Malaysia Airline System (MAS) is one of the Government Linked Companies in Malaysia. For the past three years, MAS has been undergone dramatic changes that turnaround the position of the company inside the competitive and ever challenging airline industry. From its lowest and disastrous experience in 2005 to achieving success within 2 years as well as bracing the impact of global economic crisis in past two years. The purpose of this report is to analyze MAS key competitive position and its strategic decision effectiveness and give recommendation in order for MAS to sustain its competitive position.
1.0 EXTERNAL ANALYSIS
1.1 Remote Environment
The remote environment factors are summarized in Appendix B.
The year 2008 was the toughest year that MAS and the entire airline industries had encountered. Firstly, MAS was hit by the high fuel price in the first 8 to 9 months of the year which had increases up to USD$182 per barrel and affected the overall operating cost. Later, while MAS were figuring out the solution to this problem, once again MAS was slammed by the economic crisis and downturn which pressured the yield and profit margin. The world's economy today is also being treated by the uncertainty and volatilities which can affect share price and trust from the shareholders.
As a developing country, Malaysia has increase the number of professionals who earn more and travel much more frequently overseas. Thus, they want the services that can offer them time efficiency and good services. MAS has responded to them by offering business class ticket that offer the 5-stars services. However the world recently has been shocked with the wave of Influenza A (H1N1 virus) global pandemic and the increasing rate of terrorist attack. These situational factors have somewhat changed the perception of airline travellers to some degree by claiming that it is no longer safe to travel by air. Due to this many people are reconsidering their travel plan thus affecting the airline industry. MAS have to respond by investing in the security to protect the impact of the influenza virus and the threat of possible terrorist attack. However, having a security measures that is too stringent could be problematic as more time will be consumed and will challenge the customer's patience.
Before Dato' Seri Idris Jala became the CEO of MAS, MAS was having the worst financial crisis in 50 years history. The crisis was very deep as MAS just had enough cash to last for three-and-a-half months. Idris Jala was appointed by the government to take over MAS even though he has no experience in airline industry. Idris Jala sets a condition that he wants 50% freedom from the government before undertaking the leadership. One of the major problems MAS was facing was the government intervention which required MAS to fly routes that didn't make any commercial sense and MAS, as a GLC had no choice but to abide to the requirement. Idris Jala who had proven track records from his previous company Shell finally was able to cut off unprofitable routes and this proved to be beneficial to MAS in regaining its position in the industry. Some government policy and initiatives also benefited MAS. In 2008 the government provided 50% rebate on landing charges for airlines under its stimulus plan. Additionally, the Malaysia government through its Ministry of Tourism has been focusing on the development of hospitality and tourism industry in Malaysia and has also been actively promoting Malaysia as a tourists' destination. Another example of the step taken by the government was to make KLIA a regional air hub and the launching of ERL system to connect Kuala Lumpur city with the airport (KLIA) in Sepang. The initiative has benefited MAS in terms of a way to increase the passenger count. The impact of government's policy and initiatives had both indirectly and directly provide positive impact to MAS in some way or another.
The rising of Information Technology and Information System can benefit MAS to operate their business whereby MAS could exploit this technology in creating more efficient network management which will lead to reduction in operational cost. Technology is helping MAS to reduce cost, but more importantly, it also adds value to the customers. MAS was replacing KOMMAS Reservation System with the new SITA RES system. Using the new system, customers are assured that their booking and e-ticket information will always be available at check-in. In addition, MAS is also able to offer customers more and better self-service options through its website.
The current environmental crisis has motivated MAS to initiate a programme to help reducing the environmental problems. With that MAS launched the Fuel Emission and Conservation Programme which follows the standard with regard of reducing noise emission from the burning fuel. Besides that, MAS also apply the environmental management system and has been awarded the ISO 14001 certificate by accomplishing the entire standard. MAS also volunteer in Carbon Offset and Forest Conservation Programme. Given the rising concern for the environment, MAS is taken the popular action of being socially responsible entity within its industry. This strategy could strengthen the MAS brand as an environmentally responsible entity.
2.0 INTERNAL ANALYSIS
2.1 SWOT Analysis
A table which summarized MAS SWOT analysis is attached in Appendix C.
2.1.1.a) Government Support
MAS as a national flag carrier have a very important role to Malaysian reputation. The failure of MAS gives bad perception towards the Malaysian government. Hence, the government is giving attention and support to MAS as one of the Government Linked Companies (GLCs). Thus, MAS has the advantage of government support in order to protect it from financial distress or any other difficulties.
2.1.1.b) Powerful Strategy
In recent years, Malaysia Airlines has transformed itself into one of the world's most respected airlines. In 2006, the Business Turnaround Plan (BTP 1) was introduced to regain its profitability in 2007 and onwards, as a strategy to bring itself out of the financial crisis it had faced 2 years ago while maintaining the highest quality of products and services for its customers. In February 2008, Malaysia Airlines announced its Business Transformation Plan 2 (BTP 2) as a business plan that outlines the strategies that Malaysia Airlines will pursue in conquering the industry-wide challenges and transforming itself over the next five years to emerge as the World' Five Star Value Carrier and as a leading player in the global aviation industry.
2.1.1.c) Strong Brand Name/Recognition
The national carrier is one of only 6 airlines worldwide to be accredited a "5-Star Airline" status by Skytrax for 4 years in a row from 2006 to 2009. Its highly commendable cabin crew has won "World's Best Cabin Crew" award in 2009, and holds the record as the only cabin crew in any airline to have won this recognition 6 times since the award was introduced in 2001. In Malaysia itself, Malaysia Airline has been awarded Malaysia Top 30 Most Valuable Brands in 2008. Malaysia Airlines is also accredited by the International Air Transport Association with IOSA (IATA Operational Safety Audit) for its operational safety practices.
