Malaysian Airlines System BHD

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Malaysian Airlines System BHD

33rd Floor
Bangunan MAS
Jalan Sultan Ismail
Kuala Lumpur
(3) 261-0555
Fax: (3) 261-3472

State-Owned Company
Incorporated: 1972
Employees: 19,000
Sales: US$1.5 billion

Malaysian Airlines System is Malaysias state-owned airline and one of Asias fastest growing carriers.

The history of Malaysian Airlines dates back to 1937 when Ocean Steamship Co. of Liverpool and Straits Steamship Co. of Singapore joined forces and won approval from Singapores government to operate an airline in the region.

Gaining approval and taking its first flight were two different things for Malayan Airways Ltd. Operations did not begin until 1947, well after the Japanese occupation had come to an end, when a twin-engined Airspeed Consul lifted off from Subang International Airport in Kuala Lumpur, thus linking that city with Singapore, Ipoh, and Penang in the north of the country. In 1947 the fledgling airline added a 21-seater DC3 to its fleet of three Airspeed Consuls. By the end of the year the airline was flying to Jakarta (then called Batavia), Palembang, Bangkok, Medan, and Saigon (later called Ho Chi Minh City). Jointly controlled by the intercontinental carriers BOAC and Qantas, Malayan Airways was for a time run by Keith Hamilton. Hamilton was later to head Qantas during the 1980s.

Following Malaysias political establishment in September 1963the new country comprised the former states of Malaya and Singapore, and the one-time colonies of North Borneo, Sabah, and SarawakMalaysian Airways was formed to connect these disparate regions. Expansion brought more aircraft into the airlines fleet after Borneo Airways was purchased and folded into Malaysian Airways in 1965. This brought four Dakota jets and two Scottish Aviation Twin Pioneer aircraft to the carriers stable of aircraft.

The Malaysian flag carrier changed yet again in 1966, a year after Singapore seceded from Malaysia to become a sovereign state on its own. That year, the governments of Singapore and Malaysia jointly bought a controlling stake in the airline and renamed it Malaysia-Singapore Airlines (MSA). Powerful Boeing jets then entering the fleet enabled flights to reach a number of far-flung Asian destinations. But differences between Kuala Lumpur and Singapore over the future direction of MSA prompted a split in 1972. Lee Kuan Yew, prime minister of Singapore, desired a flag carrier for his country, the aim being to fly a small fleet of Boeing 707s displaying the yellow and blue colors of Singapore Airlines.

Malaysia likewise chose to go its own way. In October 1972, Malaysian Airline Systems (MAS) was established. The acronymMASmeans gold in the Malaysian language. Each of its aircraft would henceforth sport a winged tiger logo, a stylized form of the traditional Kelantan wau or Malaysian kite.

The split was crucial to the future fortunes of MAS. From 1972, the airline continued to see itself as a regional carrier, connecting a myriad of remote destinations in Peninsular Malaysia, including Sabah and Sarawak. Singapore Airlines, on the other hand, was committed from its inception to becoming an international success. By 1975, Singapore Airlines was flying to Seoul, Hong Kong, and Taipei. A year later, the airline was carrying passengers to Paris, Dubai, and New Zealand. Malaysia, however, looked more to exploit its vast reserves of natural resourcespetroleum and petroleum products, natural gas, timber products, and rubber. The country would choose much later than Singapore to attempt to compete with Western companies in manufacturing and high-tech markets.

As a result, maintaining a successful regional airline carrier was judged the best strategy for Malaysia during the 1970s. The company slowly built up its regional services to Jakarta and Medan in Indonesia and later Bangkok, Hong Kong, Manila, and Singapore. Malaysia felt that MAS was not serving the needs of Malaysians, explained Abdullah Mat Zaid, director of corporate planning at MAS.

Expanding as a regional airline was not without incident for MAS. In 1978, the companys low-wage policy met with a setback. Kuala Lumpur had set out rules limiting union activity at the national air carrier as a means of keeping wages and costs down, but a bitter and disruptive labor dispute occurred in 1978. Events surrounding a strike at the national airline prompted the government to intervene and brand MAS workers as being engaged in illegal activity. Several union officials were subsequently arrested.

Growing domestic wealth and economic growth during the 1980s helped spur growth at Malaysian Airlines. By the end of the decade, MAS was flying to 47 overseas destinations. These included eight European citiesLondon, Zurich, Paris, Frankfurt, Istanbul, Vienna, Amsterdam, and Brussels. MAS also flew at this time to six Australian citiesBrisbane, Adelaide, Darwin, Perth, Melbourne, and Sydney, and to Auckland in New Zealand. Besides flights to Asian centers like Hong Kong, Tokyo, and Peking, MAS also connected with Los Angeles and Honolulu. By 1992, MAS added scheduled flights to Athens, Madrid, and Rome, and plans were in motion to reach at least one destination in Eastern Europe. Moreover, a new service to South Africa and Brazil was scheduled for 1993. The airline would also look to reach one city on the eastern seaboard of the United States.

MAS also chose during the early 1990s to expand through joint services to additional destinations. For example, Iran Air connects Kuala Lumpur with Tehran, and Royal Jordanian connects MAS flights with Amman. In addition, joint services to Chile and Argentina were discussed in late 1991.

