AIR ASIA VERSUS MALAYSIA AIRLINES

INTRODUCTION
The Malaysia airline faces an unprecedented challenge to rebuild its reputation following two
back-to-back crises. Malaysia Airlines has been in the news a lot since last year, but not for
good reasons. In fact, it has pretty much been the brands worst nightmare, with a
disappearing flight over the Indian Ocean and another flight shot down over Ukraine.
It is difficult to recall a crisis such as the one in which Malaysia Airlines finds itself, having
lost 537 people in two extraordinary incidents four months apart.
The disappearance of flight MH370 on 8 March 2014, in which 239 people went missing and
are presumed dead, was still lingering in public consciousness when a missile allegedly shot
down Flight MH17 over war-torn Eastern Ukraine on 17 July, killing the 298 passengers and
crew.
Whether the airline can be held responsible for either tragedy is unclear, but the brands
public image has suffered considerably, compounding existing financial difficulties.
Prior to the MH370s disappearance, Malaysian Airline System Berhad (MAS) reported
consecutive losses since Q1 2013, with a net loss of 273m for the 2013 financial year. The
carrier has since reported a net loss of 103m for the first quarter of 2014 - a significant
increase from the 64.9m net loss reported in the previous corresponding period.
The airline cited negative sentiment as one of the reasons for its poorer financial results of
Q1 2014 and it would be no surprise if the Q2 results continue this negative trend following
the MH17 incident.
Air Asia also faced aeroplane crashed on 27 December 2014 that give impact to the Air Asia
performance in 2015. Flight QZ8501 operated by Indonesia AirAsia the groups Jakartabased affiliate crashed in the Java Sea on December 28 en route to Singapore from
Surabaya with 162 aboard. All are believed dead. Until Flight QZ8501 went down everything
had gone right during a spectacular 13-year run of success for AirAsia, which unlocked a
booming market of budget travellers in the region. With its corporate motto declaring Now
everyone can fly, it has won over tens of millions of travellers in a burgeoning Asian middle
class previously confined to more expensive regional flag carriers, snagging several awards
as the worlds best budget carrier.
However, in 2015, The Company posted quarterly revenue of RM1.31 billion, up 5% from
the revenue reported in the same quarter last year. The increase in revenue recorded was on
the back of the number of passengers carried which grew 1% year-on-year to 5.57 million
which match capacity growth of 1% year on year. Seat load factor remained unchanged year
on year of 80%, in line with the Companys quarterly target. During the quarter under review,
AirAsia recorded a 17% decline in operating profit year on year to RM174.19 million due to
its affiliate Thai AirAsia (TAA) posting its first quarterly lost which saw AirAsia equity
accounting a share of net loss of RM13.6 million. Excluding this share of net loss, its
operating profit y-o-y would have been flat highlighting AirAsia standalone performance was
strong. The decline in gap of the Companys average fare has narrowed to -1% y-o-y to

RM157 with trend moving upwards in 2H14 as we see irrational pricing of competitors is
diminishing.

STRATEGY ANALYSIS
COMPETITIVE ADVANTAGE OF MALAYSIA AIRLINES
Competitive advantages is whereby a firm has over its competitors, allowing it to generate
greater sales or margins or retain more customers than its competition. There can be many
types of competitive advantages including the firm's cost structure, product offerings,
distribution network and customer support.

Substantially less expensive than other major international airlines

Courteous and comfortable services
Well maintained modern fleet
Excellent in-flight service
Spacious and wide leg room
Airport facilities and services
Extension of the special culture of warmth and friendliness
Improved website and booking engine performance
Competitive promotions

SWOT ANALYSIS
STRENGHT:
1. Strong Backing of Malaysian Government
2. It has extensive operations in South Asia, Middle East, Australia and other global
destinations
3. One of the most popular airlines across the world
4. Strong brand recall and very aggressive in marketing
5. Gain customer loyalty due of the best brand and excellent hospitality
6. It covers over 50 international and 35 domestic destinations with a fleet size of over 100
7. Open sky policy
WEAKNESS:
1. Relying Heavily on International Onward Moving Traffic
2. Very Little Domestic Traffic and limited market share growth
OPPORTUNITY

1. Increasing Global Presence

2. More Routes internationally to popular destinations
3. More services and choices to customers at airport facilities
THREAT
1. Rising Fuel Costs
2. Changing government, Policies and regulations of regulatory bodies
3. Increasing Competition in SE Market
PORTERS 5 FORCES FRAMEWORK
Industry competitors

Local competitors are Air Asia, Firefly, etc

International competitors-

airlines, Garuda, Cathay Pacific, Thai International

Airways

Other Low cost Airlines- Compass, Tiger Airways, Cebu Pacific, Jetstar Asia
Airways, Impulse, Virgin blue Airlines.

