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AVN 4010 Air Transport Economics 1 INTRODUCTION

Malaysia Airlines Strategic Plan

Ever since its inception as an independent airline in 1987, Malaysia Airline System Berhad is doing business as Malaysia Airlines. Proudly running as the national-flag carrier of Malaysia, it operates flights from its main home base of Kuala Lumpur International Airport (KLIA) with secondary hubs at Kuching and Kota Kinabalu on the second island of the Malaysian state. With a concentration of network on both regional as well as international sectors, MAS has come to be known as a world renowned airline as well as a local favorite along with its subsidiary, MAS Wings, credit being given to its staff hospitality and its marketing campaigns. After conducting an analysis on a local and international level it has been understood that there are various issues and opportunities that are being faced or available by and to MAS. Some of these are an overstaffing problem involving a workforce of more than twenty-thousand employees all over the world. Another one, being incurred net losses of RM 479 million by the third quarter of 2011. By the end of the fourth quarter the airline had incurred a loss of RM 2524 million, indicating a substantial decrease from a profit of RM 234 million in the previous year. However the airline had remained profitable in the previous fiscal year of 2010. This report will analyze the efficiency model of Malaysia airline which talks about four parts: business efficiencies, customer relationship and marketing efficiencies, human resource and knowledge efficiencies, differential efficiencies. It also involves a SWOT analysis on the airline as well. Finally, MAS has the vision in the next 3-5 years to become a 5-star value carrier through a strategic medium term plan which has been devised that might prove beneficial for the airline.

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

2 STRATEGIC ORGANIZATIONAL ARCHITECTURE OF MAS In order to understand and analyze the current scenario of Malaysia Airlines and provide future strategies the Efficiency Model has been used. Under the Efficiency Model MAS will be keenly studied on 4 efficiency areas which are Business Strategy, Customer Strategy, HR Strategy and Innovation Strategy. 2.1 Business Efficiencies 2.1.1 Finance Management The Airline industry, more so than other industries is vulnerable to demand shocks created by macroeconomic events. In 2011, there were two such shocks with the earthquake and tsunami in Japan and the floods in Thailand. Furthermore, the possibility of a global recession caused by Europes sovereign debt crisis and a continued high cost of jet fuel must be prepared for. Malaysian airlines must unveil a new business and finance strategy aiming to restore profitability. 2.1.1.1 Net loss The Malaysian flag carrier, which turned a profit in 2010, incurred net losses of RM 479 million by the third quarter of 2011. By the end of the fourth quarter the airline had incurred a loss of RM 2524 million, indicating a substantial decrease from a profit of RM 234 million in the previous year. 2.1.1.2 Fuel & Non-fuel Expenditures Further more fuel costs had gone up 25% by the end of Q4 in 2011 to RM 305 million. Non fuel costs had increased by 50% accounting for additional provision including redelivery of aircraft among others. The provisions made in Q4, 2011 had totaled to RM 1.09 billion. Although the fuel costs recovery rate had and continued to improve from the previous quarter, fuel price still remains highly volatile affecting the airlines revenue performance. In order the restore profitability the airline carried out a new business plan seeking to cut capacity and increase focus on the premium sector.

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics 2.1.2 Strategic Revenue Management

Malaysia Airlines Strategic Plan

Over the past decade Malaysia Airlines has lost focus on its full service portion of the market on which it had been increasingly dependent. Instead they had diverted resources to the low cost segment of the market, operating one of the oldest fleets in the region and under-investing in the customer experience that is key for success in the full service business. This decline in relative product quality and customer loyalty combined with excess capacity had weakened substantial yield increases. In 2011 the airline had lost 40% of passengers flying a full service competitor airline to a city served by Malaysian Airlines. 2.1.2.1 Revenue & Cost levels The airline had seen an increase of group revenue of 2% from the previous year. However, the unit revenue levels were still 15-25% below regional peers as can be seen in the chart below. Furthermore, the airlines cost position was not sufficiently lower than competitors resulting in loss.

2.1.2.2 Increase in Yield & RASKs The airlines lower load factor brought with it improved yields by the end of 2011. The RASK (Revenue per available seat kilometer) had also increased by 2% as can be observed the figure below. Although there had been a modest growth in revenue, yield and RASKs by the end of 2011 it was insufficient to offset higher fuel costs.

