AMERICAN INTERNATIONAL UNIVERSALITY -BANGLADESH
(AIUB)
TERM PAPER ON
“MALAYSIA AIRLINES”
Submitted To
Prof. Dr. M. Mahmodul Hasan
Faculty of Business Administration
Submitted By
GROUP: JILAPIR PECH
Strategic Management
Sec- c
Submission Date
08th August, 2014
TOPIC
MALAYSIA AIRLINES - A COMPREHENSIVE STUDY ON THE CHALLENGES, SCOPES & STRATEGIC APPROACHES
LETTER OF TRANSMITTAL
08th August 2014
To
Prof. Dr. M. Mahmodul Hasan
Faculty of Business Administration
American International University- Bangladesh
Banani, Dhaka-1213
Subject: Application for submission of term paper on Malaysia airlines.
Sir:
Hereby, we, the team “JILAPIR PECH”, would like to submit the report titled - ‘Malaysia Airlines - A Comprehensive Study on the Challenges, Scopes & Strategic Approaches’ as per requirement of the course Strategic Management.
The primary purpose of this research is to understand the current state of aviation industry, to have an observation the company’s internal competencies & external challenges and after that, discuss on the development
areas for the company’s business operation. The final outcome of the
study recommends necessary strategies that will support the company to
sustain in the long run. We
are hopeful that this report will be helpful for the students,
researchers, general people and to the respective management as well.
Therefore, we would like you to accept this report as per requirement of successful completion of the course.
Sincerely,
SL.
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NAME
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ID
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SIGNATURE
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1.
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MAHERIN, ANIKA
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13-96827-2
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2.
|
SALAM, MOHAMMAD RASHED US
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13-96895-2
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3.
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HASAN, K. M. MAKID
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13-96871-2
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4.
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GIASH, NAIMA
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13-96861-2
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5.
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JESON, MINHAZUL ABEDIN
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13-96863-2
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ACKNOWLEDGEMENT
First of all we would like to thanks Almighty Allah for helping us to complete this term paper properly and on time.
We are also especially grateful to our honorable course instructor Prof. Dr. M. Mahmodul Hasan, for his kind and sincere guidance throughout these endeavors and to make our report better and much more knowledgeable.
We
would like to express our sincere gratitude and cordial thanks to our
parents, friends and other classmate for their crucial support and
providing needed information about our term paper despite of their
enormous workload.
Although,
we had to face some difficulties due to the lack of time while
preparing this term paper, and at one moment of time, we thought we
would not be able to complete this, but thanks go to the Almighty once
again for making us prepare this paper and submit in time.
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.
TABLE OF CONTENTS
SL
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TOPIC
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PAGE
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1.
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LETTER OF TRANSMITTAL
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i
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2.
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ACKNOWLEDGEMENT
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ii
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3.
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EXECUTIVE SUMMARY
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iii
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4.
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DEFINITION OF STRATEGY
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1
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5.
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MOST STRATEGIC MANAGEMENT MODEL
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2
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6.
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PORTER'S FIVE FORCES ANALYSIS ON MALAYSIA AIRLINES
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3
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7.
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PESTEL ANALYSIS OF MALAYSIA AIRLINES
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4
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8.
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SWOT ANALYSIS OF MALAYSIA AIRLINES
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5
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9.
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BLUE OCEAN STRATEGY
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6
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10.
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STRATEGIC GROUP MAP
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7
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11.
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MCKENSEY - SEVEN S-MODEL
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8
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12.
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MISSION
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9
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13.
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VISION
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9
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14.
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COMPANY ORGANOGRAM
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10
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15.
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SWAN EVALUATION
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11
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16.
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TOWS MATRIX EVALUATION ON MALAYSIA AIRLINES
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14
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17.
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VALUE CHAIN ANALYSIS OF MALAYSIA AIRLINES
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15
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18.
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VISA - MODEL
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16
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19.
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GREAT - MODEL
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17
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20.
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SMARTER - MODEL
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18
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21.
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BCG MATRIX
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21
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22.
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PURE OBJECTIVES
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22
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23.
