1.

0 Introduction
In cognition of the cost benefit analysis, Malaysia Airlines System Berhad(MAS) seem
relevant to our requirement study. Being known for the nations first commercial airlines
since 1947, MAS does merit for the world recognitions and awards they had received and
also distinguished as Southeast Asia's fourth-largest airline by market value, as based on the
website.
The requirements that are about to be discuss in this assignment includes assessing
the monetary social costs and benefits of Malaysia Airlines capital investment project over
the given time period towards few criteria and will be explain it the continuous chapter.
2.0 Company Background
Malaysia Airlines was first incorporated as Malayan Airways Limited (MAL) on 12 October
1937 and was the first commercial flight as national airline in April 1947. MAS operate the
flights from the home base in Kuala Lumpur International Airport and with secondary hub
located in Kota Kinabalu and Kuching. Moreover, MAS has two airline subsidiaries that are
the Firefly, which centers on tertiary cities and also MASwings, attentions on interBorneo flights. Separately from the airline, the group also includes aircraft maintenance,
repair and overhaul (MRO), and aircraft handling.
An economic boom in Malaysia during the 1980s spurred growth at Malaysia Airlines. Being
impeccably doing well for a decade, unfortunately prior to the Asian Financial Crisis in 1997,
the airline had suffered losses of as much as RM 260 million after earning a record-breaking
RM319 million profit in the financial year 1996/1997. The airline then introduced measures
to bring the Profit and Loss account hind into the obscure.

2.1 The Financial Crisis

In the year 2005, Malaysia Airlines reported a loss of RM1.3 billion. Revenue for the
financial period was up by 10.3% or RM826.9 million, compared to the same period for
2004, driven by 10.2% growth in passenger traffic. International passenger revenue

increased by RM457.6 million or 8.4%, to RM5.9 billion, while cargo revenue decreased
by RM64.1 million or 4.2%, to RM1.5 billion. Costs increased by 28.8% or RM2.3
billion, amounting to a total of RM 10.3 billion, primarily due to escalating fuel prices.
Other cost increases included staff costs, handling and landing fees, aircraft maintenance
and overhaul charges, Widespread Assets Unbundling (WAU) charges and leases.
On 1 December 2005, the Malaysian Government appointed Datuk Seri Idris Jala as the
new CEO to execute changes in operations and corporate culture. Under the leadership of
Idris Jala, Malaysia Airlines launched its Business Turnaround Plan in 2006, developed
using the Malaysian Government's Government-linked company (GLC) Transformation
Manual as a guide. The most substantial factor in the losses was fuel costs. For the
period, the total fuel cost was RM3.5 billion, representing a 40.4% increase compared to
the same period in 2004. Total fuel cost increases comprised RM977.8 million due to
higher fuel prices and another RM157.6 million due to additional consumption. In the
third quarter, fuel costs were RM1.26 billion, compared to the RM1.01 billion in the
corresponding period in 2004, resulting in a 24.6% increase or RM249.3million.
Another factor for the losses was high operating costs. MAS substantially lagged its peers
on yield. Some of this gap is due to differences in traffic mix, (less business traffic to and
from Malaysia than to and from Singapore), but much of it was due to weaknesses in
pricing and revenue management, sales and distribution, brand presence in foreign
markets, and alliance base. Malaysia Airlines has one of the lowest labor costs per ASK
at USD0.41, compared to other airlines such as Cathay Pacific and Singapore Airlines at
USD0.59 and USD0.60 respectively. However, despite its low labor cost, the ratio of
ASK revenue (millions) to this cost was, at 2.8, much lower than Singapore Airlines,
where the ratio is 5.0, and slightly higher than Thai International Airways.
2.2

Players in the airlines industry

The main competitors for Malaysia Airlines within Malaysia itself includes Air Asia,
Asias largest low cost airlines, Malindo Air, a joint venture between Malaysian and
Indonesian investors, and also Berjaya Air Sdn Bhd, owned by the Berjaya Group and
was formerly known as Pacific Air Charter. Besides that, the closest international

competitors for MAS are Cathay Pacific, Singapore Airlines and Thai International
Airways.
3.0 Cost Benefit Analysis
Cost benefit analysis (CBA) is a way of measuring costs and benefits of a program. It allows
one to estimate the net gain to society and individual society members. The use of CBA for
the environmental impact assessment could be measure so that externalities are incorporated
into the decision process. In this way, CBA can be used to estimate the social welfare effects
of Malaysia Airlines investment.
CBA is basically an appraisal technique that tries to place monetary values on all benefits
arising from a project and then compares the total value with the project's total cost. It has
numerous potential applications although there are inherent difficulties with the issue of
valuation.
3.1 Malaysia Airlines CBA's unit of cost

3.2 Itemize the tangible costs of the intended project

3.3 Itemize any and all intangible costs

3.4 Itemize the projected benefits

3.5 Add up and compare the project's costs and benefits

3.6 Calculate a payback time for the venture

3.7 Findings

4.0 Conclusion
Fundamentally, the process of CBA is comparative so that we can possibly make judgments
about which projects from a limited choice should be given the go ahead. The airlines
industrys cycle appear to be closely linked to the world economic climate. When growth in
the world economy slows down, the growth of demand for air traffic and for air freight also
brakes down. During a period when average fares will continue to decline, control and
reduction of cost in all areas becomes critical and continuous necessity.
So, from the cost benefit analysis, we can agree to