42 ANNUAL REPORT 2002 / 2003
Evolving The Business
Widespread Asset Unbundling (WAU)
On 30 July 2002, Malaysia Airlines announced details of its
proposed Reorganisation of the Group Corporate Structure
in what was to be a landmark transaction, substantially
transforming the financial standing of Malaysia Airlines
and preserving the national flag carrier. The proposed
reorganisation was finalised on 5 November 2002, following
approval from shareholders, the Securities Commission, the
Kuala Lumpur Stock Exchange and the Foreign Investment
Committee and came into effect on 6 November 2002.
The reorganisation separated the balance sheet from
operations by unbundling and transferring the 73 aircraft on
the balance sheet at an ascribed value of RM5.109 billion
together with associated liabilities amounting to RM6.966
billion to Penerbangan Malaysia Berhad (PMB). Upon
completion of the exercise, PMB, wholly-owned by the Minister
of Finance Incorporated, became the designated Government
holding company of Malaysia Airlines. The transferred aircraft
fleet was simultaneously leased back to Malaysia Airlines.
WAU represented atruly strategic approachthat allowed MalaysiaAirlines to focus fullyon operations.
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Asian Corporate Finance Deal of the YearAsian Corporate Finance – The Airfinance Journal
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The liabilities transferred to PMB include the Company’s
redeemable convertible preference shares (RCPS), whereby PMB
became contractually bound to bear the cost of the eventual
redemption of the RCPS and therefore changing the substance
of the RCPS from equity to debt.
Malaysia Airlines operates domestic airline services on behalf of
PMB, through an arrangement that transfers the financial
effects of the revenue and costs of the domestic airline
operations to PMB. Malaysia Airlines continues to own and
operate the international and cargo businesses.
The reorganisation resulted in the issuance of 483.2 million
new shares at the weighted average market price of the
previous five days of RM3.85 per share to PMB in consideration
for its assumption of net liabilities of RM1.857 billion, being
the difference between the ascribed value for the aircraft fleet
and the transferred liabilities. After the exercise, PMB holds a
69.34% stake in Malaysia Airlines.
The reorganisation also allowed for the disposal of non-core
assets and businesses consisting of
(i) the proposed sale of 70% of Malaysia Airlines Catering
Sdn. Bhd. (MCSB) for a cash consideration of RM175
million to Gubahan Saujana Sdn. Bhd. (GSSB). GSSB is
owned 51% by Fahim Capital and 49% by LSG Asia.
Malaysia Airlines retains a 30% stake in MCSB
(ii) the proposed sale of Malaysia Airlines properties at
Subang Airport to Asset Global Network Sdn. Bhd. (a
wholly-owned special purpose vehicle of the Ministry of
Finance)
(iii) the sale of Malaysia Airlines properties at the Kuala
Lumpur International Airport to Asset Global Network
Sdn. Bhd. for an amount of RM1.011 billion
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44 ANNUAL REPORT 2002 / 2003
A New Business Plan for Malaysia Airlines
Upon completion of the successful WAU exercise, Malaysia
Airlines announced its Business Plan in March 2003 with the
Vision of being ‘An Airline uniquely renowned for its Personal
Touch, Warmth and Efficiency’ and the Mission ‘To provide Air
Travel and Transport Service that Ranks among the Best in
terms of Safety, Comfort and Punctuality’.
WAU represented a truly strategic approach, that by forming a
symbiotic relationship between Malaysia Airlines and PMB,
allowed Malaysia Airlines to focus fully on operations.
The Business Plan comprises six key pillars:
(i) Amplification of Malaysia Airlines presence and growth
through strategic and aggressive expansion to areas with
strong market potential and profitability in order to build,
fortify and develop competitive advantage
(ii) Maintenance of good financials by achieving and
sustaining profitability
(iii) Adopting a customer-obsessed culture to achieve customer
satisfaction through excellent hospitality and reliability
(iv) Ensuring Safety and Security throughout all operations
(v) Using technology as a key strategic business enabler, and
(vi) Focusing on employees by enhancing the human capital of
the airline.
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Revenue Management
Work on establishing operable revenue management capability
system began a few years ago. A major breakthrough was
made in 2002, during which substantial process changes were
adopted and a revenue management system, a decision
support system crucial to revenue management function were
successfully rolled out to enhance revenue maximisation.
In 2001, AirMax, a revenue management system developed by
Sabre Inc, USA was selected by Malaysia Airlines. The first
module called AirMax (leg & segment) was rolled out and
today, the seat inventory of all flights, with the exception of
Rural Air Service, is managed using this system. With the
implementation of this module, Malaysia Airlines is able to
efficiently forecast demand, booking cancellations, and
no-shows thus achieving better revenue optimisation of our
flights. The end-result is a reduction in seat spoilage, improved
seat factor and maximum revenue potential for each flight.
The second module, the Group Management System is
targetted for cutover in the first quarter of 2003/04. This
module will assist the Inventory Analysts in evaluating group
booking requests and in monitoring confirmed group booking
materialisation rates by group types, travel agents and markets.
The last module, the AirMax (Origin & Destination) will enable
Malaysia Airlines to manage seat inventory using origin and
destination (O&D) forecasting and optimisation. This module is
more complex because it requires major process changes and
modifications to the reservations system KOMMAS. The
implementation work, which is expected to take about two
years, will begin in the fourth quarter of 2003/04.
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46 ANNUAL REPORT 2002 / 2003
Spreading Our Wings
Fleet Development
During the year under review, Malaysia Airlines took delivery of
one B747-400 in April 2002, two B777-200 in April and June
2002, and leased two A330-200 in February 2003. The two
A330-200 delivered recently are planned to be utilised for
expansion into Asia.
Malaysia Airlines sold one B747-400C, one B747-300C and
one B737-700 (BBJ) during the year. Except for one B747-400
Combi aircraft which will be returned to Boeing later this year,
Malaysia Airlines under the ‘Widespread Asset Unbundling’
(WAU) restructuring programme sold to and leased back all its
other aircraft from Penerbangan Malaysia Berhad (PMB) and
Aircraft Business Malaysia Sdn. Bhd. on 6 November 2002.