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MARKET ANALYSIS OF MALAYSIA AIRLINES
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23
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24.
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EXTERNAL FACTOR EVALUATION OF MALAYSIA AIRLINES
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26
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25.
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CPM ANALYSIS OF AIRLINES INDUSTRY
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26
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26.
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QSPM(QUANTITATIVE STRATEGIC PLANNING MATRIX) FOR MALAYSIAN AIRLINES
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27
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27.
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FINANCIAL ANALYSIS
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28
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28.
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COMPETITOR ANALYSIS
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30
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29.
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BREAK EVEN ANALYSIS
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31
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30.
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INDUSTRY KEY SUCCESS FACTORS (KSFS)
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32
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31.
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STRATEGY EVALUATION
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33
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32.
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CONTINGENCY PLAN
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33
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33.
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RECOMMENDATION
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34
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34.
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CONCLUSION
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34
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35.
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REFERENCES
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35
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DEFINITION OF STRATEGY
Strategy is often the difference between:
§ Success and failure, between mediocrity and excellence
§ A great manager and average managers
§ Stumbling through life and moving ahead with purpose
STRATEGIC MANAGEMENT (THEORY: 2000 – 2010)
Strategic
Management can be defined as (1) the art and science of formulating,
(2) implementing, and (3) evaluating cross-functional decisions that
enable an organization to achieve its objectives.
Strategic
Management focuses on integrating management, marketing,
finance/accounting, production/operation, research and development
(R&D) and computer information systems to achieve organizational
success.
STRATEGIC MANAGEMENT (THEORY: 2011 – 2015 ±)
Strategic management involves strategy development, which is comprised of five stages:
· Discovery: Malaysia Airlines is founded at May 1st 1946 and commencement at October 1972.
· Strategic
thinking: they are also trying application of business insights on a
continual basis to achieve competitive advantage’ as one of the best air
craft in the world
· Strategic planning: in this stage they have formed their mission & vision statement 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.
Strategy
roll-out: Malaysia airlines slogan is "Journeys Are Made by the People
You Travel With" so they try to provide quality service for those
customers through their strategic planning &activities and achieve
their goals.
Strategy
tune-up/adjustment: they yearly analyze their performance and look into
strategy if they need to do any adjustment they do it according to
their desired way.
According to the definition of strategic management our project “Malaysia airlines” fit into (theory 2011-2015) as they also do strategic planning, and thinking and strategic adjustment at the end.
MOST STRATEGIC MANAGEMENT MODEL
STRATEGIC MANAGEMENT MODELS
1. Five Forces Model
2. PESTEL Analysis
3. SWOT Analysis
4. Blue Ocean Strategies
5. Strategy Group Map
6. Seven S Models
PORTER'S FIVE FORCES ANALYSIS ON MALAYSIA AIRLINES
PESTEL ANALYSIS OF MALAYSIA AIRLINES
POLITICAL
|
ECONOMIC
|
§ 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.
|
§ 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.
|
SCOCIAL/CULTURAL
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TECHNOLOGICAL
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§ 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.
|
§ 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
|
ENVIRONMENTAL/ECOLOGICAL
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LEGAL
|
§ Reduction of CO2 emission
§ Growing practice of CSR activities
§ Flight failure or delay caused by natural hazards.
|
§ 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
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WEAKNESSES
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§ 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
|
§ 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.
|
OPPORTUNITIES
|
THREATS
|
§ 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.
|
§ 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
§ 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.
§ Shared Values: The
Company expects to take the leading position in the market with
providing safe, timely and comfortable travelling experience.
§ Structure: Malaysia
airline goes by a flat & moderately decentralized organisational
structure where each division has their certain level of authority in
decision making.
§ Staff: The Company employs over 20,000 workforce including both technical & non-technical employees.
§ 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.
§ Skills: The
key skill of the industry includes – passenger hospitality, fleet
maintenance, operational accuracy, time management and other relevant
efficiencies.
§ 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.
SWAN EVALUATION
STRENGTHS
§ Strong government support.
