Malaysia Airlines Analysis

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

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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

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§ 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.

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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

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Government & International Organisations

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Leisure Travellers

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Migrated Personal & Leisure Travellers

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European Personal & Leisure Travellers

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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