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

2.1.2.3 Revenue & Profitability Recovery Without taking drastic measures the airline is forecasted to be bankrupt by the end of 2012. One possible step to recover from the losses incurred in 2011 is to cut back on several loss-making routes including the long haul routes to South Africa and Argentina. The airline acknowledges that 40% of its routes are unprofitable, and although it only operates five weekly flights to South America and Argentina it accounts for over 5% of total international capacity per ASKs. This cutback will allow Malaysia Airlines to increase capacity within Southeast Asia by adding frequencies to core markets in the region. The airline has a full service cost base but its revenues are closer to those of low cost carriers such as AirAsia rather than full service carriers such as Cathay Pacific. A crucial step to recovery includes investing in order to win back the loyalty of premium passengers by operating modern wide body aircraft and improving other aspects of product quality which is necessary for the success of such a premium full service carrier.

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics 2.1.3 Network Strategy

Malaysia Airlines Strategic Plan

Malaysian Airline operates flights from its home base, Kuala Lumpur International Airport and with a secondary hub at Kuching. It operates flights in Southeast Asia, East Asia, South Asia, Middle East and on the Kangaroo Route between Europe and

Australasia. It also operates transpacific flights from Kuala Lumpur to Los Angeles, via Tokyo. Malaysia Airlines consists of two airline subsidiaries: Firefly and MASwings. Firefly operates scheduled flights from its two home bases Penang International Airport and Subang International Airport. The airline mainly focuses on tertiary cities. On the other hand, MASwings focuses on inter-Borneo flights. Malaysia Airlines has a freighter fleet operated by MASKargo, which manages freighter flights and aircraft cargohold capacity for all Malaysia Airlines' passenger flights.

As it has been mentioned in the report earlier the Malaysian flag carrier, which turned a profit in 2010, incurred net losses of RM 479 million by the third quarter of 2011 and by the end of the fourth quarter the airline had incurred a loss of RM 2524 million, indicating a substantial decrease from a profit of RM 234 million in the previous year. The initial recovery plan would result in the termination of MAS highly unprofitable routes to South Africa and Argentina and its only destination in Latin America. Other long-haul routes will also be eliminated but have not yet been mentioned by MAS. Malaysian Airline recognizes that over 40% of its current routes are unprofitable. While numerous long-haul routes will be dropped, MAS plans to surge its capacity within Southeast Asia by adding frequencies to the main markets in the region. MAS hopes to produce sufficient cash on the expected doubling of passenger demand in the Southeast Asian market by 2020. According to CAPA, MAS operates only five weekly flights to South Africa and Argentina (including two on a Kuala Lumpur-Cape Town-Buenos Aires routing and three between Kuala Lumpur and Johannesburg), they account for over 5% of MAS total international ASKs (Available Seat Kilometers). MAS also need to work on reducing about 25% of its European capacity in order to achieve the goal of a 12% system-wide capacity reduction.

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

MAS now serves five destinations in Australia and Auckland in New Zealand but it is doubtful they would eliminate these flights as MAS seeks to forge a close partnership with Qantas, which is sponsoring MAS entry into oneworld alliance.

Australia and New Zealand hold 22% of MAS international ASKs, while Europe accounts for 29%. A minor increase in capacity in expected from Asia which accounts for 39% of total international ASKs.

The network changes have a great chance to improve the carriers structure by MYR220 million (USD69 million) to MYR302 million (USD95 million) annually, starting from 2012. With its smaller long-haul network MAS will focus mainly on the premium segment, leaving Malaysian long-haul low-cost carrier AirAsia X to focus only on the budget sector. MAS plans to win or gain back its premium long-haul passengers, mostly through changing its carriers. A phase-out of MAS ageing widebody will be pursued and simultaneously new passenger facilities will be introduced. By the end of next year the carrier will be operating only three types of modern widebody aircraft A330-300s, B777-200ERs and A380s. A330-200s and B747-400s will be lashed out by the end of 2012. MAS assumes the average age of its fleet will decline over the next four years from 13 years to only five years, giving it a younger fleet than Asian leaders AirAsia, Cathay Pacific and Singapore Airlines (SIA).

