Malaysia Airlines Unveils Major Network Restructuring Program

Malaysia Airlines today announced its new international network as part of the airline's overall turnaround plan, which was unveiled by the management in June this year. Following the June announcement, a comprehensive review of the network was undertaken to identify weaknesses and strengths and develop strategies to address any shortfalls and to pursue opportunities.

The new network is based on a long-term plan recognizing the impact of recent political and economic events especially the slump in the aviation industry following the September 11 terrorists attacks in the U.S., competitive developments and the expected size and growth in passenger and cargo demand.

The restructuring of Malaysia Airlines' network involves the withdrawal from unprofitable non-core destinations to cut losses and an increased focus on profitable, high growth routes. Malaysia Airlines will also maintain and strengthen developmental routes of strategic importance.

Twelve destinations, including Auckland, Buenos Aires, Karachi, Manchester, Darwin and Munich, will be discontinued. In addition, the airline is temporarily suspending its services to New York.

At the same time, Malaysia Airlines aims to improve services on key routes to provide at least daily frequencies, subject to availability of traffic rights and slots. The airline is currently working closely with the Ministry of Transport to secure these rights. Malaysia Airlines is also in advanced alliance discussions with KLM. This will allow Malaysia Airlines to build on KLM's extensive network and enhance its reach into Europe.

Furthermore, the airline is increasing direct connections from Kuala Lumpur to key Asian destinations through the discontinuation of additional domestic stopovers in Penang and Langkawi. Overall, almost 70% of Malaysia Airlines' capacity will continue to serve long-haul routes.

The first phase of network changes will be implemented over the next two seasons (Northern Winter 2001 and Northern Summer 2002 schedules).

Malaysia Airlines Schedule Changes
(subject to availability of slots)

Increase in frequencies

Immediate:
KL - Denpasar from daily to twice daily
KL - Phuket from 10x to 14x weekly
KL - Saigon from 4x to 5x weekly

Near term
KL - Tokyo from 9x to 14x weekly
KL - Shanghai from 4x to 7x weekly
KL - Guangzhou from 4x to 5x weekly
KL - Xiamen from 2x to 3x weekly

Decrease in frequencies

Immediate
KL - Surabaya from 10x to 7x weekly
KL - Brisbane from 7x to 6x weekly
KL - Perth from 12x to 8x weekly
KL - Johannesburg - Cape Town from 4x to 2x weekly

Withdrawals

Immediate:
Penang - Phuket
KL - Johor Bahru - Surabaya
Singapore - Kuantan
KL - Karachi - Dubai
Munich

Near term:
KL - Cairo - Beirut
KL - Dubai - Istanbul
KL - Darwin - Cairns
KL - Manchester
KL - Rome
Buenos Aires
KL - Zurich
KL - Auckland

Conversion to direct flights

Some international connections out of Penang and Langkawi will be disconnected with effect from 27 October 2001. This move will enhance KLIA as a regional hub while improving connectivity between our international and domestic network. Additional domestic frequencies will be provided to transfer passengers in KLIA to Penang and Langkawi. The affected sectors are:-

KL - Penang - Madras
KL - Penang - Hong Kong
Nagoya - Penang - Kuala Lumpur
Osaka - Penang - Kuala Lumpur
Osaka - Langkawi - Kuala Lumpur
Tokyo - Penang - Kuala Lumpur
Taipei - Langkawi - Kuala Lumpur

Malaysia Airlines estimate that the first phase of the network reconfiguration will reduce MAS' losses by up to RM190 million per annum. Cost savings are expected to substantially offset any revenue losses incurred by the rationalization of routes.

The withdrawal of services is not expected to affect Malaysia's position as a top tourist destination in Asia. By increasing frequencies significantly to certain key destinations, Malaysia Airlines expects to contribute towards the overall efforts by the various authorities to increase tourist arrivals to Malaysia.

The impact on airborne trade is expected to be minimal as Malaysia Airlines continues to maintain its key cargo destinations in the United Kingdom, Europe, Orient, Australia, Middle East, South Africa and the United States. The airline plans to make up for withdrawals of services through interline arrangements.

Malaysia Airlines recognizes the importance of Malaysia's national carrier for the development and growth of the country. The airline believes that these changes are an essential component in fulfilling this obligation and that they will enhance Malaysia Airlines' position as an important and significant player in the airline industry. Only as a profitable airline will MAS be able to maintain the respect and trust of international travelers, distributors and partners.