Download - Malaysia Airline Report
AVN 4010 Air Transport Economics Malaysia Airlines Strategic Plan
1 INTRODUCTION
Ever since its inception as an independent airline in 1987, Malaysia Airline System
Berhad is doing business as Malaysia Airlines. Proudly running as the national-flag
carrier of Malaysia, it operates flights from its main home base of Kuala Lumpur
International Airport (KLIA) with secondary hubs at Kuching and Kota Kinabalu on the
second island of the Malaysian state. With a concentration of network on both regional
as well as international sectors, MAS has come to be known as a world renowned airline
as well as a local favorite along with its subsidiary, MAS Wings, credit being given to its
staff hospitality and its marketing campaigns. After conducting an analysis on a local and
international level it has been understood that there are various issues and opportunities
that are being faced or available by and to MAS. Some of these are an overstaffing
problem involving a workforce of more than twenty-thousand employees all over the
world. Another one, being incurred net losses of RM 479 million by the third quarter of
2011. By the end of the fourth quarter the airline had incurred a loss of RM 2524 million,
indicating a substantial decrease from a profit of RM 234 million in the previous year.
However the airline had remained profitable in the previous fiscal year of 2010.
This report will analyze the efficiency model of Malaysia airline which talks about four
parts: business efficiencies, customer relationship and marketing efficiencies, human
resource and knowledge efficiencies, differential efficiencies. It also involves a SWOT
analysis on the airline as well. Finally, MAS has the vision in the next 3-5 years to
become a 5-star value carrier through a strategic medium term plan which has been
devised that might prove beneficial for the airline.
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2 STRATEGIC ORGANIZATIONAL ARCHITECTURE OF MAS
In order to understand and analyze the current scenario of Malaysia Airlines and provide
future strategies the Efficiency Model has been used. Under the Efficiency Model MAS
will be keenly studied on 4 efficiency areas which are – Business Strategy, Customer
Strategy, HR Strategy and Innovation Strategy.
2.1 Business Efficiencies
2.1.1 Finance Management
The Airline industry, more so than other industries is vulnerable to ‘demand shocks’
created by macroeconomic events. In 2011, there were two such shocks with the
earthquake and tsunami in Japan and the floods in Thailand. Furthermore, the possibility
of a global recession caused by Europe’s sovereign debt crisis and a continued high
cost of jet fuel must be prepared for. Malaysian airlines must unveil a new business and
finance strategy aiming to restore profitability.
2.1.1.1 Net loss
The Malaysian flag carrier, which turned a profit in 2010, incurred net losses of RM 479
million by the third quarter of 2011. By the end of the fourth quarter the airline had
incurred a loss of RM 2524 million, indicating a substantial decrease from a profit of RM
234 million in the previous year.
2.1.1.2 Fuel & Non-fuel Expenditures
Further more fuel costs had gone up 25% by the end of Q4 in 2011 to RM 305 million.
Non fuel costs had increased by 50% accounting for additional provision including
redelivery of aircraft among others. The provisions made in Q4, 2011 had totaled to RM
1.09 billion. Although the fuel costs recovery rate had and continued to improve from the
previous quarter, fuel price still remains highly volatile affecting the airline’s revenue
performance.
In order the restore profitability the airline carried out a new business plan seeking to cut
capacity and increase focus on the premium sector.
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2.1.2 Strategic Revenue Management
Over the past decade Malaysia Airlines has lost focus on its ‘full service’ portion of the
market on which it had been increasingly dependent. Instead they had diverted
resources to the low cost segment of the market, operating one of the oldest fleets in the
region and under-investing in the customer experience that is key for success in the ‘full
service’ business. This decline in relative product quality and customer loyalty combined
with excess capacity had weakened substantial yield increases. In 2011 the airline had
lost 40% of passengers flying a ‘full service’ competitor airline to a city served by
Malaysian Airlines.
2.1.2.1 Revenue & Cost levels
The airline had seen an increase of group revenue of 2% from the previous year.
However, the unit revenue levels were still 15-25% below regional peers as can be seen
in the chart below. Furthermore, the airline’s cost position was not sufficiently lower than
competitors resulting in loss.