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

A set of additional A330-300s and MAS first batch of A380s will be delivered in 2012. The new business plan which was conducted by Malaysian Airlines confirmed that their first A380 aircraft will be positioned on the Kuala Lumpur-London route. MAS mentions that the A380 will have exceptional in-flight services which will help determine improvements in its yield and load factor. MAS London route, which served with double daily B747-400s, suffered months from low load factors and yields. The A380 will bring in more change and result in extra capacity at a time. MAS is also pursues a connection with oneworld member British Airways (BA), which did not serve Kuala Lumpur back in 2011, leading to a potential joint venture in the UK-Malaysia market and

beyond. Qantas, which already operates A380s to London and has an existing joint venture with BA on the UK-Australia route, could also end up in this partnership. MAS begin to transfer all of its B737-800s to its new regional premium carrier. The new carrier plans to operate regional international routes within four hours of Kuala Lumpur, including to destinations in Southeast Asia, the Indian subcontinent and China. A preliminary initial route map for the new carrier includes six ASEAN destination which include Singapore, Jakarta, Manila, Hanoi, Ho Chi Minh City and Bangkok as well as the east Malaysian domestic destinations of Kuching and Kota Kinabalu. But MAS declares that the domestic routes will continue to operate with B737-400s which is expected to be phased out by 2015. The use of B737-800s will allow MAS to significantly increase frequency on its regional international routes because MAS now uses widebodies on these routes alongside B737s. MAS says the switch to B737-800s will also result in cost improvements because the B737-800 is 26% more efficient on a fuel cost per ASK basis than the A330-200 and 23% more fuel efficient on a fuel cost per ASK basis than the B737-400.CAPA data

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

shows MAS operates 14 B737-800s with 40 more of the type which has been placed on order. Several additional B737-800s will be delivered next year as MAS now plans to take delivery of a total of 23 aircraft in 2012 which would be a mix of B737800s, ATR 72s, A330-300s and A380s.

MAS are confident that the new regional carrier, with its modern fleet and high product standards, will better meet the needs of Asias regional premium passenger. MAS expects this "win back customers" portion of its new business plan to generate a profit impact of MYR394 million (USD124 million) to MYR477 million (USD150 million) annually. This will be achieved by improving yields by 19% in 2012 while unit costs are expected to remain flat. In addition to, the new partnership with AirAsia is also expected to have a big impact on the revenue side as MAS begins to use AirAsia to improve its network connectivity. MAS reveals in its business plan that a connection service will be launched on non-overlapping routes. The new connection product with AirAsia will allow MAS to gain access to over 24 cities which MAS did not serve back in 2011, resulting in additional feed to MAS long-haul network. However, Firefly was a major component of MAS previous strategy of having an additional budget to help the group compete against AirAsia in the domestic and regional international markets. But while Fireflys turboprop operation, which was launched in 2007 and followed a hybrid regional low-cost airline model with some frills, was profitable, the newer jet operation was tormenting up big losses until it was shut in September. MAS new management team says the previous strategy of focussing on

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

Firefly was a mistake because it diverted resources away from its premium business. Firefly, which was growing fast and had been allocated 30 B737-800s from MAS order book, left MAS mainline with one of the oldest fleets in Asia. MAS claim the result was its mainline product languished, leading to lower yields and a decline in customer loyalty.

To end with, Malaysian Airlines new business plan represents a major change and an improvement in their network strategy. The Malaysian flag carrier, while always striving to offer a top notch product, has struggled over the years to compete with Asias leading carriers for premium business. MAS are finally now committed to investing in the products needed to compete with the likes of SIA and Cathay. 2.2 Customer Relationships and Marketing Efficiencies 2.2.1 Communication and Marketing Since MAS have incurred a net loss of RM 1.2 Billion in the first 3 quarters of 2011 alone, maintaining its brand and customer experience has become a vital concern for this airline. In order to gain back their position and customer loyalty it requires MAS to focus on building its brand and adopting various innovative strategies and develop approached to stimulate demand. 2.2.1.1 Innovation In 2010 MAS renewed their emphasis on providing world class products and services to enhance customer experience thereby increasing sales. They upgraded their Passenger Service System which has enhanced their offerings today. The system includes the MHmobile service where passengers can book tickets, check-in, track their baggage as well as check on their flight status and Enrich points via their phones. Also in 2010 MAS came up with a new strategy. It became the first airline in the world to offer a comprehensive booking and checking-in application on the iPad. The first MHkiosk which utilises this iPad application was also launched in June 2010 at Malaysia Airlines Kuala Lumpur Ticketing Office at KL Sentral, followed by Kota Kinabalu and Kuching in July.

