Malaysia Airlines

En route to being the world's 'Five Star Value Carrier'

October 2008

SITA's technology know-how and travel expertise has helped a major Asian carrier achieve a remarkable business turnaround and is now helping to drive Malaysia Airlines' ongoing business well-being.

Malaysia Airlines

Malaysia's national carrier, with a history stretching back over sixty years, has won more than 100 awards in the past decade alone, including 'Best Airline to Asia' in 20061 and 'World's Best Cabin Crew' in 20072. It also remains one of only six carriers globally to be accredited as a 'five-star airline'3.

Through a radical programme of business transformation, Malaysia Airlines went from record losses in 2005 to record profits in 2007, and was recently awarded the 2008
'Phoenix Award' by Air Transport World magazine - having already won the Centre of Asia Pacific Aviation's 'Airline Turnaround of the Year' award in 2006.

As one of Asia's largest carriers, Malaysia Airlines carried more than 14 million passengers to over 100 destinations across six continents in 2007.

1 Travel Weekly Globe Awards 2006
2 See www.worldairlineawards.com/Awards_2007/CabinStaff.htm
3 See www.airlinequality.com/StarRanking/5star.htm

The business issue

Malaysia Airlines was losing record amounts of money by the end of 2005, and with only a few months' liquidity on hand it launched a comprehensive and ambitious 'Business Turnaround Plan', with the focus on financial survival in 2006, profit generation in 2007, and profitable growth in 2008 and beyond.

As part of the plan, the airline issued a competitive tender for a new Passenger Services System (PSS) which would enable Malaysia Airlines to offer passengers a more
convenient, efficient and 'hassle free' travelling experience in a cost-effective manner. In May 2006, after having evaluated all options, Malaysia Airlines announced that SITA had won the bid and would be its preferred partner in providing the PSS solution.

"We were looking for more than just a vendor providing a new technical solution," says Malaysia Airlines' Managing Director and CEO, Idris Jala. "We wanted a good technical solution like SITA Horizon, naturally, but we also wanted the business knowledge and expertise to make the best use of that system, and that's why we chose SITA."

Malaysia Airlines' needs

Malaysia Airlines, having a clear idea about what it wanted to achieve with the PSS programme, divided the workload into five streams:

  • Reservations - A new, more efficient and functionally rich system, to meet today's industry
    standards and requirements
  • E-Commerce - Allowing Malaysia Airlines to reduce distribution costs by providing a convenient, easy to use Internet Booking Engine
  • E-Ticketing and DCS - Moving from traditional paper to e-tickets by May 2008, in line with IATA's requirements; this included an upgraded Departure Control System so that Malaysia Airlines could offer new self-service options to passengers, including kiosk and Web check-in
  • Revenue Integrity - To authenticate every booking ensuring it produces an actual passenger upon departure, avoiding the revenue leakage which occurred in the
    past
  • Fares Management - To enable Malaysia Airlines to distribute fares more efficiently around the world, and to improve pricing decisions

A critical success factor was the ability to integrate all five work streams with other existing systems in place throughout Malaysia Airlines.

SITA's solution

In a first for the region, and with a contract worth more than US$ 80 million over a ten-year period, SITA has been undertaking a comprehensive overhaul of Malaysia
Airlines' existing passenger applications and services, covering the five work streams - reservations, e-commerce, ticketing and departure control, revenue integrity and fares
management.

To date, SITA has met the needs of Malaysia Airlines by implementing several Horizon solution components including:

  • Implementing SITA Ticketing and DCS around existing passenger applications, saving Malaysia Airlines millions of dollars
  • Re-engineering Malaysia Airlines' fares strategy, including fares workflow, competitive monitoring, and effective distribution, which has been critical to the outstanding
    success achieved with e-commerce
  • Implementing revenue integrity and revenue protection, enabling Malaysia Airlines to prevent the waste of over 120,000 segments in a single quarter at the beginning
    of 2008 - equating to improved inventory management with significant cost savings and revenue upside
  • Introducing passenger self-service initiatives, including online booking and both kiosk and web check-in, to improve customer service and reduce costs; with SITA's help, Malaysia Airlines cut over to Bar-Coded Boarding Passes in November 2007 and Common Use Self-Service in December 2007 at Kuala Lumpur International Airport; the success of online booking has been one of the most spectacular in all of Asia, and has resulted in substantial savings in GDS distribution costs
  • Successfully moved Malaysia Airlines to 100% SITA e-ticketing within the IATA deadline - resulting in RM 19 (US$ 6) savings per ticket sold; in fact, with SITA's help, Malaysia Airlines was able to complete the transition to e-ticketing in just 11 months, compared to the conventional three-year process. As part of the process SITA implemented 10 GDSs and over 80 interline partners
  • Preparing Malaysia Airlines for future alliance membership