2.1.1.d) Good Customer Service Capabilities
Malaysia Airlines has always placed top priority on providing service excellence and warmth. It continues to be an award winning airline and holds a lengthy record of quality service and best practices excellence. Malaysia Airlines launched "MH", the so-called Malaysian Hospitality, at which the airline put a strong command on its employees to treat customers as guests in one's home. Launched in 2007, "MH", Malaysian Hospitality serves as focal point to ensure that Malaysia Airlines' service deliveries are aligned to its customers expectations' and continuously deliver what customers value.
2.1.1.e) Network Improvement
Malaysia Airline believes that their hub-and-spoke strategy is a way to maintain the profitability. In 2008, Malaysia Airline has signed a code share agreement with Etihad Airways and expanding their partnerships with Air Mauritius, Singapore Airlines and Silk Air. Then, in early 2009, Malaysia Airlines expand its hub-and-spoke network by signing a code share and frequent-flier partnership with Jet Airways to enable them to enhance passenger traffic between Malaysia and India. To date, Malaysia Airlines has served over 100 destinations worldwide. Moreover, Malaysia Airline has developed a network plan in order to match its fleet's replacements in order to minimize the number of aircraft types so as to achieve cost efficiency in the operation.
2.1.1.f) Strong Financial Condition
MAS Airline had made significant improvements in the way they manage the costs over the last three years. In 2006, they managed to cut the operating expenses by more than RM 600 million in spite of higher fuel costs while in 2007, they had reduced their operational expenses by more than RM 700 million. Recently in 2008, despite a highly challenging operating environment with the increase in fuel prices and global economic slowdown, Malaysia Airlines recorded a profit of RM244 million for the financial year 2008, sustaining 10 consecutive quarters of profits.
2.1.2.a) Poor Management
Prior to the Asian Financial Crises in 2007, the airline suffered losses of as much as RM 260 million after earning a record-breaking of RM319 million profits in the financial year of 1996/1997. For 5 consecutive years since 1997, MAS has suffered losses due to inefficient and incompetence of management. Poor revenue and pricing management as well as late expansion decisions, poor sales and distribution strategy, bad brand presence in foreign markets and poor alliance base lead to the negative return of the business. As a result of these losses, the airline cut many unprofitable routes, such as Brussels, Darwin, Honolulu and Vancouver.
2.1.2.b) Subpar profitability due to high operating costs
Malaysia Airlines faced its worst financial crises ever with losses of RM 1.26 billion recorded for 9-month financial year of 2005. Several weaknesses in airline operations were identified as the causes of the RM1.3 billion loss. These included escalating fuel prices, increased maintenance and repair costs, staff costs, low yield per available seat kilometer ("ASK") via poor yield management, inefficient route network, increased handling and landing fees and overhaul charges.
2.1.3.a) Product Line Expansion
- FireFly and MASWings
MAS Airline also expands its product and flight services for its customers like FireFly and MASWings. FireFly was launched in March 2007 as Malaysia's first community airline. FireFly currently operates 9 domestic and 5 regional destinations from 2 bases namely Penang International Airport and the Sultan Abdul Aziz Shah Airport. MASWings was launched in October 2007, serves as the rural areas in Sabah and Sarawak by providing affordable fares and convenient flight schedules within these two Borneo states.
- Everyday Low Fares and All Inclusive Low Fares
Malaysia Airlines was the first full service airline to offer rock-bottom fares since the promotion was launched in May 2008. The Everyday Low Fares offers the customers discounted price on the remaining 30% seats from the 70% of the seat that were taken up. The All Inclusive Low Fares promotion was launched in October 2008 when they significantly reduced fuel surcharge by 50 to 73% for domestic travel.
2.1.3.b) Online Sales
In 2004, MAS announced the upgrading of its website, www.malaysiaairlines.com to incorporate an online booking facility while in December 2007, MASWings launched its online booking facility. Due to its online booking facilities, their internet sales recorded an unprecedented growth of 173% to RM475 million compared to year 2007.
2.1.4.a) Competitors and overcapacity
Air Asia, the Malaysia's first no-frill budget airlines and Asia's largest low-cost carriers is playing its vital role as MAS competitor. Air Asia for example with their hard work efforts and promotions has attracted many local passengers to use their service in local destination. Firefly, being a low cost community airline faced a strong competition from its local competitor which is AirAsia. Furthermore, the international low cost carriers (LCC) such as Oasis from Hong Kong are aggressively expanding its network with MAS Airline main competitor, the AirAsia.
The latest trend in the airline industry is the emergency of many new airline providers globally which leads to overcapacity. Eventually, this situation would lead to lower price and will reduce the profit margin.
2.1.4.b) Economic condition and rising cost
The economic crisis would be another threat to the company, Malaysia Airlines, especially the fuel prices fluctuations, with the high fuel prices in 2008. The uncertainty of US economic growth due to a weakening housing sector may also spill over and impact Asia's economic growth. This would rather affect on the developments in aviation industry over the next couple of years. Moreover, The International Air Transport (IATA) had predicted that airlines will lose a further US$4.7 billion in 2009 and the situation is expected to slow down the economic growth. Moreover, the slimming profit margin caused by overcapacity is further overwhelmed by the increasing operating cost in terms of labor, fuel and airport charges.
2.1.4.c) Global Pandemic of Airborne diseases
The recent pandemic of Influenza AH1N1 virus has significantly affected the whole aviation industry as well as to Malaysia Airlines. The impact of the global pandemic force more people to reconsider their travel plans. As a result, the number of passengers dropped within the period when the flu was at its peak and therefore affects the company's revenue. The AH1N1 pandemic is just one of the examples of global health issue besides other illness such as SARS outbreak in 2003.