June 4, 2012

Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

During this process MAS carried a refresh of their internet website basically a makeover to further enhance its ease of use and to offer anew products. This process was carried out to provide better service as well to respond to feedback from customers in order to maintain their loyalty and customer experience. 2.2.1.2 Stimulating Demand Since MAS has been facing problems in it growth face, it embarked on a more aggressive campaign to improve sales by introducing MHdeals. It is an application based on the augmented reality concept on the iPhone, with the dual purpose of enhancing customer experience and increasing demand. MHdeals enables the iPhone to display information about certain tourist attractions, as well as deals that are currently on offer by Malaysia Airlines to cities situated in the general direction detected by the phone. The Company had collaborated with Sabah Tourism to implement the service in Kota Kinabalu, and will work to add more content and destinations to the application. Other campaigns that were carried out in 2010 to stimulate demand included a partnership with Australia Tourism called Only in OZ Holidays that was launched with its supporting website MAStraveller.com, the Saya Nak Cuti reality television show was used to promote Malaysia Airlines as a national carrier, the threeday Merdeka sales, the MAS Everyday Value Fare promotion, as well as the appointment of the popular Chef Wan as a Travel Icon. 2.2.1.3 Promotion In MAS website special promotional deals are offered for those members as well as non members. Though being a member holds more advantage than a non member. Passengers get to purchase air ticket with discount price and enjoy exclusive member only fares. There are various deals offered such as deals of the day, MHcoupon, MH deals and MASholidays. Deals of the day allow customers to enjoy big savings which include exciting destinations at a fantastic pries. MHcoupons is where customers get to enjoy exclusive saving on MAS flights. This online coupon comes in the form code. MHdeals is a free application that use iphone GPS sensor to locate airport around you and display the best MAS deals. Lastly, MASholidays is a deal that provides holiday

June 4, 2012

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

package that suit a variety of budget. It includes holiday package within Malaysia or outside of Malaysia at an attractive price. Other than the deals offered MAS sponsors The White Jersey. The organization of Le Tour de Langkawi, recognized by the International Cycling Union (UCI) with an Excellent Level of Organization, has led Malaysias Leading Airline to continue its support for the 17th edition of the race. MAS have been a long running corporate partner of the race. Once again in 2012 MAS sponsored The White Jersey of the best Asian rider classification. In 2011, Queens Park Rangers have announced a multi million pound shirt sponsorship deal with MAS for the next 2 years. The sponsorship of jerseys for Queen Park Rangers (QPR) enabled Malaysia Airline System (MAS) to reinforce its global full-service presence and premium franchise via football fans globally.

As a part of their promotional strategy, recently on 14th Jan 2012 passengers arriving at Kuala Lumpur International Airport were greeted with a flash mob of around 100 dancers and singers into a spontaneous entertainment as a part of MAS special event to welcome the New Year with a bang, it was carried out by MAS advertising and promotion team and their advertising agency involving not just professional choreographers but also MAS staff and cabin crew in their uniform. It kick started with MASs theme song We Fly followed by other Bollywood and Hollywood songs. Ever since, the flash mob trend has been growing worldwide into marketing schemes, involving a sizeable group of people who out of the blue break into a dance act at a public place, MAS took this opportunity to promote and help the airline gain strong online presence on social media.