As at 31 March 2003, Malaysia Airlines’ fleet stood at 100
aircraft of which 48 are wide-body passenger aircraft
comprising 17 B747-400, four B747-200(F), one B747-400C,
15 B777-200, nine A330-300 and two A330-200, and another
52 narrow body aircraft consisting of 37 B737-400, 10 F50 and
five DHC-6.
Malaysia Airlines’ cargo division, MASkargo, operates a fleet
of four B747-200 freighters, two of which are under a sale
and leaseback agreement with PMB.
Traffic Rights Development
In pursuit of its network growth strategy to countries in Asia,
Malaysia Airlines, working in tandem with the Ministry of
Transport, has secured the following additional rights in the
year under review.
The restructuring ofMalaysia Airlines’routes continued withgreater focus onincreasing frequencyand capacity to Asiaand other regions.
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China
Malaysia and the People’s Republic of China signed a new
MoU on 17 December 2002 which revised the traffic rights
entitlements provided under the 1989 agreement. The new
MoU provides for multiple designation of airlines, ten new
points in China for the designated airline(s) of Malaysia, of
which any five points can be operated with immediate effect,
and the rest from 2005. However, a minimum of five of the
additional ten points should be selected from the central and
western provinces of China.
In addition, airline(s) of both countries are permitted to
operate a maximum of 108 units per week for all routes with
immediate effect instead of 82.5 units as previously for 2003.
With regard to freighter services, the MoU allows the
designated airline(s) of Malaysia and China to operate between
points in Malaysia and any seven points in China without any
frequency or capacity restrictions, except that initially the
freighter services for Beijing and Shanghai will be limited to
seven times weekly and 14 times weekly respectively.
India
Malaysia Airlines also received additional traffic rights to India
in January 2003 after its inauguration of new services into
Bombay, Bangalore and Hyderabad in May 2001.
The revised entitlements include one additional frequency into
Bangalore and two more flights to Hyderabad and Bombay
respectively. In addition, all seven-times A330-200 weekly services
into Madras can be upgraded to B747-400 by December 2003,
and three times weekly services can be introduced to Calcutta.
For the new fiscal year, Malaysia Airlines will be working closely
with the Ministry of Transport to secure additional traffic rights
required to penetrate new growth markets in Australia,
Indochina and Philippines.
South Korea
On 29 November 2002, Malaysia and South Korea signed a
new Memorandum of Understanding (MoU) whereby the
designated airlines of both countries are allowed to operate a
maximum of 22 weekly frequencies on any aircraft type for
both passenger or freighter services instead of seven times
weekly as previously agreed.
The revised agreement also provides for third – country code-share
while further expansion of air services, including the exchange of
fifth freedom rights, will be discussed in the near future.
Network Development
The restructuring of Malaysia Airlines’ route network continued in
the year under review with greater focus on increasing frequency
and capacity to Asia and other regions. With the improved global
economy and rebound in air travel, the three times B777-200
weekly services to Newark operated via Dubai, suspended since
11 September 2001, were reinstated effective 30 May 2002. The
two times weekly B747-400 services to Buenos Aires operated via
Johannesburg and Cape Town were also resumed as of 1 May
2002 with a corresponding reduction of the two times weekly
B777-200 Kuala Lumpur– Johannesburg–Cape Town return
services to one time weekly B747-400.
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48 ANNUAL REPORT 2002 / 2003
In conjunction with the operation of seven times B747-400
Kuala Lumpur–Taipei–Los Angeles return services, two times
A300-200 weekly Taipei flights were withdrawn while two of
the four times A330-200 weekly Kuala Lumpur–Kota Kinabalu–
Taipei return services were downgraded to B737-400. However,
the total weekly services to Taipei via Kota Kinabalu were
increased to five times weekly with the addition of one time
B737-400 frequency in winter.
Other schedule changes for Asia include the operating of daily
services into Seoul from five times A330-200 weekly, daily into
Shanghai from five times B777-200, daily into Guangzhou
as well as Beijing from five times weekly A330-200 between
1 July 2002 and 27 January 2003.
In the Middle-East, the two times B777-200 weekly Kuala
Lumpur–Dubai–Istanbul return and two times B777-200 weekly
Kuala Lumpur–Cairo–Beirut return services, which were both
suspended from 1 January 2002, were reinstated effective
31 March 2002 and 3 April 2002 respectively. These services
were revised to operate as two times weekly B777-200
Kuala Lumpur–Cairo– Istanbul return and two times weekly
Kuala Lumpur–Dubai–Beirut effective 27 October 2002.
In the Indian subcontinent, Dhaka services were increased to
four times A330-200 from three times weekly A330-200
from 18 December 2003, and the two times A330-200
Kuala Lumpur–Male return services were rerouted as Kuala
Lumpur– Male–Colombo–Kuala Lumpur following the
commencement of services to Colombo from 1 August 2002.
Similarly, the Vienna flights that were withdrawn since
1 June 2001 also recommenced on 1 July 2002, and operated
as three times weekly B777-200 via Rome. Arising from this,
the three times weekly B777-200 Zurich services were de-linked
from Rome. The other changes to the European routes were to
Frankfurt, which saw its increased in frequency from five times
B777-200 to a daily service, also from 1 July 2002.
The Australia and New Zealand network was revamped, tailoring
capacity to traffic demand. Consequently, the four times weekly
Kuala Lumpur–Melbourne–Adelaide vice versa and three times
B747-400 weekly Kuala Lumpur-Melbourne return services were
revised to operate as seven times B777-200 weekly and three
times B777-200 turnaround flights to Melbourne and Adelaide
respectively from 31 March 2002 while the four times A330-200
weekly Brisbane and three times B747-400 weekly Auckland
services were combined into five times B747-400 weekly Kuala
Lumpur– Brisbane–Auckland return, effective 1 July 2002.
Additional services were mounted to Perth on 12 November
2002, bringing its total to nine times per week and another
two times B747-400 weekly non-stop services were added to
Auckland from 27 October 2002.
In line with the growth strategy for Asia, the nine times weekly
services to Tokyo were increased to 14 times B777-200, with
two of the flights operated via Kota Kinabalu from 18 April
2002 following the opening of the second runway at Narita
and the routing of all the seven times B747-400 Los Angeles
services via Taipei instead of three times weekly via Tokyo.
