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MALAYSIA AIRLINES - A COMPREHENSIVE STUDY ON THE CHALLENGES, SCOPES &

STRATEGIC APPROACHES
EXECUTIVE SUMMARY
Malaysia Airlines (MAS) is the Malaysian national air carrier. It was incorporated during the
early days of air travel in 1937. From a humble beginning, MAS has developed into a
renowned international airline with award-winning products and services. It managed to
achieve cost efficiency and operates slightly below industry average. MAS has gone through
several changes in its management over the years and still survives. However, being a
national air carrier and government owned, MAS has several constraints in its operation where
it has to balance between political and social obligations, and at the same time consider its
commercial interest. Thus, some of the decisions on air service destinations, pricing structure
and other business factors cannot be made purely based on commercial ground. This had
affected the profitability of the airline. Furthermore, the global airline industry was facing
turmoil since 11 September 2001 as a result of significant decline in air travel demand as well
as the increase in fuel cost. Without exception, MAS was also badly hit and had recorded a
substantial RM 1.3 billion loss in 2005. The bad market environment at that time continues to
hit MAS hard. Hence, it was inevitable for the airline to make drastic changes in order to
respond to the volatile business environment. Therefore, a real and radical business
turnaround plan was imperative for MAS. Introduced in 2006, the Business Turnaround Plan
(BTP) managed to bring MAS out of its financial crisis within two years of its implementation.
This case highlights the winning strategies and action plans implemented by MAS in the BTP
that had successfully turnaround this national air carrier from a deep financial crisis. As a
result, from a substantial loss of RM 1.3 billion in 2005, MAS achieved a record-breaking profit
of RM 610 million in 2007.
PORTER'S FIVE FORCES ANALYSIS ON MALAYSIA AIRLINES
PESTEL ANALYSIS OF MALAYSIA AIRLINES
POLITICAL
Taxation - an obstacle during recession.
Malaysia Airlines reported a Net Loss of Tax
of RM433 million in 2012 compared to a
Net Loss of RM2.52 billion registered for
the 12 months ended 31 December 2011.
Increasing operational cost due to newly
imposed wage policy by government.
Increasing life standard result greater
requirement of wage which results added
burden on operational cost.
SCOCIAL/CULTURAL
Psychological issue - flight phobia.
Greater concern on safety for incidents
like - nine-eleven and disappearance of
flight MH 370 and the recent incident of
plane crash.
A research shows that there is around
7% rise among the youth in considering
travelling as favourite holiday activity.
ENVIRONMENTAL/ECOLOGICAL
Reduction of CO2 emission
Growing practice of CSR activities
Flight failure or delay caused by natural
hazards.

ECONOMIC
The rapid growth of fuel cost. Recent
development shows that, fuel prices to rise
by up to 5 pound due to Ukraine crisis
The exchange rate is fluctuating which
results deviation on revenue earnings.
Differentiated
need
Luxury
VS
Necessity. The business travellers consider
travelling as a requirement whereas
travellers consider airline travelling as a
luxury need.
TECHNOLOGICAL
Increasing practice of online purchase
Application of debit & credit on air ticket
purchase
Integrated
Communication
System,
Interactive Voice Response System &
Knowledge Portal for reducing operational
cost
LEGAL
Expensive landing charges at gateway
airports like - Bangkok, Beijing, Hong Kong
and Singapore.
Tightly regulated aviation market by
bilateral air rights agreements.

SWOT ANALYSIS OF MALAYSIA AIRLINES

STRENGTHS
Malaysia Airline owned by
government, It also assure
prospective government support
The company operates in
diversified market segment which
allows minimizing the portfolio risk
In Malaysia in its home region,
the company is standing in the
second best market position , It
covers over 50 international and
35 domestic destinations with a
fleet size of over 100
In the route like Malaysia,
Thailand - Malaysia Airline is found
to be the most accepted brand for
customers.
The company has a strong
organisational structure
Cargo and passengers revenue
has also been increased by 34%
and 15% respectively which is
again very big strength for the
company
OPPORTUNITIES
Greater customer interest for
travelling
Reaching the low end segment
with low pricing strategy in global
market.
Concentrating on the off-peak
seasons.
Malaysia Airlines could target the
huge market and untapped demo
of missing persons, and also get
bonus wordplay points, with the
addition of International to its
company name.
Medical Tourism, the travel arm of
Malaysia Airlines is expanding its
health screening packages
currently offered to customers
through an existing collaboration
with HSC Medical Center, a
diagnostic center in Ampang,
Malaysia.

WEAKNESSES

Relying Heavily on International


Onward Moving Traffic
Expensive Administrative with
their 2000 employee and other
extra cost.
Price insensitivity to demand
Financial ratios like net profit
margin has seen a decline from
24 to 18 and then 16 last year
which is getting to bring more
severe results for the firm if not
controlled.
Malaysia Airlines exercised a
financial restructuring which
resulted badly and thus company
bared huge costs of that which
was the biggest weakness it ever
had.