On 24 April 2012 Malaysia airlines and firefly were big winners at the Putra brand awards 2012. The Putra Brand Awards are the largest consumer-based sampling of its kind in Malaysia, measuring brands through four key attributes: growth, relevance, confidence and differentiation where Malaysian consumers themselves are the judges. Malaysia airlines was rewarded Gold for its transportation and travel and tourism category while its subsidiary Firefly was the recipient of the most promising brand. MAS group VEO Ahmad Jauhari considered this recognition as a fitting testimony that

June 4, 2012

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

consumers continue to value Malaysia Airlines branded customer experience in spite of all the problems faced. 2.2.2 Customer Loyalty Programs Malaysia Airlines introduced its enhanced Enrich frequent flyer program on 12 June 2006. The program is now known as Enrich by MAS. It aims to recognize and reward frequent flyers with free travel and special benefits. Usually a FFP is introduced by an airline to maintain its customers loyalty in the long run, and MAS holds the same purpose. Under this program there are four levels of Enrich memberships- Blue, Silver, Gold and Platinum. Each level has different privileges to offer. To name few priority check-in, priority standby and extra baggage allowance, amongst others. The most basic features of FFP miles can be accrued by the Enrich members on qualifying Malaysia Airlines services as well through partners, including airlines, hotels, car rental agencies and credit card companies. The miles earned by the members allow for redemption for free travel, free upgrade and other complimentary services. Members of Enrich are able to accrue miles on qualifying though Enrich Airline Partners such as Air France, Alitalia, All Nippon Airways, Delta Airlines, Etihad, Jet Airways, KLM, SriLankan Airlines, Virgin Atlantic and many more. Malaysia Airlines also includes a frequent flyer program for students above 12 years old which is knows as GRADS. It offers discounted airfares, great packages and other special deals. 2.2.3 CRM Customer Interface CRM basically means continuous interaction with customers in order to enhance relationship and to develop long term loyalty thereby earning profit. MAS have adopted many methods to keep their customers satisfied. MASs customers are their top priority. There are various channels which include call centers, sales offices, agents, airports counters and town center kiosk for the convenience of walk-in customers. Malaysia Airlines internet booking system was launched in august 2004. The internet booking system not only enhanced customer relationship and experience but also allowed MAS to reduce airlines distribution cost significantly over the years. The website allows customer faster access to information to their travelling needs and to look through

June 4, 2012

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

its products and services offered. Also the use of this internet booking allows customer access to MAS inventory worldwide with ease.

2.2.3.1 CRM in Social Media One of the most comprehensive testaments of MAS innovation in social media is the introduction of MHbuddy to Malaysia Airlines Facebook page in March 2011, it is an application that allows users to book and check-in for flight, and share details of their trip with their Facebook friends. This application is considered to be the most comprehensive for an airline on the Facebook platform. This innovative strategy developed by MAS is an interesting approach to leverage Facebook to book a flight. MAS have a key presence on both Twitter and Facebook as mentioned earlier. Separate tweets and pages for specific markets such as students, the expatriate community and several foreign localities in their native language have been formed in order to make it easy for customers to access and use. An approach to develop customer relationship management. These channels complement Malaysia Airlines existing consumer platforms, such as the sales offices and call centers, and allow the Company to interact with a different segment of the market and to engage them in a different way. As analyzed from the above information we can come to a conclusion that MASs current marketing efforts have been predominantly focused on tactical sales promotion rather than brand building. In spite of this approach they have been able to generate low yields insufficient to cover an increasingly uncompetitive cost structure. In order to win back its customers MAS should improve customer satisfaction at every touch point which is pre flight, in-flight and post flight. It should focus on building its brand making sure it delivers on its brand promise consistently. Measures MAS needs to focus on are to refresh Enrich Loyalty Programme, competitive product roll out, enhanced advertising and promotion development and finally to focus on branding revamp. The below figure depicts Malaysia Airlines recovery plan for Branded Customer Experience.

June 4, 2012

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

2.3 Human Resource and Knowledge Efficiencies 2.3.1 Human Resource Department Currently Malaysia Airlines have more than 20,000 employees all over the world from various ethnic groups and have reduced their workforce in recent years to cut down cost. The airline recruits high skilled employees and train them in their academy as a part of human resource development. The performance of a company tallies with the Human Resource Management strategies and efficiency as the output of the individual performance can affect the whole organizations performance. 2.3.2 The Five Key Elements of MAS Human Resource development strategies 1. Stringent selection processes The most significant advantage is the right people. Human resource strategy begins with hiring right people, where we implement a highly accurate and strict selection process. It includes meeting a multitude of criteria, interview, etc. This particular selection process makes sure that the company hires applicants with the preferred characteristics. 2. Developing staff holistically Recruitment The holistically recruitment goes on for the whole term of employment, it starts from the new recruits on-the-job training for four months, to make sure that they understand the company's corporate values and the promise of being a great way to fly. Once they join

