Saturday 02 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on September 25, 2023 - October 1, 2023

SINCE its decision to sever ties with long-time in-flight catering provider Brahim’s Food Services Sdn Bhd (BFS), numerous reports of Malaysia Airlines Bhd (MAB) serving substandard in-flight meals, especially on flights that come with costly tickets, have surfaced.

Critics have also slammed the national carrier for not planning the transition to new in-flight caterers well. Pressure has been building for MAB to reconsider its ties with BFS, even as the airline vowed to fully restore its in-flight meal options by mid-November.

This comes as MAB broke off its decades-long ties with BFS on Aug 31 after the two sides failed to come to an agreement.

Some industry players commended MAB for its decision to finally discontinue a partnership that the airline has described as “lopsided” and unfair.

They are urging the board of directors of Malaysia Aviation Group Bhd (MAG), the parent company of MAB, to continue to support its management team, led by MAG group managing director Datuk Captain Izham Ismail, during the transition.

“It is not advisable for MAB to go back to BFS as the quality of food provided will still be the same. We have to accord [MAG’s] management team certain respect ‘to press the button’ [and end its long-standing contract with BFS]. If they don’t, the same issue [of poor food quality] will continue. You’ll have some hiccups along the way, but give it time,” one industry player tells The Edge.

But facing harsh industry scrutiny, sources tell The Edge that the board has pushed MAG’s management to accelerate full resumption of its in-flight meal options to the end of the year from the original June 2024 deadline.

Asked to comment, a spokesperson for MAG says there is no pressure for the airline to go back to BFS for its in-flight catering needs.

“It is better to have three to five food and beverage providers to serve different sectors and routes and business and economy classes, and not solely depend on one or two suppliers. In the meantime, MAG should be more focused on ensuring that its 60%-owned catering unit MAS Awana Services Sdn Bhd scales up its production capacity,” says another industry player.

“MAS Awana should also fully focus on providing inflight catering service to MAB and let airport lounge operators such as Plaza Premium Group (PPG) manage MAB’s three Golden Lounges at Kuala Lumpur International Airport (KLIA),” the industry player adds.

It is understood that PPG has been managing MAB’s Domestic Golden Lounge at KLIA since July 1. The lounge has achieved a record 83% in its customer satisfaction index since the group took over the management.

“Time is of the essence. To set up a brand-new flight kitchen takes more than a year. And MAS Awana already has an airline catering licence. The ideal situation for MAB is to build up MAS Awana so that it can handle 60% of the airline’s in-flight meals, while Pos Aviation Sdn Bhd (a wholly-owned subsidiary of Pos Malaysia Bhd) will handle 20%, and other service providers such as PPG will handle the rest,” says the industry player.

Pos Aviation currently serves about 20% of MAB’s meals, while the rest are provided by MAS Awana and six other service providers. Previously, Pos Aviation served 14% of MAB’s meals, with the remaining 86% by BFS.

A senior airline executive concurs, noting that airlines operating out of KLIA currently only have two in-flight catering service providers to choose from: BFS and Pos Aviation.

“Of course, it is always good to get new suppliers that can better meet your expectations. I am sure there is a basis for them [MAB] to say that the catering and handling charges [in the old catering agreement with BFS] were over-quoted and the food quality was not good. I don’t think they should be pressured in any way [to reverse their decision to end operations with BFS].

“In any business, we should have more flexibility to choose from. It is just that we (airlines) don’t have much of a choice at KLIA when it comes to in-flight catering. So, it is good to open up,” the airline executive says.

“Also, you don’t fly thinking about the best food being served. Airline food is quite standard. To me, if the transition is only temporary, [so] why not [wait]? Especially if they [MAB] can come up with something better in the future. By and large, passengers understand all this, and are realistic that disruption to the norm is only to be expected,” she says.

Asked whether MAB should operate its own in-flight catering facility or establish a joint venture with international caterers, the airline executive says: “It is to do with the airline's business model. Not every airline wants to do everything under one roof because they want to concentrate on what they do best. So, they outsource other things like supplies of food or safety equipment.

“And nobody comes in if they don’t make money. The important thing is to level the playing field. That means whoever enters the business, they must be allowed to have a start and flourish, then at least we will have more options. To me, it is always good for the consumers if they have more options.”