Subsequently in northern winter, two of the Tokyo–Kuala
Lumpur services were rerouted via Penang.
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In the regional network, services to Saigon and Phnom Penh
were increased to daily from five times weekly B737-400, and
a fifth flight to Hanoi was added during the year. Poor loads to
Jakarta led to its frequency being reduced from 28 times to
21 times per week from 27 October 2002.
On the domestic front, the closure of the Sultan Abdul Aziz
Shah Airport to jet operations and the shift of B737-400
services to KLIA resulted in frequency changes to Langkawi,
Penang, Johor Bahru and Kota Bahru. Notwithstanding this,
additional capacity and frequency were added for services in
Peninsular Malaysia and within Sabah and Sarawak as well as
to Kota Kinabalu, Kuching, Labuan, Miri and Sibu in East
Malaysia from Kuala Lumpur during the summer season.
As at 31 March 2003, Malaysia Airlines’ route network covers a
total of 109 destinations of which 32 are domestic and 77 are
international (including code-share flights operated by its partners).
Commercial Arrangements
Over the years, Malaysia Airlines has developed commercial
arrangements with various airlines as part of its strategy to
make KLIA an aviation hub. Foreign carriers are encouraged to
operate into Kuala Lumpur so as to promote traffic movement
to and from Malaysia as well as improve connectivity and the
number of destinations available from its home base.
Towards this end, Malaysia Airlines has developed and
strengthened bilateral ties with various partner airlines.
Significant progress was seen in May 2002 with the
reinstatement of commercial arrangement with Swiss
International Airlines, Uzbekistan Airways and Middle–East
Airlines. In addition, existing joint services arrangements with
Air Mauritius and Sri Lankan Airlines were converted into
blocked space arrangements while better prorate levels were
agreed with Royal Dutch Airline last year.
During the year under review, meetings were held with Royal
Air Maroc and Gulf Air in May 2002 to explore potential
cooperation and new market opportunities for the future.
Efforts are continuously made to improve existing commercial
arrangements and streamlining of Sales and Marketing,
Reservation, Pricing, Traffic Handling and Accounting
procedures to ensure good support from partner airlines
for Malaysia Airlines’ operations.
In line with the company’s mission to emerge as the premier
carrier in the Asian region, code-share arrangements and other
regional cooperation initiatives will remain a part of its strategy
to enhance its route network expansion and make KLIA a
regional hub for Asia. In this regard, Malaysia Airlines will be
evaluating areas of cooperation with Garuda, All Nippon
Airways and other carriers in Europe, China and Oceania
in the new financial year.
By end of the year under review, Malaysia Airlines has 30
commercial agreements with 26 partner airlines comprising
four joint services agreements, 20 code share agreements,
one pool service agreement and five cargo blocked space
arrangements.
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50 ANNUAL REPORT 2002 / 2003
As a result of improveddemand, Malaysia Airlines’system wide traffic roseby 8.5%
Reaching Out To Our Passengers
Passenger Performance
The airline industry, especially operators in Asia, showed
significant recovery in 2002, overcoming weakened demand
caused by global economic slowdown in 2001 and the
September 11 incident in the United States.
As a result of improved demand, Malaysia Airlines’ system wide
passenger traffic rose by 8.5% to 37,652.9 million in revenue
passenger per kilometres in 2002/03 against a capacity growth of
3.2% to 54,265.6 million available seat kilometres. The growth
was, however, affected in the latter part of the year by the Bali
bombing in October 2002 and the prospect of war in Iraq.
In terms of total passengers carried, Malaysia Airlines uplifted
16.3 million in the year under review or 3.8% growth over the
previous year.
The overall number of domestic passengers recorded a
marginal increase of 0.4% to 8.68 million, despite the
expansion of competitor services and the domestic fare
increase last year.
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Top Five Airlines of the Year 2003Airline of the Year – Skytrax, UK
International passenger carriage, has also performed well; rising
by 7.9% to 7.65 million, albeit from a lower base last year.
Apart from Australia/New Zealand and South Africa, which
registered marginal decrease in passenger carriage due to a
cutback in capacity, most international regions recorded
impressive growth with 28% increase for Orient & North
America and 16% for Asia & Africa. The high achievement
on North American and Middle Eastern routes of over 40%
is attributed to the resumption of services following a
temporary suspension in the previous year.
As a consequence of increased passenger uplift, Malaysia
Airlines’ overall seat factor improved by 3.4 percentage points
to 69.4% with India, Australia/New Zealand, China and
Regional services achieving commendable increase in their
seat factors.
Sales, Distribution & Marketing
Some of the promotional initiatives undertaken in the home-
base market during the year included the following:
— As part of the National Carrier’s commitment in promoting
domestic tourism within Malaysia, special promotional
fares called ‘SUPERSAVER’ at 50% discount on normal
Economy class published fares were introduced on all
domestic flight routes within Malaysia, effective 15 August
2002. The response was very encouraging and a total
of 230,000 tickets were sold under the scheme.
— In conjunction with Visit Sarawak Year, the Discover
Sarawak Pass was introduced effective 28 March 2003
offering four sectors within Sarawak from RM299.
World’s Best Cabin Staff 2002 & 2003World Class Survey – Skytrax, UK
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Under the leadership of Malaysia Airlines, the Market
Development Programme (MDP) in Peninsular Malaysia, which
was partially suspended as of 12 November 2001 following the
September 11 incident, was reinstated in total, effective 15
September 2002, to provide market stability and yield
improvement opportunities out of Peninsular Malaysia. The
programme, including its fare structures, was redesigned to be
more flexible, market-driven and customer focused.
The MDP is basically a programme drawn up by member
airlines and MATTA to stabilise market practices of participating
Airlines and Agents to ensure reasonable return on investment
for Airlines and Agents whilst providing consumers with
competitive tickets and tours. It is a voluntary and self-imposed
compliance programme, whereby the participating airlines shall
determine the market practices on identified routes which all
participating airlines and agents must observe whilst
conducting sales of airline passenger tickets.