2.1.2.2 Increase in Yield & RASKs
The airline’s lower load factor brought with it improved yields by the end of 2011. The
RASK (Revenue per available seat kilometer) had also increased by 2% as can be
observed the figure below. Although there had been a modest growth in revenue, yield
and RASKs by the end of 2011 it was insufficient to offset higher fuel costs.
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2.1.2.3 Revenue & Profitability Recovery
Without taking drastic measures the airline is forecasted to be bankrupt by the end of
2012. One possible step to recover from the losses incurred in 2011 is to cut back on
several loss-making routes including the long haul routes to South Africa and Argentina.
The airline acknowledges that 40% of its routes are unprofitable, and although it only
operates five weekly flights to South America and Argentina it accounts for over 5% of
total international capacity per ASKs. This cutback will allow Malaysia Airlines to
increase capacity within Southeast Asia by adding frequencies to core markets in the
region.
The airline has a full service cost base but its revenues are closer to those of low cost
carriers such as AirAsia rather than full service carriers such as Cathay Pacific. A crucial
step to recovery includes investing in order to win back the loyalty of premium
passengers by operating modern wide body aircraft and improving other aspects of
product quality which is necessary for the success of such a premium ‘full service’
carrier.
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2.1.3 Network Strategy
Malaysian Airline operates flights from its home base, Kuala Lumpur International Airport
and with a secondary hub at Kuching. It operates flights in Southeast Asia, East
Asia, South Asia, Middle East and on the Kangaroo Route between Europe and
Australasia. It also operates transpacific flights from Kuala Lumpur to Los Angeles,
via Tokyo. Malaysia Airlines consists of two airline subsidiaries: Firefly and MASwings.
Firefly operates scheduled flights from its two home bases Penang International
Airport and Subang International Airport. The airline mainly focuses on tertiary cities. On
the other hand, 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.
As it has been mentioned in the report earlier the Malaysian flag carrier, which turned a
profit in 2010, incurred net losses of RM 479 million by the third quarter of 2011 and by
the end of the fourth quarter the airline had incurred a loss of RM 2524 million, indicating
a substantial decrease from a profit of RM 234 million in the previous year.
The initial recovery plan would result in the termination of MAS’ highly unprofitable
routes to South Africa and Argentina and its only destination in Latin America. Other
long-haul routes will also be eliminated but have not yet been mentioned by MAS.
Malaysian Airline recognizes that over 40% of its current routes are unprofitable. While
numerous long-haul routes will be dropped, MAS plans to surge its capacity within
Southeast Asia by adding frequencies to the main markets in the region. MAS hopes to
produce sufficient cash on the expected doubling of passenger demand in the Southeast
Asian market by 2020.
According to CAPA, MAS operates only five weekly flights to South Africa and Argentina
(including two on a Kuala Lumpur-Cape Town-Buenos Aires routing and three between
Kuala Lumpur and Johannesburg), they account for over 5% of MAS’ total international
ASKs (Available Seat Kilometers). MAS also need to work on reducing about 25% of its
European capacity in order to achieve the goal of a 12% system-wide capacity
reduction.
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MAS now serves five destinations in Australia and Auckland in New Zealand but it is
doubtful they would eliminate these flights as MAS seeks to forge a close partnership
with Qantas, which is sponsoring MAS’ entry into oneworld alliance.
Australia and New Zealand hold 22% of MAS’ international ASKs, while Europe
accounts for 29%. A minor increase in capacity in expected from Asia which accounts for
39% of total international ASKs.
The network changes have a great chance to improve the carrier’s structure by MYR220
million (USD69 million) to MYR302 million (USD95 million) annually, starting from 2012.
With its smaller long-haul network MAS will focus mainly on the premium segment,
leaving Malaysian long-haul low-cost carrier AirAsia X to focus only on the budget
sector.