THREATS

Share Price decrease 11% and


market price of the company 40%
in July 2014Natural Calamity
affect a big think for this industry
example Malaysia Airlines Flight
MH370
Global Terrorism like Malaysia
Airlines plane MH17 'shot down'
in Ukraine
Regulative variances on countries
Example like
Angola, Eritrea, Gabon, and
Zambia.
Local & international
competitions like Thai Airways,
Singapore Airlines and emerging
low carriers such as Air Asia and
6et Star.

BLUE OCEAN STRATEGY


The Blue Ocean Strategy authors, Malaysia Airlines have implemented many strategic.
A. Eliminate
1. Over the counter booking system
2. Free food/beverage on the plane
3. Seating Class booking system
4. Malaysian low-cost airline
B. Reduce
1. Luxury facilities provided by airport lounge
2. Number of attendance service on the plane
3. Seat quality is very good.
C. Raise
1. Focus on several key destinations
2. Increase frequency of flight
D. Create
1. Online booking system
2. Point-to-point travel system
3. With these strategic moves, Malaysia Airlines was able to focus on factors that really bring
value to the customers such as point-to-point travel system, easy booking system, etc. This
helped Malaysia Airlines to reduce cost and at the same time increase the value to the
customers Value Innovation.
With the successful venturing into the Blue Ocean Strategy, has ventured into other
businesses such as Tune Hotel: limited service hotel chain that provides a claimed five-star
sleeping experience at a one-star price accommodation.
STRATEGIC GROUP MAP
EXTENT OF SERVICE DIVERSITY
The offered services of Malaysia Airline include Airline Service, Aircraft Maintenance Service,
Repair and Overhaul (MRO) and Aircraft Handling.
EXTENT OF GEOGRAPHIC COVERAGE
Malaysia Airlines operates flights in Southeast Asia, North Asia, South Asia, Middle-east and on
the Kangaroo Route between Europe and Australasia.
NUMBER OF MARKET SEGMENTS SERVED
Malaysia Airline is found to be focused on the following segments:

Business Segment

Government & International Organisations

Leisure Travellers

Migrated Personal & Leisure Travellers

European Personal & Leisure Travellers

Seasonal Holiday Travellers

DISTRIBUTION CHANNELS USED


Malaysia Airlines has two airline subsidiaries: Firefly and MASwings. Firefly operates scheduled
flights from its two home bases Penang International Airport and Subang International Airport.
The airline focuses on tertiary cities. MASwings focuses on inter-Borneo flights. Malaysia
Airlines has a freighter fleet operated by MASkargo, which manages freighter flights and
aircraft cargo-hold capacity for all Malaysia Airlines' passenger flights. MASCharter is another
subsidiary of Malaysia Airlines, operating charter flights using Malaysia Airlines' aircraft.
McKINSEY SEVEN S-MODEL
1. Business Environment/Strategy :
Malaysia Airline is a renowned service provider especially for travelling across the East
Asian zone. The major competitor is this region includes Emirates, Singapore Airlines,
Qatar Airlines, Biman Bangladesh Airlines and many more. However, each of the
competitors includes different routes and different price packages. Based on the routes
and differences in travelling point variances each of them has a strong market share with
varying customer base ranging from low end to high end segment.
2. Shared Values :
The Company expects to take the leading position in the market with providing safe, timely
and comfortable travelling experience.
3. Structure:
Malaysia airline goes by a flat & moderately decentralized organisational structure where
each division has their certain level of authority in decision making.
4. Staff:
The Company employs over 20,000 workforce including both technical & non-technical
employees.
5. System/Infrastructure:
The Company maintains an interactive infrastructure that includes online purchasing
platform, fleet maintenance process and baggage keeping and other relevant service
maintenance structure.

6. Skills:
The key skill of the industry includes passenger hospitality, fleet maintenance,
operational accuracy, time management and other relevant efficiencies.
7. Style: Targeting the mid to upper mid segment, Malaysia airline is found to be a great
service provider in terms of its competitors.