“If you want to outsource a service, make it an arm’s length transaction so that you can impose proper service levels and act accordingly if it comes to that. Terminate, punish, whatever. It is a bad idea to have a minority position in your own vendor! What is the logic [if you don't have control]?” says economist Dr Nungsari Ahmad Radhi, a former Malaysian Aviation Commission executive chairman.

MAB has a 30% stake in BFS, but Brahim's Holdings Bhd (BHB) holds a controlling 70% stake. Meanwhile, MAB holds a 60% stake in MAS Awana, with the remaining 40% stake held by Evergreen Revenue Sdn Bhd, which is equally owned by its executive directors Marzuki Madon and Amlah Yassin.

Nungsari also questions the competitiveness of service providers to airlines and airports like BHB. “Have we developed competitive ones from catering to cargo or baggage handling? What happened to BHB seems to suggest that it has not been able to grow from its contract with MAB.

“The irony is that the aviation sector in Malaysia hasn’t been able to produce international players — the two airlines (MAB and Capital A Bhd) to an extent, and Malaysia Airports Holdings Bhd is managing a couple of airports outside Malaysia (Istanbul Sabiha Gokchen International Airport in Turkey and Rajiv Gandhi International Airport in India). Not much else," Nungsari notes.

The straw that broke the camel's back

BHB, which is controlled by its founder and executive chairman Datuk Seri Ibrahim Ahmad, had been an exclusive catering provider to the national carrier since 2003 under a 25-year concession that was supposed to end in 2028. But as part of a “hard reset” to help the then Malaysian Airline System Bhd return to the black, BHB had agreed to a shorter five-year contract extension in 2015, which expired in 2020. In the years since then, MAB and BFS have renewed contracts, but with shorter term lengths of between six months and one year.

In recent times, MAG’s plan to add a new termination for convenience clause to the contract extension became a major sticking point in talks between MAB and BFS. BFS rejected the clause unless “it is properly defined to cover the circumstances applicable or with an acceptable compensation”, says BHB.

Ibrahim recently said that a “fair” compensation would be one that covers the loss of future earnings for the remaining period of the contract if it is terminated.

However, a surprise notice of service discontinuation served on MAB by BFS in June this year — while discussions were still ongoing for a new contract extension — further soured the already strained relations between the two parties.

While BFS may have subsequently retracted the notice and agreed to extend its in-flight catering service for two months, industry observers say the move was the final straw for MAB and was a blunt reminder that the airline very much remained reliant on a single service provider.

According to people familiar with the matter, MAB didn’t think about pulling the plug until then, which may partly explain the airline’s lack of planning ahead of the catering transition. “Even if they had been thinking of alternatives since November last year, it takes at least a year or two to come up with a proper set-up.”

In a written reply to questions from The Edge, BHB says: “We issued a notice of service discontinuation on June 6 to inform MAB that without a contract, we cannot continue to supply to them.”

On MAB’s decision to part ways with BFS on Aug 31, BHB says: “MAB had informed us that they are doing their own catering services moving forward as there was no conclusion reached on the contract negotiation. We knew that there would be hiccups, but we didn’t expect it to be this bad.”

BHB concedes that without MAB, it will affect its turnaround plans as the national carrier contributes about 50% to BFS’ revenue, which in turn contributes about 90% to BHB’s top line. BHB has been making losses since 2014, posting a net loss of RM11.28 million on revenue of RM33.57 million for the most recent financial year ended Dec 31, 2021, before it was delisted. In June last year, its shares were delisted from Bursa Malaysia after it failed to regularise its financial condition, including the settlement of RM49.88 million in debt to OCBC Al-Amin Bank Bhd.

“With the experience gained during the Covid-19 pandemic, coupled with cost-cutting measures, we will continue our business as usual to ensure our survival.

“With a positive mind, anything is possible. The travel market is growing day by day after Covid-19. With more than 20 years’ experience in the market, we are confident that we will recoup very soon,” says BHB.

BHB says it is still open to continuing the relationship with MAB if the latter were to request a renegotiation. “Yes, certainly. We would be happy to continue the relationship if we can come to terms on the agreement.”

According to Shukor Yusof, founder and analyst of aviation consultancy Endau Analytics, MAG stands to lose the most in the short term in terms of reputational damage and disruptions.

“MAG would have learnt an invaluable lesson from this experience and will be better prepared in future to manage risks,” he says. “However, BFS will become the long-term loser as I don’t think it can sustain without an anchor airline like MAB.” 

 

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