June 4, 2012

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

the company, the training serves focus on improving coalition between the employee's individual value system and the companys corporate values. However, everyone, including senior managers has training and development plans. It is an ongoing procedure that calls for all management's attention. These programs constantly enhance the alignment of individual with corporate values by the communication and shared value of experiences. 3. Investment on Training and retraining Once a company has good people hired, investment in training and retaining can bring in excellent outcomes. Malaysia airlines experience emphasizes how recruitment and development should be managed, aiming to realize well managed human resource which can efficiently sustain the companys competitive advantage. The company placed substantial stress on training, so that training is considered as one of the important points in human resource development and service excellence strategy (Managing HR for service excellence & cost effective). The training intends to ensure that the cabin crew offers excellent service. This on-going training and retraining has been essential to the companys objective of constant development, and it is important to the company in maintaining service excellence through managing employees to be open minded, to adapt to change and improvement and to bring new services that introduces regularly. 4. Quality of Management (Building high-performance service delivery teams) In terms of the significance of the teamwork in the delivery of service excellence, MAS aims to create team spirit among employees. Team concept is the approach to improve teamwork among the diversity of group of staff. In doing so, the company has divided the staffs into groups, in which team staff are managed to work together quite often; this lets them create better understanding of each others personalities and abilities within a team. 5. Communication and Motivation (Motivating staff through rewards and recognition) To ensure that staff will deliver service excellence, we created reward systems which are the major contributor to motivation and reorganization. Motivating and rewarding proactive service staff is also the most effective method of retaining them.

June 4, 2012

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics 2.3.2 Organizational Hierarchy

Malaysia Airlines Strategic Plan

2.4 Differential Efficiencies 2.4.1 Service Differentiation (Human Element) Malaysia Airline has come a long way in terms of their service. Being part of the ASEAN region, quite a lot is expected from the airline. Whether it is their customer service, staff hospitality; be it on the ground or in-flight, all have displayed true Malaysian hospitality and have not disappointed. Malaysia Airlines is committed to provide, to the best of its abilities, safe and dependable air transportation services to its valued customers who choose to fly them. The airline is committed to achieve the service goals that have been defined by them. Malaysia airlines had initiated a very creative tagline in the year 2007

June 4, 2012

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

which was MH is not just a code, it stands for Malaysian Hospitality. This inimitable Malaysian sense of graciousness is branded as "Malaysian Hospitality" and symbolized by the acronym MH which is also the airline's flight code. This stood to be true and still is. The airline has received various accolades and awards by Skytrax, few of them being Worlds Best Cabin Staff for six years, a 5-star ranking, all displaying excellence in terms of product service and quality, Malaysia Airline does show that it deserves to be ranked as a good airline in terms of quality and hospitality. As part of its business transformation, Malaysia Airlines is committed towards providing a quality, safe and conducive working environment for its 19,000-strong employee base, by being the nations largest employer. Malaysia Airlines has definitely been and continues to be an airline well known for their service differentiation by being unique and bringing in a personal touch in their services to customers. 2.4.2 Product Differentiation (Non-Human Element)

Malaysia Airline not only shows great service in terms of the human element but, also on the non-human element as well which happens to be their product. Even though they receive tough competition from other regional carriers like Singapore Airlines, Thai Airways and Cathay pacific, MAS has still made a mark in the ASEAN aviation industry for their service. The on-the ground service of the airline is one of their product differentiators. A passenger is made to feel more like a guest rather than just a passenger at MAS (Malaysia Airline), welcomed with a smile and interacting with award winning ground staff as well. The presence of a golden lounge makes it all the more better for a customer, offering a place for a traveler; be it a tourist or a businessman. The golden lounge, equipped with wifi, a buffet counter, a kids corner and much more, has received an award for Asias leading lounge in the year 2011. Getting off the ground, MAS has an excellent on-board product as well configured in three classes: first, business and economy, catering to needs of all classes of travelers. These are further divided into regional and international products. Achieving on-board excellence is at utmost priority in terms of service for the airline. This includes an in-flight entertainment system known as Select, designed to provide high quality entertainment onboard in order to enlighten the customers senses. With an advanced fleet compromising of the Boeing 737s, 747s, 777s and Airbus A330s, MAS is very much on track with its safety