§ Extensive operations in other global destinations
§ Strong market share
§ Premium brand image
§ Well-designed organizational structure
WEAKNESSES
§ Relying Heavily on International Onward Moving Traffic
§ Expensive Administrative Expense
§ Extensive operational cost
§ Price insensitivity to demand
§ Limited growth prospect
ACHIEVEMENTS
Malaysia
Airlines has been awarded 5-star status in the SKYTRAX World Airline
Award, joining an elite group of airlines to receive this prestigious
ranking for their truly consistent and high quality of product and
service.
ASIA'S LEADING AIRLINE
§ World Travel Awards (WTA) 2013
SKYTRAX WORLD AIRLINE AWARDS 2013
§ The World's 5-Star Airline Award
§ Best Airline Signature Dish 2013
CELLARS IN THE SKY 2012 AWARDS
§ Best First Class Cellar
§ Best First Class Red Wine
§ 2nd in Best First Class Sparkling
SKYTRAX WORLD AIRLINE AWARDS 2012
§ The World's 5-Star Airline Award
§ World's Best Cabin Staff 2012
§ Best Airline Signature Dish 2012
GOLD AWARD FOR TRANSPORTATION, TRAVEL & TOURISM CATEGORY
§ Putra Brand Awards 2012
THE MOST PROMISING BRAND AWARD (FIREFLY)
· Putra Brand Awards 2012
WORLD'S LEADING AIRLINE TO ASIA
· World Travel Awards (WTA) 2011
NEXT STEP
Malaysian Air Reviews Future Plane Orders After MH37
TOWS MATRIX EVALUATION ON MALAYSIA AIRLINES
Based
on the cross matching of internal strengths and weaknesses of Malaysia
Airlines with the external opportunities & threats of the company,
we can formulate the following strategies:
Internal
|
Score
| |
STRENGTHS
1. The company operates in diversified market segment
2. Strong market share.
3. Premium brand image.
|
WEAKNESSES
1. Extensive operational cost
2. Price insensitivity to demand
3. Limited growth prospect
|
CPM: 2.95
|
External
|
Score
| |
OPPORTUNITIES
1. Greater customer interest for travelling
2. Reaching the low end segment with low pricing strategy in global market.
3. Concentrating on the off-peak seasons.
4. Untapped market
5. Medical Tourism
|
THREATS
1. Rising fuel cost
2. Natural Calamity
3. Global Terrorism
4. Regulative variances on countries
5. Local & international competitions
|
EFE: 2.80
|
VALUE CHAIN ANALYSIS OF MALAYSIA AIRLINES
üMarketing and sales
üPricing
üTicketing
üBooking management
üAfter sale communications
|
üAirframes
üEngines
üMaintenance
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üPreparing plane
üGate management
üLoading the plane
|
üArrival at airport
üBoarding passes
üLuggage
üSecurity
üShopping Food and entertainment
|
üAirport Selection
üTerminal development
üScheduling
|
üUnloading
üDelivery to terminal
üLost luggage
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üCatering
üSafety
üTV and media
üShopping
|
üCleaning plane
üRe-fuelling
|
VISA - MODEL
VISION
An airline uniquely renowned for its personal touch, warmth and efficiency.
STRATEGY
Malaysia
Airlines evaluated the feasibility of a premium service in conjunction
with another airline. Dr. Emre Serpen and the Inter VISTAS team
developed network design and revenue forecasting as part of a broader
project team.
ACTION PLAN
Malaysia
Airlines (MAS) has unveiled a new business plan aiming to restore
profitability by significantly cutting capacity and increasing focus on
the premium sector, which includes the launch of a new regional premium
carrier in 1H2012. Several business units including maintenance, cargo
and ground handling are to be spun-off, most likely in 2012.
GREAT - MODEL
GOALS
ä The short term goal is to minimize the cost at first for 6 month ( January to June)
ä To minimize cost - sell of idle or old aircrafts is needed to reduce maintenance cost.