— Following the Bali bombing tragedy in October 2002,
promotional fares and packages were introduced to
encourage travel demand to the destination. This proved
successful, achieving the desired results and going some
way in rebuilding consumer confidence.
— Participation in the Malaysian Association of Tours & Travel
Agents (MATTA) International Travel Fairs in October 2002
and March 2003 offering special promotional air fares and
packages to stimulate travel demand during lean periods
and in weaker sectors. The two travel fairs realised total
sales of 1,582 Golden Holidays packages, and generated
around 40,000 passenger bookings. A total of 1,543
students were also enrolled under the Grads membership
drive held during the event.
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As part of a focused and deliberate strategy to generate
front-end traffic – with a particular emphasis on Corporate
Accounts – a Global Corporate Sales unit has been established
within Head Office. This unit is responsible for overseeing and
driving the Corporate Account Development strategy, targeting
local, regional and global corporate accounts.
The Airline launched a new worldwide communications
campaign on 30 July 2002 with the theme “Going Beyond
Expectations” that captures the spirit of the revitalised airline,
its new aspirations and its new positioning in the international
aviation industry. The campaign commenced in Malaysia on
21 August 2002 with a series of print and TV advertisements,
followed by worldwide coverage in key markets in the Asia-
Pacific, Europe and United States beginning September 2002.
To promote Malaysia Airlines as a world class airline and
position the company as a preferred airline, Malaysia Airlines
sponsored several high profile international events in selected
key markets. In sports, Malaysia Airlines sponsored events such
as the Hong Kong Golf Open, Le Tour de Langkawi, Asian X-
Games Tour, and the English Cricket Board Tour.
Sponsorship of world class Performing Arts was also a priority
with the Sydney Festival in Australia and the regional tours of
FAME, CATS, OLIVER and Witches of Eastwick. As a result of our
sponsorship in Australia, Enrich members and the travel industry
were very welcoming of Malaysia Airlines’ market presence. Joint
promotions with the Malaysia Tourism Promotion Board (MTPB)
included sales and tourism missions to key markets in Australia,
China, Japan, Middle East and Europe and participation in
international exhibitions, such as the World Travel Mart (WTM),
London and the International Tourisma Bourse (ITB), Berlin.
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Malaysia Airlines also sponsored the promotions of Malaysia
products abroad in cooperation with MATRADE and FAMA.
The Airline participated in the sponsorship of meetings,
conferences and exhibitions in Malaysia and overseas, through
effective communication, promotion and networking with
conference organisers, associations, government bodies and
private organisations. Marketing activities at Meeting,
Incentives, Convention and Exhibition (MICE) Trade Shows
and joint promotions with MTPB have, in addition to
promoting Malaysia Airlines products and services, also
contributed in enhancing awareness of Malaysia as an
attractive MICE destination.
Incentive group movements generated 41,350 pax with the
majority from Far East and South East Asia countries. An
additional 14,000 pax also participated in 75 conferences and
exhibitions. Joint promotional initiatives with Tourism Malaysia
include Global Meet Kuala Lumpur, AsiaPacific Incentives and
Meetings Expo (AIME) – Melbourne, Worldwide Exhibition for
Incentive Travel, Meetings and Events (IMEX) – Frankfurt,
European Incentive Business Travel and Meetings (EIBTM) –
Geneva, Incentive Travel and Conventions, Meetings Asia
(ITCMA) – Bangkok.
In terms of product development, the following enhancements
were made:
— Food and Beverage services have been upgraded with
the introduction of the Noodles Service, Light Supper,
extended Beverage List and Japanese Meal on
Kuala Lumpur-Japan flights.
— Inflight entertainment enhancements e.g. video
and audio programmes with monthly programme change,
introduction of short features in Video On-Demand mode,
increase in Audio On-Demand selections with jukebox
functionality and a monthly Entertainment Guide.
— Recruitment of Mandarin-speaking crew on
board to boost service quality to native-speaking
passengers. The need for Japanese, Korean, Spanish,
South African, German and French-speaking crew has also
been identified as a priority to improve inflight services.
— A new Golden Lounge in Perth opened in early
September 2002. Other Golden Lounge enhancements
include a revised menu with more menu cycles and
improved quality, Wireless LAN internet access at
Golden Lounge International/ KLIA for the convenience
of guests, reflexology and massage services, and
additional ASTRO channels.
— KLIA Premier Lane for First and Business class passengers
arriving KLIA was introduced in November 2002.
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Recognising that areas of Marketing Support are significant
revenue earners for the airline, the Marketing Support
Department embarked on an intensive repositioning exercise
for all product areas of Enrich, Golden Holidays and Golden
Boutique, aimed at enhancing the brand awareness of each
of these products.
— Enrich membership has been growing steadily, registering a
total of 455,104 members up to 31 March 2003, reflecting
a significant growth of 68%. A variety of product
enhancements continue to be introduced to maximise
membership privileges, including the introduction of the
elite Platinum card in August 2002. Plans are underway to
implement a holistic re-launch of Enrich catering to the
various life segments from infants to senior citizens. This
will also include the incorporation and repositioning of
Grads, the privilege card for students. Grads membership
as at the end of March 2003 stood at 22,704.
— Golden Holidays is being promoted as the leading brand in
airline travel and tours. Spinning off from the airline’s
current advertising theme “Going Beyond Expectations”,
an array of new destinations skewed towards the
experiential segmentation of travel are being gradually
introduced incorporating elements which include, but are
not restricted to, shopping, culture, spa retreats and
adventure. Golden Holidays actively participated in eight
domestic consumer fairs throughout the year, the major
ones being the MATTA International Trade Fairs held in
October 2002 and March 2003.
Golden Holidays also remained in the forefront in promoting
domestic tourism in cooperation with various state tourism
authorities. Of prime substance, is the special joint
collaboration between Golden Holidays and the state
government of Johor and Sarawak in launching promotional
packages aimed at boosting tourism in their respective states.
The “Showcase Malaysia” programme was extended for the
period April-June 2002 to entice tourists into Malaysia with a
value-for-money offer of a three, free-night hotel package,
recording 6,820 passenger sales during the period.