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

and comfort. The induction of the Airbus A380 happens to be another milestone for the airline, in line with their corporate makeover, making it the eighth carrier to operate the aircraft type. The first A380 is to display their new corporate logo which is due to be received soon, to be operated on long-haul routes. 2.4.3 Operational Process Enhancements

As part of operational process enhancements, MAS has brought about quite a few significant changes into their operations in order to have smooth functioning, one of them being collaboration with Air Asia. On August 9th 2011, MAS signed a Collaboration Agreement with AirAsia and AirAsia X which provides all three airlines with a stepchange improvement in operations through best practice sharing in select areas (such as fuel efficiency) and lower procurement costs (such as in fleet, ground handling and engineering & maintenance services). This also gives customers access to more destinations than previously. Without question, the collaboration is an essential element of Malaysia Airlines overall recovery and will further enable our sustainability going forward. Apart from this, there are three key dimensions here related to operational enhancements which are commercial effectiveness, flight operations and cost management. Continuous improvement in areas like revenue management and direct sales are formed of commercial effectiveness. The delivery of new technologically advanced fleet sets the new benchmark for excellence for both aircraft and airport operations. Finally, while Malaysia Airlines has always had the potential to be the lowest cost player in the full service segment. Improvements in on-time performance are also another enhancement which is being brought about in the company at the moment along with improvements in asset utilization and reduction in aircraft turnaround times.

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics 3 STRATEGIC POSTIONING AND STRATEGIC FIT

Malaysia Airlines Strategic Plan

To further study Malaysia Airlines position in the Aviation industry and in the outside market SWOT Model has been depicted. The SWOT analysis is as follows:

3.1 Strengths Highly recognizable brand name Malaysia airlines is one of the service companies that established for more than 70years being the oldest airlines company in Malaysia and its brand image has been highly recognized. Government Support MAS as a national flag carrier have a very important role to Malaysian reputation. MAS could depend on the government to protect it from financial distress or any other difficulties. Diversified revenue stream Malaysia airlines generate revenues from various services such as flight operation and Aircraft cargo. The Airline has diversified into related industries such as aircraft ground handling, aircraft leasing, aviation engineering, air catering and tour operations. Accredited by Awards and Recognition Theairline holds a lengthy record of service and best practices excellence, having received more than 100 awards in the last 10 years. Network Growth To date, Malaysia airlines has served more than 100 destinations worldwide and are growing every year. 3.2 Weakness Low Margin Although MAS has a strong revenue growth, its operating margins are below the industry average. This is due to the airlines growth plans and MAS competitive disadvantages.

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AVN 4010 Air Transport Economics Weak Cash Flow

Malaysia Airlines Strategic Plan

The airlines reporting negative inflow cash from its operations. Several weaknesses were due to the RM 1.36 million loss which was caused by the increasing fuel prices. Weak cash flow means that spending is more than earning. High costs Costs include staff costs, handling and landing fees, aircraft maintenance and overhaul charges. The rising cost of fuel will lead to high cost of operation. 3.3 Opportunities Expanding passenger traffic Passenger traffic in Asia pacific grew by 13.5% towards destinations such as china, India, and Japan. Increasing cargo traffic There has been an increase in cargo traffic in south East Asian countries. This is due to growth of export related industries. Hence, MAS airlines benefits from the increase in demand for air cargo services. In February 2010, cargo traffic improved by 26.5%. Expanding Fleet with A380 As of now Malaysia airlines have six A380's in order, and will receive its first aircraft this July. Employ the aircraft to specific routes to enjoy the maximum benefits of the A380.

3.4Threats Increasing fuel prices The dramatic increase in fuel prices affects most airlines. The increase in fuel price will lead to increase operation costs; this will lead to losses or lower profit. High competition MAS face strong competition from other airlines. MAS have direct competitor that are Singapore International Airways, Thai International Airways, Cathay Pacific Airways and Garuda Indonesian Airways if competing internationally and Air Asia domestically.