ä Introduction services in local routes even at break revenue to acquire market presence
ROLES
ä Greater effort and efficiency
ä Greater monitoring
ä Aggressive sales strategy
ä Strong corporate sales team
EXPECTATIONS
ä Target is to achieve economies of scale through optimum service encounter.
ä To achieve that we will be need to minimize the cost and earn the revenue at its peak.
ä The this moment the break even target sales is 1134790 million flights which must have to be reduced
ACCOUNTABILITIES / ABILITIES
ä HR team will be accountable for monitoring performance
ä Sales team will be accountable for target achievement
ä Product development team will have to be accountable for competitive product development
ä Operations team will provide flawless service
ä A group audit will be developed to ensure best output
TIMING
ä Sales increase and cost decline will have to be performed simultaneously within first 6 months
ä Besides, unnecessary operational burdens will have to be eradicated with coming 2 months.
SMARTER – MODEL
Incidents
like flight crash, disappearance of flights have damaged the brand and
caused greater loss in recent days and developed a requirement of
following SMARTER strategies:
SPECIFIC
Malaysian
Airline has been suffering from image crisis for several incidents and
they had a decline of sales. The company must have to reduce the operating cost by 25% in increasing its profitability in the longer run.
MEASURABLE
MAS
should focus on regional routes within four hours from Kuala Lumpur,
including to destinations in Southeast Asia, the Indian subcontinent and
greater China. MAS can expect this focus will result in immediate 19% improvement in yields.
ACHIEVABLE
Based
on BCG matrix & Grand Matrix evaluation the efforts to sustain the
existing market share of 41% is not believed to be achievable for
upcoming. Therefore, it has to make sure that its sales are increased by 15%
(the industry growth) in upcoming three years. However, it must have to
control its operating expenses to sustain in the longer run meaning
sustaining after three years.
REALISTIC
Considering
the amount of financial resources and manpower expertise of Malaysia
Airline found to be unrealistic since it is suffering drastic loss for
brand crisis. To make the plan more realistic, they have to come up with
realistic goal of cost cutting by 25% in two years
TIME
It is advisable to MAS to come up with acquisitions and mergers to enhance the usage of the idle aircrafts in upcoming five years from 2014 to 2019 of its operations.
ENCOMPASSING
The
mission of MAS is achieving the leading position with service and it is
only possible if the company manages to outdo their competitors by
achieving economies of scale and cost leadership in the market.
REVIEWED
The efforts on reduction process of operating cost must have to be monitored in each day to achieve the profitability of the company.
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.
PURE OBJECTIVES
POSITIVE
Through
this journey of success and achievements, Malaysia airlines have never
compromised the service quality. This is one of the key factors of
success as a major contributor.
UNDERSTOOD
§ Performance: efficient and skilled workers who knows about their own job
§ Perfectly.
§ Style: Emphasize on quality, encourage teamwork.
§ Jargon: most used are air traffic, carry on ,carrier
§ Culture: They also value their great workers, partners, suppliers and customers.
RECORDED
They keep records for all of their activities so that if needed they can use those as a base in future.
ETHICAL
Malaysian air lines conduct all its business in line with the strictest Code of Ethics.
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.