Inflight shopping was reintroduced with a new concept of
providing customers the excitement of a “shopping avenue in
the air”, and was further enhanced with a refreshed look and
feel for its Inflight Shopping Guide, “Temptations”, launched in
January 2003. The concept aims to tempt travellers to indulge
in the array of travel retail items on offer inflight, projecting an
upbeat and innovative image for Malaysia Airlines away from
the previous conventional approach to inflight shopping.
Inflight sales recorded since January 2003 showed a marked
increase from the previous corresponding period averaging
within a range of RM1.2 million sales per month.
Top Three Airline Lounge Worldwide 2002World’s Best Airline Lounge – Skytrax, UK
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MASkargo recorded aprofit of RM81 million,to sharply turn aroundfrom a loss for the2001/02 fiscal year.
Cargo Division
The period under review has been an outstanding year for the
Cargo Division, showing tremendous improvement in terms of
service reliability and revenue performance, compared to a
weak performance in fiscal year 2001/2002.
Cargo-handling glitches were identified and rectified, and
cargo shipment moved on time and securely as operational
staff were better trained to familiarise themselves with a fully-
automated operational process.
Measures implemented in the last 12 months include
improvement of cargo handling procedures, the introduction of
measurable performance standards, minimizing mishandling
figures and the reduction of pilferage levels to very low levels.
The management also focused on increasing the value of
human resources by training and upgrading staff skills to be
able to undertake greater areas of responsibilities.
The launching of new freighter services, the establishment of
joint ventures with other airlines and the implementation of
world-class services, focusing on schedule integrity, service
reliability and interpersonal ties with business partners,
played a major role in ensuring MASkargo’s turnaround process.
Moving Cargo, Moving The World
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The year 2002 is also a milestone in KLIA ACC’s
history as it was the first time where tonnage handled
exceeded 500,000 tonnes. This was achieved even with a 3.9%
drop in capacity available on belly and freighter services.
Import volume increased marginally by 3.7% while the export
volume remained flat. At the same time, there has been a
significant improvement of 35% in transhipment volume,
consistent with network strategy. Warehouse revenue
increased by 18% to RM165.1 million for fiscal year 2002/03,
compared to the corresponding period in the previous year.
This augurs well for the development of KLIA ACC as a
prominent regional cargo hub.
In the international sector, air cargo international traffic based
on ICAO figures recorded a growth in 2000 of 8%, but
declined 5% in the first six months of 2001 due to the global
economic slowdown. Based on the IATA 2001-2005 Special
Interim Edition, there was a negative 7.7% growth in 2001.
For year 2002 and 2003, IATA forecasted a positive growth
of 2.7% and 5.3% respectively.
MASkargo recorded a profit of RM81 million, to sharply turn
around from a RM243 million loss for the fiscal year 2001/02.
This achievement was recognised by the air cargo industry,
which nominated MASkargo for various awards. It won Best
Cargo Airport in Asia (for below 500,000 tonnes), top three for
Best Air Cargo Carrier (Asia) and was nominated for the Best
Terminal Operator in Asia. In addition, MASkargo has been
named as one of the top five cargo carriers into Australia.
For the period under review, cargo volume achieved a record
of 533,000 tonnes, breaking the 500,000-tonne barrier for
the first time, compared to 445,000 tonnes for the fiscal year
2001/2002, an increase of 16.5%. The industry’s annual
growth average is around 4% to 5%.
The Advanced Cargo Centre (ACC) has shown significant
improvement in this financial year. At the beginning of
financial year 2001, the monthly mishandling volume was
above 6% and has of late dropped consistently to 0.2% in
2002. The average throughput time for cargo into the ACC
was about six hours in early 2001. Standard throughput time
has been reduced to four hours. For Priority Business Centre
clients, the throughput time has been reduced drastically to
below two hours.
Top Three Best Air Cargo Carriers in Asia 2003Asian Freight & Supply Chain Awards – Singapore
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58 ANNUAL REPORT 2002 / 2003
The labour strike by the dock union workers in the United
States created greater airfreight demand into the US from Asia,
and this spilled over from Asia into Europe. This incident
occurred in October and November 2002, and pushed the
year’s growth rate beyond IATA projections.
In this financial year, there has been a successful improvement
in the freighter services network. The expanding network
further complements the passenger flights’ cargo capacity to
provide better connectivity and capacity management, thus
enhancing the overall cargo uplift. Timing proved important,
as MASkargo was able to capitalise on the growth in airfreight
traffic. The improvement in load factor was above 9.0%.
Improvements to freighter schedules were introduced including
increasing the number of flights to Frankfurt, Dhaka, Taipei,
Narita, Sydney, Amsterdam and Shanghai.
A further realignment of freighter services will be introduced to
complement passenger flights providing better connectivity,
thus enhancing overall cargo uplift capacity and revenue. The
introduction of a fifth freighter has improved service reliability
and allowed more flights to be mounted responding to market
demand. MASkargo will also have the opportunity to mount
more charter flights. As a result of the alignment, the revenue
from both belly and freighter sources improved considerably.
During the year under review, MASkargo has developed new
business initiatives that have played a major part in the
turnaround process. Some of these new developments include
the implementation of the Priority Business Centre. Perishable
One-Stop Centre, expansion of Penang Airport’s cargo facility,
the I-Port programme and the introduction of e-Commerce.
The implementation of the Priority Business Centre (PBC)
concept, which began in April 2002 with the setting up of
PBC at the Advanced Cargo Centre in KLIA, has been
generally considered a success. Its prime objective is to have
a seamless acceptance procedure, including payment for
MASkargo’s nine key account clients in Malaysia, contributing
approximately 60% of the total locally-generated revenue.
This programme creates advance sales with long-term
contracts, enabling monitoring of key shipments to meet flight
departure schedules and maintaining the atmosphere of a
cordial working relationship. As part of the expansion
programme, the Priority Business Centre concept will be set
up in Penang beginning April 2003.
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The launch of the Perishable One-Stop Centre at the ACC in
May 2002, allows both acceptance and delivery of perishable
cargo under one roof. This centre provides a complete facility,
moving cargo as soon as possible to cold storage rooms.
Up to 16 units of ULD can be stored directly into the cold
rooms, meaning the cargo will remain fresh in transit.