Malaysia Airlines journey to achieving its current reputable position has been a remarkable
one. A small airline operator, it has grown by leaps and bounds to be the force it is within the
industry today.
Malaysia Airlines (MAS) operates flights from its home base, Kuala Lumpur International
Airport and with a secondary hub in Kota Kinabalu and Kuching. The airline has its
headquarters on the grounds of Sultan Abdul Aziz Shah Airport in Subang, Selangor of Greater
Kuala Lumpur. It is a member of the One world airline alliance.
MISSION
To provide air travel and transport service that rank among the best in terms of safety,
comfort and punctuality.
VISION
An airline uniquely renowned for its personal touch, warmth and efficiency.
BCG MATRIX
Based on the previous analysis it is observed that Malaysia Airline has a substantial market
share along with a low growth prospect in its corresponding industry. Based on the study it is
found that Malaysia stands in the cash cow position of Airline industry.
Cash Cow product is where the product gives a big amount of cash for airlines and had
sustained its good market share but the market growth not growing rapidly as before. It
reached it maturity stage and market share become saturated slowly. At this stage, the route
is a cash-mines for airlines because the route turnover higher than it expenditure cost.
However the Cash Cow product can be a Dog product if it not being maintained. To avoid the
route from being a Dog product, airlines has to put a bit investment to inject and boost up the
market growth thus it will sustain its market share and profits. Cash Cow product is not only
about the existing route that airlines have, but also for a new route to be introduced. If the
route is the Cash Cow route, it is not a smart action to enter the market share of the route
since it already saturated. Even, if the airlines have high determination to operate the cash
cow route, it will require a large amount of investment (perhaps larger amount than Question
Mark) to enter the market, not yet talking about the survival of the route.

MARKET ANALYSIS OF MALAYSIA AIRLINES


MARKET SEGMENTS

Malaysia Airline markets to segments of 18 34 year olds, businessmen and the segment that lies
within mid to high end economic segment of the society.
Geographic segments of the company include - Southeast Asia, North Asia, South Asia, Middle
East and parts of Europe and Australasia.
TARGET MARKET
Malaysia Airline provides domestic and international flight services. Major portion of the
customers are international flight customers. It is actually show that MAS have a certain target
market with high income.
THE MARKETING MIX ANALYSIS OF MALAYSIA AIRLINES
01. PRODUCT
Malaysian offers three travel classes on its international flight services including
Economy Class & Business Class
First Class
Domestic services within Malaysia typically only feature two classes (Economy and Business).
Apart from the airline, the group also includes aircraft maintenance, repair and overhaul (MRO)
and aircraft handling.
2. PRICE
The cost offered by MAS is more expensive than others. As a 5 stars airline company, the costs
needed for the maintenance and convenience by MAS are quite high.
3. PLACE
MAS operate flights from its home base, Kuala Lumpur International Airport and its secondary
hub in Kota Kinabalu. MAS operated 118 domestic routes within Malaysia and 114 international
routes across six continents.
4. PROMOTION
MAS launched the frequent flyer program called as Enrich Frequent Flyer Program as a part of
customer retention strategy. It is also promote through official website. The new branding strategy
slogan is Malaysian Hospitality to emphasize the hospitality.
5. PEOPLE
Malaysia Airline maintains a strong recruitment structure which ensures a strong marketing team
which is supported by comprehensive incentive programs to stimulate sales performance.
6. PROCESS
In conduction of successful operation of airline service Malaysia Airline adopts Electronic Flight
Bag, Offline Field Maintenance System, and Flight Contracting & Invoicing. Other than that they
do have debit and credit card payment system and online purchase platform to deal with customer
needs.
7. PHYSICAL EVIDENCE

After completion of successful service encounter the company maintains different service loyalty
programs like frequent flyer program to keep long term sustainable relation with customer.

FINANCIAL ANALYSIS
FINANCIAL ANALYSIS

RESULT

REMARKS

RETURN ON ASSETS

-5.35%

Close to industry average

RETURN ON EQUITY

-49.61%

Slightly below industry average

GROSS MARGIN

-8.09%

Close to industry average

TOTAL ASSETS TURNOVER

0.70X

Slightly below to industry


average

FIXED ASSET TURNOVER

1.00X

Equal to industry average

A/R TURNOVER

8.80X

INVENTORY TURNOVER

54.20X

CURRENT RATIO

0.70X

Visibly below than industry


average
Visibly below than industry
average
Below industry average

QUICK RATIO

0.70x

Below industry average

TOTAL DEBT/EQUITY

335.79%

Greater than industry average

The company is found to be under high debt pressure. As an outcome of this the company has to
pay off high interest payments on the debt and resulting added expenses and causing loss for each
year.

COMPETITOR ANALYSIS
The major local& global competitors of Malaysia Airlines are as follows:
COMPETITOR
NAME

KEY
STRENGTH/S

KEY WEAKNESS/ES

Qatar Airways

Supplier advantage

Little domestic traffic

Singapore
Airlines

Location advantage

Expensive service

Emirates Airlines

Global reach of 72 countries

Limited market share in


each segment

Etihad Airways

Brand visibility through


active sponsorship

Restricted growth

Biman
Bangladesh

Local presence

Operational weakness

Saudi Arabian
Airlines

Asset Leverage

Staff Turnover

Thai Airways

Most hygienic airline service Restricted international


provider
routes