EXTERNAL FACTOR EVALUATION OF MALAYSIA AIRLINES
Key External Factors
|
Weight
|
Rating
|
Weighted Score
|
Opportunities
| |||
01. Increasing travelling demand
|
0.10
|
2
|
0.20
|
02. Reaching low end segment
|
0.15
|
3
|
0.45
|
03. Targeting the off peak seasons
|
0.10
|
2
|
0.20
|
04. Increasing domestic routes
|
0.15
|
4
|
0.60
|
Threats
| |||
01. Rising fuel cost 40%
|
0.15
|
4
|
0.60
|
02. Natural Calamity
|
0.10
|
1
|
0.10
|
03. Decrease Share Price
|
0.10
|
2
|
0.20
|
04. Competition
|
0.15
|
3
|
0.45
|
4 = The Response is Superior
|
Rating
| ||
3 = The Response is Above Average
| |||
2 = The Response is Average
| |||
1 = The Response is Poor
| |||
Total
|
1.00
|
2.80
| |
CPM ANALYSIS OF AIRLINES INDUSTRY
MALAYSIA
AIRLINES
|
THAI
AIRLINES
|
SINGAPORE
AIR
| |||||
Critical Success Factors
|
Weight
|
Rating
|
Score
|
Rating
|
Score
|
Rating
|
Score
|
1. Advertising
|
0.10
|
4
|
0.40
|
3
|
0.30
|
4
|
0.40
|
2. Quality of Service
|
0.15
|
4
|
0.60
|
2
|
0.30
|
4
|
0.60
|
3. Price Competitiveness
|
0.15
|
2
|
0.30
|
4
|
0.60
|
2
|
0.30
|
4. Management
|
0.10
|
3
|
0.30
|
3
|
0.30
|
3
|
0.30
|
5. Financial Position
|
0.15
|
2
|
0.30
|
3
|
0.45
|
3
|
0.45
|
6. Global Expansion
|
0.10
|
3
|
0.30
|
3
|
0.30
|
3
|
0.30
|
7. Customer Loyalty
|
0.10
|
3
|
0.30
|
2
|
0.20
|
3
|
0.30
|
8. Market Share
|
0.15
|
3
|
0.45
|
4
|
0.60
|
3
|
0.45
|
Total
|
1.00
|
2.95
|
3.05
|
3.10
| |||
4 – Major Strength, 3 – Minor Strength, 2 – Minor Weakness, 1 – Major Weakness
| |||||||
QSPM (QUANTITATIVE STRATEGIC PLANNING MATRIX) FOR MALAYSIA AIRLINES
Alternative 1 –
Local Market Expansion
|
Alternative 2 –
Global Market Expansion
| |||||
Key Factors
|
Weight
|
Attractiveness
Score
|
Total Attractiveness Score
|
Weight
|
Attractiveness
Score
|
Total Attractiveness Score
|
Strengths
01. Strong government support.
|
0.10
|
3
|
0.30
|
0.08
|
3
|
0.24
|
02. Extensive operations in other global destinations
|
0.19
|
1
|
0.19
|
0.09
|
4
|
0.36
|
03. Strong market share
|
0.11
|
4
|
0.44
|
0.10
|
2
|
0.20
|
04. Well-designed organizational structure
|
0.09
|
2
|
0.18
|
0.11
|
1
|
0.11
|
05. Premium brand image
|
0.06
|
3
|
0.18
|
0.09
|
3
|
0.27
|
Weaknesses
01. Relying Heavily on International Onward Moving Traffic
|
0.09
|
2
|
0.18
|
0.06
|
3
|
0.18
|
02. Expensive Administrative Expense
|
0.11
|
1
|
0.11
|
0.12
|
3
|
0.36
|
03. Price insensitivity to demand
|
0.10
|
1
|
0.10
|
0.18
|
2
|
0.36
|
04. Extensive operational cost
|
0.08
|
2
|
0.16
|
0.08
|
1
|
0.08
|
05. Limited growth prospect
|
0.07
|
2
|
0.14
|
0.09
|
1
|
0.09
|
Sum Weights
|
100%
|
100%
| ||||
Opportunities
01. Increasing travelling demand
|
0.09
|
4
|
0.36
|
0.08
|
4
|
0.32
|
02. Reaching low end segment
|
0.11
|
1
|
0.11
|
0.09
|
2
|
0.18
|
03. Targeting the off peak seasons
|
0.10
|
4
|
0.40
|
0.10
|
4
|
0.40
|
04. Increasing domestic routes
|
0.10
|
3
|
0.30
|
0.18
|
2
|
0.36
|
05. Medical Tourism
|
0.05
|
3
|
0.15
|
0.10
|
4
|
0.40
|
Threats
01. Rising fuel cost 40%
|
0.08
|
3
|
0.24
|
0.09
|
2
|
0.18
|
02. Global Terrorism
|
0.09
|
1
|
0.09
|
0.11
|
1
|
0.11
|
03. Decrease Share Price
|
0.10
|
2
|
0.20
|
0.10
|
3
|
0.30
|
04. Competition
|
0.18
|
1
|
0.18
|
0.10
|
3
|
0.30
|
05. Regulative variances on countries
|
0.10
|
3
|
0.30
|
0.05
|
3
|
0.15
|
Sum Weights
|
100%
|
100%
| ||||
Sum Total Attractiveness Score
|
4.31
|
<
|
4.95
| |||
Attractiveness Score: 1= Not acceptable; 2=Possibly acceptable; 3= probably acceptable; 4=Most acceptable; 0=Not relevant
| ||||||
Decision:
Based on the QSPM Analysis Alternative-2 (Global Market Expansion) is
higher than Alternative-1 (Local Market Expansion). So Malaysia Airlines
should focus on Global Market Expansion.