The expansion of Penang Airport’s cargo warehouse, involving
an additional 20,000 square feet of floor space, was completed
in October 2002 in order to resolve the problem of congestion,
which was previously a major issue. With the extension, the
total warehouse area in Penang Airport is now 100,000 square
feet, which enables MASkargo to handle up to 200,000 tonnes
of cargo annually.
The Air – Sea Transhipment programme jointly launched in
December 2002 with Northport, is the world’s first ‘airport
within a seaport’ programme. This programme, with the
establishment of an ‘air zone’ at the Northport Distripark, allows
sea shipments to be uplifted by air and vice versa without the
need to raise any Customs forms or bank guarantees. This
unique programme will be expanded to other ports in Malaysia.
IATA has also awarded the XPQ code for Port Klang.
To enhance the competitiveness of this air – sea programme,
MASkargo has taken the initiative to establish the brand name
‘I-Port’ for this project. ‘I-Port’ communicates that the
transhipment service from MASkargo is different from all
others on offer, depicting ‘I’ as ‘integrated’, ‘intermodal’,
‘international’, ‘innovative’ and ‘ideal’.
As part of its efforts to promote this innovative concept,
MASkargo has embarked on an extensive joint-roadshow
with Northport all over the region. In addition to Peninsular
Malaysia, roadshows were held in Pekan Baru, Sumatera
(Indonesia), Mumbai / Chennai (India) and Sabah / Sarawak
(East Malaysia).
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Heightened securitymeasures remaineda priority. Selectedflights are alsosecured in responseto current threats.
Keeping on Flying, Safely
Security and Safety Department
The Security and Safety Department is in the forefront of
aviation security and ground safety within the Company,
having responsibility for aircraft and passengers. This is over
and above security services provided by the airport operator,
Malaysia Airports Berhad (MAB). The terrorist attacks of
11 September and the bombings in the region particularly the
incident in Bali, Indonesia in 2002 have highlighted
vulnerabilities in airport security.
Heightened security measures on US bound flights remained a
priority in the period under review. Selected flights are also
secured in response to the current threats. Alerts from the
Transport Security Administration of the US and other foreign
airport authorities are major reference points. Similarly, advice
from the Royal Malaysia Police force is sought on current threats.
A major issue for the department has been the emphasis on
reducing baggage and cargo pilferage which can have a
negative impact on the Company. Complaints received are
monitored and frequent impromptu checks conducted,
ensuring security presence.
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Top Five Airlines of the Year 2003Airline of the Year – Skytrax, UK
Passport profiling checks, where a total of 1156 passengers
attempting to travel on Malaysia Airlines services fraudulently
were denied boarding, has resulted in avoidance cost to the
Company of more than RM10 million. Security agreements
with 10 foreign airlines during the year under review,
generated revenue of approximately RM722,500.
In an increased momentum to reduce ground accidents, the
Safety and Security Department introduced a series of safety
campaigns in 2002, and placed greater emphasis on improved
surveillance. This programme is aimed at reducing damage to
company property and any possible interruption to service.
Technical and Ground Operations
During the year under review, the Technical and Ground
Operations Division continued with its pursuit to attain world
class standards in terms of safety, operational productivity,
service levels and costs. It undertook various initiatives that
focused on prudent decision-making, quality improvement, cost
reduction and going beyond customer needs and expectations.
Flight Management Center (FMC)
For the period under review, FMC was able to lead in the
streamlining of the various processes responsible for on time
departure (OTP). By employing Six Sigma methodology, specific
problem areas were focused on, as a result of which certain
repetitive delays were eliminated. Through effective coordination,
Malaysia Airlines’ OTP performance worldwide had improved
from 87% in 2001/2002 to 90.74% in 2002/2003.
As the centre of operations, FMC had played an effective role
in coordinating the management of emergency and crisis as
shown by the smooth execution of contingency plans and
recovery, such as the period during the Iraq conflict and the Air
Crash exercise in KLIA in October 2002. In perfecting the
system, FMC was in the process of setting up a Crisis
Management Centre that aimed to be ever-ready in executing
emergency response and ensuring business continuity.
Top Three Best Airlines – Asia, 2003Best Airline / Asia – Skytrax, UK
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Engineering and Maintenance
Engineering and Maintenance (E&M), adhering to its three-year
business plan, implemented the first year of the plan by
introducing a Key Performance Indicator (KPI) measurement
system to focus on achieving operational excellence.
In 2002/03, the department introduced improvement initiatives
focusing mainly on cost reduction in airframe and engine
maintenance, elimination of wastage, enhancement of
technical training, optimising inventory value, improving the
reliability of in-flight entertainment systems and standardisation
of fleet interior upholstery. It also introduced a dispatch
reliability improvement programme that had led to an improved
technical dispatch surpassing industry’s average of 99%.
Implementation of the “Block Maintenance Checks” system on
narrow body fleet resulted in an improved aircraft turnaround
time by 73% compared to the preceding two year period
between 2000 and 2002.
E&M business process improvement initiatives focused on
detailed methods of improving KLIA’s technical operations and
processes, especially in cost effectiveness and efficiency. Forty
one (41) recommendations were proposed covering areas of
aircraft maintenance, aircraft servicing and maintenance control
centre. To date, one-fifth of the recommendations had been
fully implemented with the rest being actively pursued.
In the year under review, E&M also performed third party
maintenance mainly, ‘C’ and ‘D’ maintenance checks. This
contributed to about RM23.3 million in revenue.
Customer Services
Overall improvement in customer service was made possible
through recruitment of additional staff, introduction of a
refined training programme and the implementation of “going
beyond expectations” initiatives. This included the set-up of a
grooming section to standardise and control the appearance of
frontliners, delegating senior staff to handle First Class and
Business Class passengers, introducing dedicated staff to
handle customer airlines, and implementing special handling
procedure for golf bags, to name a few. The introduction of
“queue combers” to expedite passenger flow to boarding
gates for example had reduced flight delays caused by late
passenger boarding by 6.1%. Stringent but consistent checks
on excess baggage too had improved customer perception as
well as revenue collection at check-in counters. As a result
there was an increase of 3.5% in excess baggage revenue,
totalling RM45 million for the year under review.
