) Indian Sub-Continent/Bangladesh This region saw the introduction of new 3x weekly services each to Ahmedabad effective 16 December 2004 and to Kolkata from 28 January 2005. The Kuala Lumpur- Dhaka return services were also increased from 4x to 5x weekly in Northern Winter 2004. In addition, weekly frequencies and capacities were added to existing destinations such as Bangalore, Hyderabad, Chennai and Mumbai. Regional services To provide the long haul feed and connectivity, additional frequencies were injected into our regional destinations. Phuket’s services were increased from 7x to 14x weekly (subsequent to the tsunami disaster, it was reduced to 7x weekly). Saigon’s frequency grew from 9x to 14x weekly and services to Hanoi increased from 5x to 7x weekly. Cambodia saw the introduction of 3x weekly services to Siem Reap and increased weekly frequency to Phnom Penh. Yangon’s services were increased from 3x to 4x weekly. Medan’s services from Kuala Lumpur rose from 10x to 14x weekly. However, due to low demand, the services to Balikpapan and Manado were withdrawn effective 31 October and 2 December 2004 respectively while the operations into Pontianak from Kuching were reduced from 7x to 5x weekly. 42 Malaysian Airline System Berhad Annual Report 04/05 (10601-W) MANAGING DIRECTOR’S REPORT AND REVIEW Alliance Strategy and Code-Share Developments Our alliance strategy at Malaysia Airlines is two-pronged. Whilst pursuing global alliances to achieve multi-lateral opportunities, the Company is also focused on building new and strengthening existing bilateral relationships to increase competitiveness, especially in the ASEAN region. Consistent with our ongoing strategy of developing regional partnerships with various national carriers in the region, a Malaysia-Singapore arrangement to strengthen the existing co-operation was undertaken. Malaysia Airlines, Singapore Airlines and Silk Air signed a Tripartite Code-share Agreement on 24 February 2005. The code-share arrangement which was launched effective 27 March 2005 (Northern Summer 2005) allows the three carriers to jointly code-share on the Kuching-Singapore return and Kota Kinabalu-Singapore return sectors. Malaysia Airlines operates on both sectors, whilst Silk Air operates on the Singapore-Kuching return sector. In addition, Malaysia Airlines and Singapore Airlines also started the code-share on the Penang-Singapore return sector on a bilateral basis, in which both carriers are operating. The above code-share arrangements enabled the carriers to tailor capacity on the respective sectors based on demand so as to avoid wasteful competition. However, the biggest beneficiary will be the travelling public who will enjoy a better spread of services on the code-share sectors. Malaysia Airlines has also code-share arrangements with Garuda Indonesia, Philippine Airlines and Vietnam Air as part of the Company’s preparation towards the eventual ASEAN open-skies. PASSENGER TRAFFIC PERFORMANCE During the year under review, Malaysia Airlines carried 14.1 per cent more passengers system-wide or 17.5 million passengers, of which 50 per cent were from the domestic services. In terms of capacity, the domestic and international network grew by 4 per cent and 17 per cent to 6,684 million seat km and 57,431 million seat km respectively. With a total carriage of 44,226 million passengers km, the system-wide passenger seat factor grew by 1.4 per cent points to 69 per cent signalling the market recovery from the previous turbulent years. Malaysian Airline System Berhad Annual Report 04/05 43 (10601-W) 44 Malaysian Airline System Berhad Annual Report 04/05 (10601-W) MANAGING DIRECTOR’S REPORT AND REVIEW INTERNATIONAL PASSENGER OPERATIONS During the year, revenue passenger km (RPK) growth at Malaysia Airlines exceeded available seat km (ASK) growth within the international operations. This contributed to the improvements in passenger seat factor and yield, which improved by 1.6 points and 2.7 per cent to 68.7 per cent and 18.9 sen respectively. In the fourth quarter, international seat factor also improved to 73.1 per cent from 70.0 per cent in the corresponding period last year. Indeed, the highest RPK growth was recorded in Asia while all other international regions also recorded positive RPK growth. The utilisation of wide-bodied and narrow-bodied aircraft improved during the year while the utilisation of the Boeing 747-400 and Boeing 777-200 aircraft was one of the highest within the industry. Malaysian Airline System Berhad Annual Report 04/05 45 (10601-W) MANAGING DIRECTOR’S REPORT AND REVIEW FLEET AND PRODUCT DEVELOPMENTS AT MALAYSIA AIRLINES Malaysia Airlines would have retrofitted five of 17 Boeing 777-200’s and two of 17 Boeing 747-400’s by mid 2005. The retrofit exercise on the 17 Boeing 747-400 and 17 Boeing 777-200 aircraft is on track for completion by September 2006 and July 2006 respectively. In late 2004, Malaysia Airlines took delivery of two new Boeing 777-200’s. Both aircraft were also the first in the region to be equipped with the electronic flight bag (EFB), that replace hard copy charts and manuals used earlier. Malaysia Airlines remains focused on continuing to improve its product and overall customer service delivery standards for the benefit of its customers. 46 Malaysian Airline System Berhad Annual Report 04/05 (10601-W) MANAGING DIRECTOR’S REPORT AND REVIEW MOVING THE WORLD’S CARGO A Better Performance MASkargo, the air cargo division of Malaysia Airlines, managed to maintain its performance in the fiscal year 2004/2005 despite the various challenges in the global market. MASkargo continued its expansion into key markets and concentrated on quality. As a result, it was able to hold on to its position as one of Asia’s top three air cargo carriers. MASkargo has managed to maintain its growth by introducing additional freighter flights in key markets, expanding the secondary hub concept, installing new e- commerce strategies and enhancing safety and security. As a result, MASkargo was able to register double-digit revenue growth. Despite the increasing fuel prices, MASkargo maintained an encouraging pre-tax profit of RM95.8 million for fiscal year 2004/2005, from total revenue of RM2.6 billion. MASkargo carried a total of 526,181 tonnes of cargo worldwide during this period, compared to 438,252 tonnes in the same period of last year. At its home base in , the Advanced Cargo Centre (ACC) in KLIA, cargo volume increased by 12 per cent to 639,764 tonnes. Transshipment increased by 8.9 per cent to 583,015 tonnes, which is in line with our goal of becoming a major transshipment hub in the region. Malaysian Airline System Berhad Annual Report 04/05 47 (10601-W) A challenge to embrace Cargo operations saw a more brisk performance compared to passenger with overall belly load tonne km carriage up by 11 per cent while the freighter services had an increase of 39 per cent compared to the previous year. The total system-wide load tonne km carriage was 23 per cent higher at 2,690 million while the capacity injected escalated by 31 per cent to 4,434 million capacity tonne km resulting in an overall cargo achieved load factor of 60.7 per cent. During the year, MASkargo load tonnage flown improved by 21 per cent to 532.2 million kilograms while yield improved by one per cent to 76.3 sen. During the year, the freighter network was extended to Basel, Switzerland and Manchester, United Kingdom, while it increased frequencies into Amsterdam, Netherlands and Frankfurt, Germany. MASkargo will take delivery of two new Boeing 747-400 freighters in 2006, which offers improved uplift capacity and operational performance.