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
|
Visibly below than industry average
|
INVENTORY TURNOVER
|
54.20X
|
Visibly below than industry average
|
CURRENT RATIO
|
0.70X
|
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 provider
|
Restricted international routes
|
BREAK EVEN ANALYSIS
In Million MYR
|
2011
|
2012
|
2013
| |
Revenue
|
13,653.90
|
14,286.60
|
100%
|
14,548.20
|
COGS
|
16,197.20
|
14,117.40
|
98.81%
|
15,683.70
|
Gross Margin
|
-2,543.30
|
169.20
|
1.19%
|
-1,135.50
|
Fixed Cost
|
9744.70
|
13,504.20
|
16,029.20
| |
Break Even Point
|
Negative GM
|
80X of GM
|
Negative GM
|
The company earned MYR 1.19 for each MYR Revenue of MYR 100. In 2012 the fixed cost of the company is MYR 13,504 Million
So we have to earn (100/1.19) X 13504.20 = MYR 1134,806 Million
In percentile format, the cost equation for the company for year 2012 would be:
Cost = 0.9881X + 13,504 Million
In percentile format, Revenue = 1X
1X = 0.9881X + 13,504 Million
or, X = 1134790 Million
However, traditionally, a flight from Dhaka to Kuala Lumpur costs around MYR 1000
Meaning
the company had to ensure 1,134.79 Million or 1135 Million Flights from
Dhaka to Kuala Lumpur in a year to achieve the break even sales volume
COST REVENUE = 1X
COST = 0.9881X + 13,504 Million
BREAK EVEN SALES VOLUME 1,134,790
13,504 MILLION
NUMBER OF FLIGHTS
INDUSTRY KEY SUCCESS FACTORS (KSFs)
TECHNOLOGY-RELATED KSF
They have adopted technologies like - Integrated Communication System, Interactive Voice Response System, Knowledge Portal, Official Website, Connecting Flight, and Travel Agencies across the Globe, Airport Booth.
MANUFACTURING-RELATED KSFs
§ A low cost airline is an airline that offers low fares in exchange for a “no-frills” service.
§ That eliminates many of the value-added services such as free meals and in-flight entertainment
§ That are routinely offered by full-service airlines
DISTRIBUTION-RELATED KSFs
§ Low distribution costs
§ Fast delivery
LOWEST LABOUR COSTS IN THE REGION
The
low labour costs are due to a comparatively low cost of living in
Malaysia. To be competitive, MAS must maintain a cost advantage
MARKETING-RELATED KSFs
SkyTrax,
the preeminent airline quality monitor, awarded MAS ‘Five-Star’
status—and MAS is one of only four airlines across the globe to have
achieved this rating. In 2005, TTG designated MAS as the ‘Best Airline
to Asia’, and in January 2006, Travel Weekly, a UK-based travel
periodical, awarded MAS the same status. According to research done by
the organisation, Malaysians are found to be passionately loyal to MAS.
SKILLS & CAPABILITY-RELATED KSFs
MAS
maintenance staff, flight operations staff and ground crew are
world-class in their technical skills. The strong safety record has much
to do with the staff and crews' attention and capabilities.
STRATEGY EVALUATION
Malaysia Airlines evaluated the feasibility of a premium service in conjunction with another airline. And the Inter visit as team developed network design and revenue forecasting as part of a broader project team.