Rapport with other operating departments such as Department
of Civil Aviation (DCA), Malaysia Airports Berhad (MAB),
Immigration, Customs, Police, Health authorities and other
bodies was also enhanced through regular interaction resulting
in smoother passenger handling process at the airport.
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Best Airline Signature Dish 2003Malaysia Airlines / Satay – Skytrax, UK
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Ground Handling Management (GHM)
GHM continued to be aggressive in marketing Malaysia
Airlines’ ground handling services to foreign airlines operating
into KLIA and Penang. By March 2003, the department was
able to win four more airlines, bringing the total number of
customer airlines to 41 and additional revenue of RM3.6
million. Apart from scheduled services, GHM was also able
to secure two major ad hoc businesses, namely the Haj
operation and the Non-Aligned Movement (NAM) Summit.
GHM also embarked on a joint-marketing programme with ERL
Sdn. Bhd. by offering check-in services at the Kuala Lumpur
City Air Terminal (KLCAT). Cathay Pacific and Royal Brunei
Airlines were the first to sign on, and more airlines are
expected to follow in the future.
As part of its responsibility, GHM had managed to review the
ground handling contracts at international line stations. As a
result, a total savings of RM21 million was achieved from a
concerted effort in renegotiating the existing contracts, and
in some stations, by appointing an alternative ground
handling agent.
Catering
In the period under review, MAS Catering Sdn. Bhd. (MCSB)
continued with its business process improvement. Continuous
implementation of various cost reduction measures in
manpower, meal wastages and equipment maintenance
resulted in a direct savings of RM4.9 million, which was 6.6%
more, than the previous year. Apart from supplying Malaysia
Airlines, MCSB also gained four more customer airlines by
March 2003, bringing the total number of foreign airlines
contracted to 27.
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Flight Operations
During the period under review, the Flight Operations Division
has successfully fulfilled the Company’s business plan and
strategy which included the reinstatement of certain routes and
increased flight frequencies to several destinations. In terms of
on time departures (despatch reliability), the division achieved
an increase percentage of overall average due to excellent crew
punctuality. Diligent tracking of crew movement will help
maintain and improve this statistic.
The Malaysia Airlines Flight Crew Training Centre is gaining
reputation as a renowned pilot training centre in the region; a
position further enhanced by the agreement signed in February
2003 for the purchase of a new advanced simulation
technology B747-400 Flight Simulator to replace the existing
one. The Centre currently conducts pilot training for Malaysia
Airlines pilots as well as for several airlines in the region,
promoting Malaysia Airlines’ expertise, and realising revenue
for the Company.
As a vital element of the group responsible for the safety of
Malaysia Airlines operations, the Flight Operations Division has
implemented the Flight Operations Quality Assurance (FOQA)
programme, a system that analyses recorded inflight data.
FOQA allows immediate access to flight records, with constant
review of flying technique, developing proactive flight crew
performance and ensuring the highest standards in operating
procedures.
A special programme has been established in conjunction with
Malaysian Security Forces in late 2001 and early 2002 to review
on board security, focusing on anti-hijacking or act of terrorism
and disruptive passengers. This course augurs well with the
enhancement of flight safety and security for the airline and
travelling public.
The Flight Operations Division fully endorses and promotes the
“Going Beyond Expectations” theme adopted by the Company
in July 2002, and the airline’s vision of being renowned for its
personal touch, warmth and efficiency. Currently, the training
of crew in soft skills; contributing to operational efficiency, is in
line with the worldwide industry, testimony to which are the
recent accolades received by the airline.
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Malaysia Airlines was awarded “Best Cabin Staff for 2001 and
2002” consecutively by Skytrax UK, in a survey measuring
efficiency, cabin presence, service attentiveness, friendliness,
consistency, warmth and sincerity by the Flight Crew. Practical
training on inflight announcement delivery has been stepped
up and a new version of the inflight announcement text will be
implemented soon. This is a position it aims to maintain to
ensure continued provision of excellent inflight services to
Malaysia Airlines customers.
The Flight Operations Division carried out a thorough review of
inflight announcement content and delivery. Increased
communications training is carried out annually for cabin crew,
and a recent initiative has seen the formation of three
Toastmasters Clubs within the Division under the auspices of
Toastmaster’s International in a move to further enhance the
communication skills of the flight crew.
Further steps in improving inflight services are underway with
the planned Computer Based Training for cabin crew training
and safety recurrent and conversion courses. This training
initiative will replace traditional methods and provide a virtual
experience in inflight services simulation. All of this contributes
to heightened operational efficiency; importing ground
management theory into the aircraft cabin.
The Flight Operations Division is working closely with Human
Resources to build a truly multicultural crew. All crew currently
speak at least two languages, but to add to passenger comfort
and ease of communication, recruitment is being undertaken in
India, Indonesia, China, Spain, France and Germany.
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The primary aim of Malaysia Airlines Academy (MAA) is to
develop and maximise the potential of the Malaysia Airlines
workforce for improved competitive edge in the airline industry.
The primary activities of MAA are the provision of skills,
development training, management development programmes
and airline related education to increase Malaysia Airlines’
performance. These include the Executive Development
Programme, Managing Employment Relations and Know Your
Company, Know Your Product. During the period under review, a
total of 10,532 staff have attended various training programmes
conducted by MAA, 48% of the total staff strength.
MAA is among the first of the professional training institutions
in Malaysia to be accredited with ISO 9001:2000 Certification
in January 2003. MAA also received the prestigious ‘Anugerah
Pembangunan Sumber Manusia 2002’ awarded under the
large companies’ service sector, from the Minister of Human
Resources, Datuk Dr. Fong Chan Onn in October 2002.
Human Resources
The staff strength of the company stood at a total of 21,916
as at 31 March, 2003, comprising 250 managerial staff, 1,232
executive staff, 1,267 technical crew, 4,310 cabin crew, 2,164
technical staff and 12,693 support staff.
During the year, the Company moved further to create a
customer oriented workforce that would strengthen its
organisational capability to achieve both short and long term
goals of the Company. A Job Rotation Programme was
implemented to expose as many staff as possible to the
many facets of the airline business.