With the successful delivery of the project's first phase, Malaysia Airlines has moved forward the second phase of the project - the retirement of the airline's in-house reservations system and the implementation of SITA Reservations and Inventory.

This provides robust core passenger management services that enable the airline to meet its future functional and business growth requirements. These include improved inventory management capabilities with the ability to adopt the latest revenue management forecasting methods as well as greater control over inventory access and allocation.

A key component of the Passenger Services System project is SITA's E-Commerce Platform, which allows Malaysia Airlines to offer its passengers a series of solutions to
make travelling easier, faster and more efficient - notably through e-booking, e-ticketing and e-check-in. Malaysia Airlines online booking has more than doubled as a result, and the focus is now on delivering agency bookings and ancillary services - such as insurance and hotel accommodations - online.

"We have worked hard to be responsive to Malaysia Airlines' needs," says Richard Stokes, SITA's Senior Vice President, Sales and Relationship Management. "Our Horizon solution is extremely flexible and totally integrated which has enabled Malaysia Airlines to deliver quick wins to support the Business Turnaround Plan. We have also instituted long term solutions to support the airline's aim of future profitable growth. Our Horizon solution and travel expertise is enabling Malaysia Airlines to be smarter and
more agile in the marketplace."

In parallel with systems deployment, SITA has been providing Malaysia Airlines with business transformation consultancy to ensure the carrier can maximize the effectiveness of its technology investment and adapt its structure and processes to meet new standards and expectations.

"Having achieved a record profit in 2007, we're now focusing on business transformation to ensure we stay consistently profitable," says Malaysia Airlines' Idris Jala. "We're therefore counting on SITA to help us address the big challenges which loom ahead in our industry, including overcapacity, intense competition with yields and profit margins eroding, liberalization of ASEAN skies and rising fuel costs."

"We are playing an important role in helping Malaysia Airlines achieve its goal of becoming the 'World's Five-Star Value Carrier'," says SITA's Richard Stokes, "not least because our technology know-how and future strategy is right in line with Malaysia Airlines' programme to lower costs, keep fares competitive, increase revenue, and keep delivering five-star products and services."

The business transformation is well underway. In 2007, the airline turned a record profit of RM 851 million (US$ 260 million) mainly through cost reductions of over RM 900 million (US$ 275 million), on the back of a robust 71.5% passenger load factor and yield which rose 12% per revenue passenger kilometre (RPK) during the year. Despite the current economic environment, the airline remains on track with its vision of becoming the world's 'Five Star Value Carrier'.

Business benefits

"SITA's partnership approach with us - focusing on business goals and delivery success, rather than simply trying to sell us existing solutions - has been greatly appreciated by all of us at Malaysia Airlines," says Idris Jala. "SITA really understood our business turnaround plan, and continues to work hard in delivering the best and
most appropriate solutions to drive our business forward - profitably."

Key business benefits of the Horizon solution delivered by SITA include:

Reduced costs

  • 100% e-ticketing has eliminated paper ticketing
  • Reduced distribution costs with the move to online sales
  • Closer integration between PSS applications and industry / government compliance needs - e.g. advance passenger information (API)
  • Reduced network spend, with the added advantage of network services becoming part of passenger business costs rather than IT costs

Increased revenue

  • Faster revenue recognition
  • Improved revenue management
  • Better control of pricing and fare management functions
  • More competitive fares through dynamic pricing, resulting in higher load factors
  • Enhanced revenue protection, with minimized cancellations

Increased customer satisfaction

  • Significant improvements in business processes and customer service
  • A more convenient and efficient travelling experience for passengers, from the making of reservations to the boarding of flights
  • More efficient passenger movement at airports and reduced congestion

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