The impetus for this expansion came from Malaysias burgeoning economy. Between 1986 and 1991, the countrys export-oriented economy posted an average real growth of nine percent. Changes to Malaysias foreign investment rules during the mid-1980s were designed to help speed a shift from an economy previously dependent on natural resources to a finely tuned industrialized economy. At the same time, a number of large Asian and Western corporations such as Sanyo, NEC, Toshiba, and Philips established branch plants in Malaysia. The extra traffic of company officials flying back and forth from their headquarters to Malaysia, and the transportation of their high-tech goods, spurred on ticket sales for the airline. The number of business passengers MAS accommodated was underlined by gross foreign investments in Malaysia that rose 30 percent in 1991 to 10.7 billion ringgits (5 billion dollars).

As the countrys export trade thundered ahead in the late 1980s, so did the domestic passenger traffic in and out of Malaysia. Tourism also provided a springboard to expansion for MAS. Only by the late 1980s did Malaysia begin to go after the prized Western tourist, a market already well exploited by neighboring Thailand and the Philippines.

Nearly 5.5 million travellers visited Malaysia in 1991. The country, and its airline, were hit by the effects of the Gulf War and global recessionary conditions. Nevertheless, the tourism industry was worth 5 billion ringgitsor 2.4 billion dollarsto the countrys trade balance in 1991. The bulk of these tourists came from neighboring Brunei, Indonesia, the Philippines, Singapore, and Thailand. Kuala Lumpurs plans to build a number of luxury golf courses in the country were expected to help secure growing numbers of Japanese tourists.

Getting into the package tour business also helped MAS encourage increased passenger traffic. Malaysia Airlines Golden Holiday packages and Malaysia Stopover packages were established in 1984. These encouraged European and Australian travellers in transit between the two continents to take a rest break in Malaysia before carrying on to their final destination. To further stimulate tourism, a joint campaign was run by the Malaysian government and MAS to declare 1990 Visit Malaysia Year. During the year, some 7.4 million tourists flew into and out of the country, as compared with the 4.8 million tourists who visited Malaysia in the previous year.

Another source of new traffic for the airline was the growing number of foreign students attending educational institutions in Malaysia. For example, in September 1989 the International School of Kuala Lumpur registered 700 students. A year later, the school had doubled its enrollment. By the same token, young Malaysians were studying in Europe and North America. In Canada, where many Malaysian students attended universities, it was felt in early 1992 that this new traffic source might warrant regular service between the two countries. Canadas own national airline, Air Canada, which was suffering from the recession and increasing global competition, was slow to grant Malaysian Airlines landing rights.

The Canadian government felt that allowing MAS to land in Vancouver would encroach on territory commanded by Canadian Airlines International Ltd., while Toronto International Airport was considered the preserve of Air Canada. Malaysias case at the time was not helped by Ottawa having a year earlier announced the cancellation of Singapore Airlines landing rights in Toronto. Even so, Kuala Lumpur reasoned that Canada was out-of-step in trying to protect its national airline carriers. The global airline industry as a whole was going the opposite way, towards increased deregulation and competitiveness. Malaysia was prepared to wait for Canada to accept its growing economic might and grant reciprocal landing rights.

During the early 1990s, investment continued for MAS. Intercontinental traffic for the airline was encouraged by the purchase of Boeing 747 wide-body jets. By 1991, the airline had four of them, and three more were added a year later with an average of two more due for delivery each year until 1995. In 1992, a tightening labor supply in Malaysia, in part the result of its increasingly prosperous economy, was sighted by international corporations as the prime obstacle standing in the way of future expansion plans. Manpower shortages were especially acute at the middle management and technical levels. All of these circumstances would impact on MASs passenger and cargo traffic figures as the countrys economy moved from the farm to the factory and beyond.

Amid this backdrop, the Malaysian government in 1992 forecast that passenger traffic on the countrys combined airwaysinternational and regionalwould grow by ten percent annually in the five years before 1997. International freight volume in the same period was expected to rise by 13 percent annually. Kuala Lumpur also announced in 1992 that it had plans to build a new international airport in Sapang. It said further that all other airports in the country were expected to cope with the increased passenger demand of the 1990s without the need for expansion. Government forecasts in 1992 pointed to 9.5 million passengers to be carried by MAS that year, a figure expected to jump to approximately 15 million by 1995.

Cargo was also identified as an expanding source of revenue for the airline in the 1990s. In recognition of this potential, MAS in 1992 introduced MASkargo in order to begin providing a full cargo service to the United States and Europe. A DC 10-30 jet was fitted to carry up to 60 tons of cargo per flight. Further plans were announced to purchase an additional Boeing 747-400 jet to carry 45 tons of extra cargo per flight.

In 1992 MASkargo also opened a fully automated cargo handling center in Penang. The new facility complemented the expanded MAS Cargo Center at Subang Airport, which provided semi-automated and computerized facilities including elevating transfer vehicles and electronic scissor lifts fitted with computerized scales. Expansion at the cargo center brought MASkargos total warehouse storage space to 150,000 square meters.

If Malaysian Airlines System can maintain the solid growth it registered during the 1980s, the airline carrier may well continue to be as busy and successful as it has been since its founding in 1972.

Principal Subsidiaries

MASkargo Ltd.

Further Reading

Malaysia #x2014; A Special Study by Corporate Location, London, Century House Information Ltd., 1991; Nation Can Afford to Pick and Choose among Investors, Globe and Mail, July 7, 1992; Donville, Christopher, Malaysian Airlines Spreads Its Wings Internationally, Globe and Mail, July 7, 1992.

Etan Vlessing

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