Training and development activities have gained momentum in
the period under review at the Malaysia Airlines Academy
(MAA) in Kelana Jaya with the introduction of new programmes
aimed to further develop employees’ competencies in the
various areas of the business.
Investing in Technology and Quality
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Human Resources Development AwardLarge Companies Sector – Ministry of Human Resources Malaysia
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MAA has taken upon itself to ensure that its customers’ needs
are met more effectively. Thus, it serves as a bridge with other
training institutions for free exchange of management
knowledge and experiences.
The staff Establishment Committee continues to review the
manpower requirements of the various Divisions in order to
achieve the optimum level of staffing for the Company.
With the expiry of various collective agreements and
memorandums of understanding during the year, the Company
has commenced negotiations with the respective in-house
unions and associations. The objective is to jointly develop
collective agreements that would assist the Company to
manage its business in a more efficient and cost-effective
manner. Negotiations are still under way at the end of the year.
MAS Gemilang
The MAS Gemilang Programme, established to support the
Turnaround Plan, consists of three main initiatives – Six Sigma,
Quality Control Circle (QCC) and Change Acceleration
Process (CAP).
As of 31 March 2003, the engagement rate for Six Sigma and
QCC is 10.3% (256 participants) and 1.6% (275 participants)
respectively, based on the total staff strength based in
Malaysia. The Company’s main objective is to have 30%
engagement for Six Sigma and 10% engagement for
Malaysia-based staff by end of the financial year 2003/04.
Currently there are 65 active Six Sigma projects and 22 QCC
circles. Eighteen Six Sigma projects and two QCC circles have
been successfully closed in for the year under review.
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Information Technology
In the year under review, Information Technology Planning
Services (ITPS) has embarked on three key programmes; the IT
Infrastructure Project (ITI), Strategic IT Outsourcing (SITO) and
Application Programme.
IT Infrastructure Programme
ITPS strategic initiative, ‘Global IT Infrastructure Upgrade
Programme’ is now in its roll-out phase, with the plan
to upgrade 177 sites within the Malaysia Airlines system
wide network.
This RM150 million project encompasses a worldwide network
upgrade and technology refreshment process of the
corporation’s desktop environment to leverage current and
emerging technologies.
As of March 2003, 79 sites, from a total of 177 worldwide,
have been successfully upgraded and are now running on the
new infrastructure. These include major sites such as KLIA and
Head Office, Kelana Jaya offices, all domestic stations in
Peninsular Malaysia (except Kuantan), major stations in East
Malaysia and major international stations such as London,
Manchester, Amsterdam, Frankfurt, Rome, Sydney, Melbourne,
Brisbane, Adelaide, Hong Kong, Tokyo, Osaka, Fukuoka,
Nagoya, Seoul, Taipei, Saigon and Madras.
Strategic IT Outsourcing Programme
The effective and cost efficient use of Information Technology
is key to the ongoing success of Malaysia Airlines in the
marketplace. The project seeks to establish a long-term value-
based strategic partnership in the form of a full service
outsourcing arrangement to deliver immediate business
performance impact, transforming IT service delivery from a
technology driven model to a service driven model. It is
believed that outsourcing will allow for the best possible
outcome in an area that is not Malaysia Airlines’ core business.
The project has accomplished several key milestones in the
period under review. The first significant milestone is the
Board’s approval for the engagement of professional services to
facilitate Malaysia Airlines in defining the outsourcing
partnership. A structured Request for Information (RFI) process
was employed to assess potential market players. The next key
milestone achieved is the issuance of Request for Proposal (RFP)
to the recommended parties resulting from the evaluation of
the RFI process. Evaluation and negotiation are currently under
way, and will progress into the new financial year. Subject to
approval by Malaysia Airlines Board, the partnership is expected
to be formalised by July/August 2003 timeframe.
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Application Replacement Programme
The objective of this project is to upgrade airline IT systems,
enhancing functionality of business operations and increase
revenue. The review of the existing application portfolio was
completed in November 2002, and an application framework
has been defined; consolidating multiple applications into
significant programmes of activities that can be implemented in
a coherent manner. These Application Programmes will drive
the initiative to align IT with the Business Plan. A significant
refreshment of the application portfolio is planned over the
next several years to equip Malaysia Airlines with a more
integrated suite of applications. Seven core programmes have
been identified, and they are now engaged in the initial phase
of strategic planning and analysis.
The seven core programmes are:
— Integrated Passenger Services System (iPSS)
— Integrated Cargo (iCargo)
— Integrated Maintenance and Engineering (iM&E)
— Integrated Human Resources System (iHR)
— Integrated Finance (iFIN)
— Integrated Operations (iOPS)
— Integrated Personal Productivity Workspace (iPPW)
Several application projects such as Internet Booking Facility
and others have completed the requirements definition phase,
and are in the solutioning phase with RFPs issued for
development and implementation.
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Group Financial Highlights
(0.5)
0
2.5
93/94 94/95 95/96 96/97 97/98 99/00 00/01 01/02 02/0398/99
1.5
2.0
1.0
0.5
(0.0
4)
1.20
1.10
2.17
1.46
2.22
1.30
0.60
1.49
0.85
Cash Flow Per Share (RM)
(200.0)
80.0
93/94 94/95 95/96 96/97 97/98 99/00 00/01 01/02 02/0398/99
(120.0)
(80.0)
(40.0)
0
40.0
(160.0)
1.0
20.0
33.3
43.8
(173
.2)
(33.
7) (90.
9)
(33.
6) (108
.5)
38.9
Earnings / (Loss) Per Share (Sen)
Financial year is from 1 April to 31 March
MAS 00519 RevOp-Eng-FA-TheFinal 2/1/04 5:45 AM Page 70
71
0
8.00
93/94 94/95 95/96 96/97 97/98 99/00 00/01 01/02 02/0398/99
4.00
6.00
2.00
0.89
5.01
5.67
6.23
6.76
2.81
1.68
1.74
1.98
2.09
Net Tangible Assets Per Share (RM)
0
2
12
93/94 94/95 95/96 96/97 97/98 99/00 00/01 01/02 02/0398/99
8
10
6
4
l2.0
7.0
7.5
10.0
2.0
2.0
2.0
l l
Dividends Per Share (Sen)G
roup
Fin
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ighl
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