External environment

In general, nature of the airline industry makes it difficult for new firm to enter (because of huge
capital, cost of capital regulations etc) and difficult to get out as it would involve huge costs like
long term agreements, disposal of aircrafts etc. But airlines have practised mergers to grow and
avoid stiff competition (domestic) and enjoy large market share. In the last decade, many airline
companies like American and TWA, Delta & Northwest, American West & US Airways etc
merged and it can happen anytime (Noel, 2010).

MAS’ slice of market is threatened mostly by stiff competition from Singapore airlines and
Cathy pacific and arguably the closest substitute; Airasia. Currently Cathy pacific and Singapore
airlines are the players in the MAS market. As per the mid 2010, both SA and PC made huge
profits (RM590m and RM2.78b respectively) while MAS faced RM537m losses (Lian, 2010).
And in June 2010, Airasia overrun MAS in market cap (thestar, 2010). The players are stronger
in brand recognition among frequent travellers which enables them to attract more customers
even with higher prices. Due to high competition MAS’ Earning per seat is lower than that of
Cathy pacific and Singapore airline (mas…).
As per customer choice, the other closest competitors could be Thai Airways (TA). SA, CP and
TA have many common destinations as MAS and are ranked higher than MAS in top 10 best
airline of this year by Skytrax (Miller, 2010)
In order to help Malaysian Airlines in fitting itself to conquer the weakness, several analysis such
as PEST, scenario planning and SWOT are carried out. Besides, general environment acts as a
tool to identify the weakness in Malaysia Airlines which may lead to external environment that
changes rapidly.