Market Forecasting is
executed market estimate taking into account long term/top down
forecast driven by GDP growth and travel propensity of the client’s
projected markets.
Route Design is developed a route structure and analyzed network scenarios using sophisticated network optimization tools.
Commercial Workshops are executed commercial workshops to executive management.
Reducing
the operating cost by 25% increasing sales by 15% and maintaining
realistic goal is advisable to MAS in order to overcome its challenges
in upcoming five years of its operations. The efforts on reduction
process of operating cost must have to be monitored in each day to
achieve the profitability of the company.
CONTINGENCY PLAN
Malaysian
Airline has been suffering from image crisis for several incidents and
they had a decline of sales. The company must have to reduce the operating cost by 25% in increasing its profitability in the longer run.MAS
should focus on regional routes within four hours from Kuala Lumpur,
including to destinations in Southeast Asia, the Indian subcontinent and
greater China. To make the plan more realistic, they have to come up
with realistic goal of cost cutting by 25% in two years It is advisable to MAS to come up with acquisitions and mergers to enhance the usage of the idle aircrafts in upcoming five years from
2014 to 2019 of its operations..The mission of MAS is achieving the
leading position with service and it is only possible if the company
manages to outdo their competitors by achieving economies of scale and
cost leadership in the market.
RECOMMENDATION
Apply
the image of PREMIUM brand to the price sensitive customers and attract
them with low pricing service offerings and exploit the huge market
potential of low end segmented customers outside Malaysia. Apply the
advantage of government support to minimize the regulative threats
Adopt
the opportunity of increasing services in the local route and reducing
the weakness of low business operation in the local market.
Here EFE matrix shows that their score is 2.80 where the rate should be 2.50 to 3.50. So the organization should maximize the utilization of their opportunity.
Need
to continually optimize portfolios (packages) to reduce risk and
increase return. Recently they face some external threats where they
have no control Like increase of fuel cost for Iraq war, plan crash
(MH17). So they should overcome their internal weakness like operational
cost
CONCLUSION
The
airlines industry’s 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 slows down.
During
a period when average fares will continue to decline, control and
reduction of cost in all areas becomes critical and continuous
necessity. In this process cutting labour costs is the key for two
reasons; first because it is the largest single input cost over which
management has some control; second, because differences in labour wage
rates and productivity are a major factor in differentiating operating
costs between competing airlines. Thus, reducing labour costs and
increasing the productivity of labour form another major challenge in
the industry.
Although
the Malaysia Airlines suffered a great loss but strong leadership and
proper planning can successfully turn their losses to profit.
REFERENCES
ü Fred. R David, Strategic Management: Concepts and Cases (13/e) Pearson Prentice Hall
ü Exercise Book ( Back –Up) , University of Oxford British Council , U.K.
ü Annual Reports. (2014). Malaysia Airlines. Available:
ü Malaysia Airlines Official Website . Available: http://www.malaysiaairlines.com/com. Last accessed 15th Jul 2014.
ü Bloomberg. (2014). malaysian airline system bhd (MAS:Kuala Lumpur). Available:
http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=MAS:MK.
Last accessed 19th Jul 2014.
ü CAPA. (2013). Malaysia Airlines 2013 outlook clouded by increasing competition and launch of Malindo. Available:
http://centreforaviation.com/analysis/malaysia-airlines-2013-outlook-clouded-by-increasing-competition-and-launch-of-malindo-99945.
Last accessed 15th Jul 2014.
ü info/our_story/about-us.html. Last accessed 14th Jul 2014.
ü SIDHU. B.K. (2005). Idris Jala takes up hot seat at MAS . Available:
http://www.thestar.com.my/story.aspx/?file=%2f2005%2f12%2f2%2fnation%2f12757831&sec=nation.
Last accessed 14th Jul 2014.
ü UK Essays. (2014). Marketing Plan For Malaysia Airlines. Available:
http://www.ukessays.com/essays/marketing/marketing-plan-for-malaysia-airlines-marketing-essay.php.
Last accessed 19th Jul 2014.
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