MAS plans to win or gain back its premium long-haul passengers, mostly through
changing its carriers. A phase-out of MAS’ ageing widebody will be pursued and
simultaneously new passenger facilities will be introduced. By the end of next year the
carrier will be operating only three types of modern widebody aircraft – A330-300s,
B777-200ERs and A380s. A330-200s and B747-400s will be lashed out by the end of
2012. MAS assumes the average age of its fleet will decline over the next four years
from 13 years to only five years, giving it a younger fleet than Asian leaders AirAsia,
Cathay Pacific and Singapore Airlines (SIA).
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A set of additional A330-300s and MAS’ first batch of A380s will be delivered in 2012.
The new business plan which was conducted by Malaysian Airlines confirmed that their
first A380 aircraft will be positioned on the Kuala Lumpur-London route. MAS mentions
that the A380 will have exceptional in-flight services which will help determine
improvements in its yield and load factor. MAS’ London route, which served with double
daily B747-400s, suffered months from low load factors and yields. The A380 will bring
in more change and result in extra capacity at a time. MAS is also pursues a connection
with oneworld member British Airways (BA), which did not serve Kuala Lumpur back in
2011, leading to a potential joint venture in the UK-Malaysia market and
beyond. Qantas, which already operates A380s to London and has an existing joint
venture with BA on the UK-Australia route, could also end up in this partnership.
MAS begin to transfer all of its B737-800s to its new regional premium carrier. The new
carrier plans to operate regional international routes within four hours of Kuala Lumpur,
including to destinations in Southeast Asia, the Indian subcontinent and China. A
preliminary initial route map for the new carrier includes six ASEAN destination which
include Singapore, Jakarta, Manila, Hanoi, Ho Chi Minh City and Bangkok – as well as
the east Malaysian domestic destinations of Kuching and Kota Kinabalu. But MAS
declares that the domestic routes will continue to operate with B737-400s which is
expected to be phased out by 2015.
The use of B737-800s will allow MAS to significantly increase frequency on its regional
international routes because MAS now uses widebodies on these routes alongside
B737s. MAS says the switch to B737-800s will also result in cost improvements because
the B737-800 is 26% more efficient on a fuel cost per ASK basis than the A330-200 and
23% more fuel efficient on a fuel cost per ASK basis than the B737-400.CAPA data
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shows MAS operates 14 B737-800s with 40 more of the type which has been placed on
order. Several additional B737-800s will be delivered next year as MAS now plans to
take delivery of a total of 23 aircraft in 2012 which would be a mix of B737-
800s, ATR 72s, A330-300s and A380s.
MAS are confident that the new regional carrier, with its modern fleet and high product
standards, will better meet the needs of Asia’s regional premium passenger. MAS
expects this "win back customers" portion of its new business plan to generate a profit
impact of MYR394 million (USD124 million) to MYR477 million (USD150 million)
annually. This will be achieved by improving yields by 19% in 2012 while unit costs are
expected to remain flat. In addition to, the new partnership with AirAsia is also expected
to have a big impact on the revenue side as MAS begins to use AirAsia to improve its
network connectivity. MAS reveals in its business plan that a connection service will be
launched on non-overlapping routes. The new connection product with AirAsia will allow
MAS to gain access to over 24 cities which MAS did not serve back in 2011, resulting in
additional feed to MAS’ long-haul network.
However, Firefly was a major component of MAS’ previous strategy of having an
additional budget to help the group compete against AirAsia in the domestic and regional
international markets. But while Firefly’s turboprop operation, which was launched in
2007 and followed a hybrid regional low-cost airline model with some frills, was
profitable, the newer jet operation was tormenting up big losses until it was shut in
September. MAS’ new management team says the previous strategy of focussing on
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Firefly was a mistake because it diverted resources away from its premium business.
Firefly, which was growing fast and had been allocated 30 B737-800s from MAS’ order
book, left MAS mainline with one of the oldest fleets in Asia. MAS claim the result was its
mainline product languished, leading to lower yields and a decline in customer loyalty.
To end with, Malaysian Airlines new business plan represents a major change and an
improvement in their network strategy. The Malaysian flag carrier, while always striving
to offer a top notch product, has struggled over the years to compete with Asia’s leading
carriers for premium business. MAS are finally now committed to investing in the
products needed to compete with the likes of SIA and Cathay.