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics Economy

Malaysia Airlines Strategic Plan

Changes in economy will directly influence business positively or negatively in many aspects. In global economic downturn, it will affect all the business worldwide including the aviation industry. Terrorism and Health Scare Terrorism acts such as the September 11 attack or viruses such as swine flu affect the aviation industry considerably. 4 STRATEGIC PLANS After careful analysis of MASs current position internally and externally, the airline could enact on the following 3-5 years medium strategic plans in order to overcome their current stage of crisis. 5-star airline: MAS must keep bringing innovation in its products and services in order to maintain its rank as a high quality carrier in terms of products and services. Lower Costs and Competitive Fares: MAS should reduce its structural and operational costs. This will enable MAS to offer lower & more competitive fares when compared to other airlines. Increase customers and revenue: With high quality services and products at low fares, MAS can attract more consumers who wish to fly with Malaysia Airlines. Tapping this demand will generate more revenue and help in MAS growth. They should also invest in more campaigns to higher their ancillary revenue as well. Grow network and build capacity: With increased revenue, MAS could invest in growing its network and building its capacity. Through this investment in growing its network, MAS will open up more routes and provide easier connectivity to its guests.

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics Alliances and partnerships:

Malaysia Airlines Strategic Plan

By the third quarter of 2012, MAS plans to be a new member of the one world alliance. This will increase the global network as well as increases the traffic. Being a member of an alliance creates a competitive stronger position. Launch of a new regional premium airline: MAS plans to launch an entirely new Boeing 737-800 fleet in the first half of 2012. This new airline will set new standards for product and service quality, cost efficiency and operational excellence which will eventually set the template for airline success. Winning coalitions: MAS need the resolute support of the partners, government, its employees, managers, customers, suppliers, agents and investors. MAS needs to take certain measures in order for the share price to increase, hence attracting numerous investors.

Business model improvements: MAS need to enhance flight operations through faster turnaround times, higher aircraft utilization and improved employee productivity.

Win back customers : MAS plans to win back its customers with the scheduled delivery of 23 new aircrafts in 2012 including the A380 aircraft, which will reduce its average age of fleet size from June 4, 2012 22 Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics

Malaysia Airlines Strategic Plan

12.2 years to 7.7 years. These substantive improvements in product will be matched by service improvements aimed at winning back customers. 5 CONCLUSION

After careful analysis of MAS we can come to a conclusion that the airline needs to take crucial measures in order to recover from their current crisis. Based on the efficiency model and SWOT model its clear that if MAS continues to follow their current business model, they will be out of cash by middle of the second quarter of 2012 in short go bankrupt. This has been MASs greatest challenge faced as a business; therefore a fundamental and radical overhaul is required to put them back on the path to profitability. This may mean bearing more expenditure in terms of getting new fleet but it would settle the cost in the long run. In order to rebuild MAS as the preferred premium carrier which states their vision MAS will harness the countrys geoeconomic centricity in ASEAN, emphasize natural cost competitiveness as a hub, expand their network, coordinate their commercial functions and synchronize operations with similarly minded airline partners. Therefore, Malaysia Airlines' wellbeing and strength is a major component to the country's economy. Knowing the fact that MAS are in a crisis and the current scenario of the company is a serious concern to the people, stakeholders, customers and business partners, MAS requires taking hard decision which will in turn enhance its growth, survival and future success.

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Instructor: Mr. Baba Yerra

AVN 4010 Air Transport Economics REFERENCES http://mae.malaysiaairlines.com/media.php?id=18

Malaysia Airlines Strategic Plan

http://www.malaysiaairlines.com.my/content/dam/mas/master/en/pdf/corporateinfo/Malaysia%20Airlines%20Business%20Plan.pdf http://ir.chartnexus.com/mas/doc/ar/ar2011.pdf http://ir.chartnexus.com/mas/index.php http://ir.chartnexus.com/mas/doc/presentation/Qtr1-12-Analyst-slide-21_5_12.pdf http://www.hicbusiness.org/biz2003proceedings/M.%20Sadiq%20Sohail%202.pdf http://www.centreforaviation.com/analysis/malaysia-airlines-new-business-plan-targetspremium-sector-following-strategies-of-cathay-and-sia-64235 http://uia2k.tripod.com/MAS.htm

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Instructor: Mr. Baba Yerra