Scenario Planning
Scenario planning is defined as procedure of visualizing what upcoming situation or events are
probable, what their effects would be like, and how to respond to, or benefit from theme.
Scenario planning not only can help to identify future oppotunity, but also helps an organization
to make critical decision. This can help an organization to utilize opportunity and stay away from
the threat. The scenario planning is mention by Henry (2008) as a method to find changes and
uncertainly in their industry and promote systematic thinking and even decision making under
spontaneous situation. However, Malaysia Airlines did not do proper scenario planning which
make them faced great loss as stated in their annual report 2012. As a way to stop this situation
continue to grow, Malaysia Airline should really consider and think deeply of their scenario
planning. Besides, the ultimate growth of Airline industry shows influence to Malaysia Airline
scenario planning. Therefore, Malaysia Airline should make use of PEST and SWOT analysis to
identify deeply their market environment.
PEST ANALYSIS
Pest analysis most commonly is used to measure a market. By doing the PEST analysis,
Malaysia Airlines will link the entire four factors that may affect their business in general and
competitive environment. As a Malaysian national flag airlines, it is compulsory and a must for
them to follow and obey the political decision and government policies. Being an airline
company in Malaysia, always need to cope with the taxes which have been a big obstacles
especially during economy crisis. According to Malaysia Airlines annual report 2011, Malaysia
Airlines had experienced a huge loss as RM400 millions even before taxation is done. This shoes
how pathetic and badly the situation of the company was. Futhermore, our current Prime
Minister Datuk Seri Najib Tun Razak announced that the minimum wage of private sectors in
Penisular has been set for RM900 and RM800 for those in Sarawak. This increases the burden of
Malaysia Airlines which has approximately 18,000 workers. As a way to overcome the new
policy and adapted to it. Malaysia Airlines hence introduced a new rewarding plan to their
workers. In coping with the policy, Malaysia Airlines has announced on their strategy to offer
permanent staff a maximum two years of unpaid leave only and excluding their subsidiaries
which are Maswings and Firefly.
Airlines biggest expenses will be the crews’ wages and fuel expenses. As global fuel price is
increasing, it influenced Malaysia Airlines operating cost for sure which will directly result the
loss in their profit. Besides, unstable fuel price that influenced economy will affect their shares
price in stock exchange too. Futhermore, Malaysia Airlines had increased their flight ticket fares
as a way to cover up the administration and operating cost. As the increment of ticket fares
occurred, local citizens with lower or medium income holders to lessen their frequency to travel
on flight. Besides, one of the underniable factors is inflation which causes the value of money to
be lowered extra money from the wages unable to do much extra occasion planning. Prior to the
Asian Financial Crisis in 1997, Malaysia Airlines suffered in the massive loosees of
RM260million. As a way to overcome the crisis, the airlines cut a lot routes which are
unprofitable such as Brussels, Darwin, Honobulu, Madrid, Munich and Vancouver.
For social factor, we know that there are different types of people with different
preference in this country, so with different culture and thinking in society, not everyone would
like to use flight as their transportation. Therefore, safety is always one of the main feature to be
concerned and make sure the society feel safe with their services. Safety instructions are being
briefed before the flight depart everytime and this can prevent chaos to occur if there is any
accident occurs. Besides, insurance is also one of the option to purchase in their flight ticket.
This can relieve the insecurity of passengers when they choose to use Malaysia Airlines.
In term of technology, Internet has lead our world to globalization and information explosion era.
Malaysia Airlines sees this as an opportunity to promote their company services to the youth
conveniently. The customer can purchase the flight tickets easily from their website rather than
drive to their branches and queue up which will be even more expensive and time consuming.
Hence, Malaysia Airlines is able to deduct and decrease overhead cost and their budget in extra
offices and infrastructure. However, not everyone are well-skilled in using the ineternet and
some of the rural areas in our country still lack of such services which seems common in most of
the city. Besides, credit or debit card is a necessity in order to purchase from online ticketing
system which also will be a obstacle for some of the senior citizens. Lastly, we shall concern
about the stability of Malaysia Airlines proxy server which is overloaded sometime.
SWOT Analysis
SWOT analysis is a method where a structured planning can be done by evaluating the 4 factors
which are strengths, weaknesses, opportunities and threats. Malaysia Airlines can use SWOT at
their own benefits to understand more about the external environment.
Malaysia Airlines is a well known brand name which has become strength of this company to
exploit. With its 70 years of experiences in the airline industry, this brand name has won the
heart of the customer where’s loyalty is important to them. In addition, Malaysia Airlines are
highly recognized by the international organization. Plus, Malaysia Airlines are also has been
supported by the Malaysian government for years. With this, they can depend on the government
if they are having a financial problem or other difficulties which can benefit them. Malaysian
Airlines won a lot of prestigious awards in the past 10 years and their broad network of
destinations also has become their strength that led the potential and loyal customers to choose
them .Thereby, with this entire strength combine, chances of Malaysia Airline to win and take
control of the industry are higher.
Malaysia Airlines and other companies are not excluded from the organizational weaknesses.
The increasing fuel price had cause Malaysia Airlines huge loss as much as RM1.36 million.
Other than that, their operating cost such as landing fees is higher that in which are affecting
their financial. This entirely affected their profit and thus giving
Internal environment
An internal environment analysis is an extensive review of all aspects of a company’s operation, internal
guidance and mission. Value-chain analysis and resource-based view can be used as analysis tools.

Value-chain Analysis
Malaysia Airlines primary income is based from logistics services and secondary activities are aircraft
maintenance and technology development. By coordinate these value chain analysis activities. Malaysia
Airlines can have a lower cost structure and increase the value of outcome product. By increasing the
value of outcome product. Malaysia Airlines can compete in the industry by understanding th connection
between each of the value-chain activity. Additionally, a proper coordination with their unions, customers
and suppliers can reduce cost and adds up the bonding between customers and company itself. As its
outcome, improvement of the performance in Malaysia Airlines primary and secondary activities can be
archieved and higher profit can be gained in the process.
Resource-based View
Airline industry was slammed petty hard globally in pervious years. Terrorists attack on 11st September
2001 still horrified the hearts of passengers globally. The strong competitive environment by low cost
carriers such as Airasia in Malaysia is also causing the national flag carrier to restructure their operations.
Their resources such as airplanes and crews quality need to be concerned and look into deeply. As the
oldest flight carrier company in Malaysia, they shall use this advantage to continue to stay at the frontline
in airline industry by using its available sufficient resources efficiently with the help of government and
come up with efficient strategies as a way to compete and stabilize its own position in airline industry.