2.2 Customer Relationships and Marketing Efficiencies
2.2.1 Communication and Marketing
Since MAS have incurred a net loss of RM 1.2 Billion in the first 3 quarters of 2011
alone, maintaining its brand and customer experience has become a vital concern for
this airline. In order to gain back their position and customer loyalty it requires MAS to
focus on building its brand and adopting various innovative strategies and develop
approached to stimulate demand.
2.2.1.1 Innovation
In 2010 MAS renewed their emphasis on providing world class products and services to
enhance customer experience thereby increasing sales. They upgraded their Passenger
Service System which has enhanced their offerings today. The system includes the
MHmobile service where passengers can book tickets, check-in, track their baggage as
well as check on their flight status and Enrich points via their phones.
Also in 2010 MAS came up with a new strategy. It became the first airline in the world to
offer a comprehensive booking and checking-in application on the iPad. The first
MHkiosk which utilises this iPad application was also launched in June 2010 at Malaysia
Airlines’ Kuala Lumpur Ticketing Office at KL Sentral, followed by Kota Kinabalu and
Kuching in July.
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During this process MAS carried a refresh of their internet website basically a makeover
to further enhance its ease of use and to offer anew products. This process was carried
out to provide better service as well to respond to feedback from customers in order to
maintain their loyalty and customer experience.
2.2.1.2 Stimulating Demand
Since MAS has been facing problems in it growth face, it embarked on a more
aggressive campaign to improve sales by introducing MHdeals. It is an application
based on the augmented reality concept on the iPhone, with the dual purpose of
enhancing customer experience and increasing demand. MHdeals enables the iPhone
to display information about certain tourist attractions, as well as deals that are currently
on offer by Malaysia Airlines to cities situated in the general direction detected by the
phone. The Company had collaborated with Sabah Tourism to implement the service in
Kota Kinabalu, and will work to add more content and destinations to the application.
Other campaigns that were carried out in 2010 to stimulate demand included a
partnership with Australia Tourism called “Only in OZ Holidays” that was launched with
its supporting website MAStraveller.com, the “Saya Nak Cuti” reality television show was
used to promote Malaysia Airlines as a national carrier, the threeday Merdeka sales, the
MAS Everyday Value Fare promotion, as well as the appointment of the popular Chef
Wan as a Travel Icon.
2.2.1.3 Promotion
In MAS website special promotional deals are offered for those members as well as non
members. Though being a member holds more advantage than a non member.
Passengers get to purchase air ticket with discount price and enjoy exclusive member
only fares. There are various deals offered such as deals of the day, MHcoupon, MH
deals and MASholidays. Deals of the day allow customers to enjoy big savings which
include exciting destinations at a fantastic pries. MHcoupons is where customers get to
enjoy exclusive saving on MAS flights. This online coupon comes in the form code.
MHdeals is a free application that use iphone GPS sensor to locate airport around you
and display the best MAS deals. Lastly, MASholidays is a deal that provides holiday
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package that suit a variety of budget. It includes holiday package within Malaysia or
outside of Malaysia at an attractive price.
Other than the deals offered MAS sponsors The White Jersey. The organization of Le
Tour de Langkawi, recognized by the International Cycling Union (UCI) with an
‘Excellent Level of Organization’, has led Malaysia’s Leading Airline to continue its
support for the 17th edition of the race. MAS have been a long running corporate partner
of the race. Once again in 2012 MAS sponsored The White Jersey of the best Asian
rider classification.
In 2011, Queens Park Rangers have announced a multi million pound shirt sponsorship
deal with MAS for the next 2 years. The sponsorship of jerseys for Queen Park Rangers
(QPR) enabled Malaysia Airline System (MAS) to reinforce its global full-service
presence and premium franchise via football fans globally.