The number of competitors is very high and with the emergence of low cost carrier and
deregulation the internal competition has increased and the only reason that reduces it is the
low and highly volatile profitability.
Suppliers Power

Fuel prices are ever increasing affecting the cost so the supplier power is high.

The Asian airline industry is very optimistic about the growth potential of the Asian
aviation industry so is placing huge aircraft orders thereby increasing the bargaining
power of the suppliers again

The civil aircraft industry is monopolized by two major aircrafts manufacturers

Large capital required so the leasing companies come into picture.

Highly specialized and professional employees are required to maintain the status of
five star carrier services.

The recent crisis in the overall airline industry has to some extend lead to a reduction
in the prices of the aircrafts.

Buyers power

Local population (Malaysian)

Southeast population- Indonesia, Thailand, Singapore, etc.

There is no switching cost as the buyer can easily switch from one airline to another
so the power of the buyers increases.

There is a very low product differentiation so to succeed providing either services at

very low cost or give a five star experience so that customer pays the price for the
superior services offered.

The availability of information is really high and with the emergence of travel portals
who guarantee that they can search for the lowest fares out of all the options available
and book it for the client with just a click which even provides the ease of purchase,
the bargaining power of the buyer is increasing

Frequent flyer program and online duty free purchase services can create customer
loyalty and reduce the threat of customer switching over to other airlines to some
extent.

Low buyer concentration can also reduce the power of buyers.

Potential entrants

Airline industry has a high barrier to entry and exit as once an airline is operative then
exist from the industry would amount to huge amount of loss.

Licensing is one of the major barriers for the industry.

JV and partnership is the most recent trend in the industry which has increased the
threat to this industry.

High unit cost makes the entry to the industry unattractive.

There are no economies of scale and scope available.

Deregulation has to some extend reduced the restriction to the entry in the industry.

Internet has again increased the new entrant possibility in the industry.

The substitute

The surface transport can be substitute. With the advancement in technology for
many thing

Competitive advantages Air Asia

AirAsia have adopted information technologies strategically to integrate the operations and
coordinate all the business and management functions. The followings are few system
implementations that AirAsia has done in its marketing and sales activities as well as
operation activity in the value chain.
A.

Yield Management System (YMS)

Anticipates and reacts to the behavior of customers to maximize the revenue - taking into
account the
operating cost and aids AirAsia to optimize prices and allocate capacity to maximize the
expected revenues by 2 levels:
i.
Seat Seats are available at various prices in different points of time. A reservation
done at a later date will be charged more than the one done earlier for the same seat
ii.
Route By adjusting prices for routes / destinations that have a higher demand when
compared to others.
Results increased revenue (3-4%) by taking advantage of the forecast of the high / low
demand patterns,
lower prices as YMS has aided AirAsia to increase the revenue by offering higher discounts,
more frequently during off-peak times while raising prices only marginally for peak times.
B.

Computer Reservation System (CRS)

An integrated web-enabled reservation and inventory system suite powered by Navitaires

Open Skies
technology that includes Internet, call center, and airport departure control functionality.
Satisfy the unique needs of AirAsia implementing a low-cost business model to transform
the business
process to efficiently streamline operations.
Helps AirAsia to grow at a dramatic pace in the past few years as stated below:
"Navitaire's Open Skies technology has truly enabled AirAsia's growth from 2 million
passengers to 7.7 million passengers in less than two years. Open Skies scaled easily to
accommodate our growth." - Tony Fernandes, CEO, AirAsia
C.

Enterprise Resource Planning System (ERP)

 An integrated ERP solution powered by Microsoft Business Solutions (MBS) on Microsoft

technology platform which is implemented by Avanade consultants in March 2005.
With the robust ERP technology platform, AirAsia is able to successfully maintain process
integrity, reduce financial month-end closing processing time, speeds up reporting and data
retrieval process.
Strengths

Good promotion campaigns

Strengthen geographic position
Expanding skill workers
Brand awareness trough CSR
Positive toward competition
Utilization of aircraft and efficient operation

Weaknesses
Termination of Joint Venturer
Poor services
Website down

Opportunities
Additional aircraft
Growth expectation
Easy access

Threat
Advertisements problem
Financial speculation
Effect of fuel price
Authority interferences and policy

5 Potter forces
a.

Threat of new entry

High capital
Brand awareness & brand loyalty
Government legislation

b. Bargaining power of supplier

Air Bus & Boeing
Global economic crisis
c. Bargaining power of buyer
Sensitive to price
Switch to other airlines service

d.

Threat of substitute products

Indirect substitute
Direct substitute
Internet

e. Rivalry among existing competitor

Limited customer
Other low cost airlines

WINNING STRATEGY
MALAYSIA AIRLINES

AIR ASIA