As a part of their promotional strategy, recently on 14th Jan 2012 passengers arriving at
Kuala Lumpur International Airport were greeted with a flash mob of around 100 dancers
and singers into a spontaneous entertainment as a part of MAS special event to
welcome the New Year with a bang, it was carried out by MAS advertising and
promotion team and their advertising agency involving not just professional
choreographers but also MAS staff and cabin crew in their uniform. It kick started with
MAS’s theme song “We Fly” followed by other Bollywood and Hollywood songs. Ever
since, the flash mob trend has been growing worldwide into marketing schemes,
involving a sizeable group of people who out of the blue break into a dance act at a
public place, MAS took this opportunity to promote and help the airline gain strong online
presence on social media.
On 24 April 2012 Malaysia airlines and firefly were big winners at the Putra brand
awards 2012. The Putra Brand Awards are the largest consumer-based sampling of its
kind in Malaysia, measuring brands through four key attributes: growth, relevance,
confidence and differentiation where Malaysian consumers themselves are the judges.
Malaysia airlines was rewarded Gold for its transportation and travel and tourism
category while its subsidiary Firefly was the recipient of the most promising brand. MAS
group VEO Ahmad Jauhari considered this recognition as a fitting testimony that
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consumers continue to value Malaysia Airlines branded customer experience in spite of
all the problems faced.
2.2.2 Customer Loyalty Programs
Malaysia Airlines introduced its enhanced Enrich frequent flyer program on 12 June
2006. The program is now known as Enrich by MAS. It aims to recognize and reward
frequent flyers with free travel and special benefits. Usually a FFP is introduced by an
airline to maintain its customer’s loyalty in the long run, and MAS holds the same
purpose. Under this program there are four levels of Enrich memberships- Blue, Silver,
Gold and Platinum. Each level has different privileges to offer. To name few priority
check-in, priority standby and extra baggage allowance, amongst others. The most basic
features of FFP miles can be accrued by the Enrich members on qualifying Malaysia
Airlines services as well through partners, including airlines, hotels, car rental agencies
and credit card companies. The miles earned by the members allow for redemption for
free travel, free upgrade and other complimentary services. Members of Enrich are able
to accrue miles on qualifying though Enrich Airline Partners such as Air France, Alitalia,
All Nippon Airways, Delta Airlines, Etihad, Jet Airways, KLM, SriLankan Airlines, Virgin
Atlantic and many more. Malaysia Airlines also includes a frequent flyer program for
students above 12 years old which is knows as GRADS. It offers discounted airfares,
great packages and other special deals.
2.2.3 CRM –Customer Interface
CRM basically means continuous interaction with customers in order to enhance
relationship and to develop long term loyalty thereby earning profit. MAS have adopted
many methods to keep their customers satisfied. MAS’s customers are their top priority.
There are various channels which include call centers, sales offices, agents, airports
counters and town center kiosk for the convenience of walk-in customers.
Malaysia Airlines internet booking system was launched in august 2004. The internet
booking system not only enhanced customer relationship and experience but also
allowed MAS to reduce airlines distribution cost significantly over the years. The website
allows customer faster access to information to their travelling needs and to look through
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its products and services offered. Also the use of this internet booking allows customer
access to MAS inventory worldwide with ease.
2.2.3.1 CRM in Social Media
One of the most comprehensive testaments of MAS innovation in social media is the
introduction of MHbuddy to Malaysia Airlines Facebook page in March 2011, it is an
application that allows users to book and check-in for flight, and share details of their trip
with their Facebook friends. This application is considered to be the most
comprehensive for an airline on the Facebook platform. This innovative strategy
developed by MAS is an interesting approach to leverage Facebook to book a flight.
MAS have a key presence on both Twitter and Facebook as mentioned earlier. Separate
“tweets” and pages for specific markets such as students, the expatriate community and
several foreign localities in their native language have been formed in order to make it
easy for customers to access and use. An approach to develop customer relationship
management. These channels complement Malaysia Airlines’ existing consumer
platforms, such as the sales offices and call centers, and allow the Company to interact
with a different segment of the market and to engage them in a different way.
As analyzed from the above information we can come to a conclusion that MAS’s current
marketing efforts have been predominantly focused on tactical sales promotion rather
than brand building. In spite of this approach they have been able to generate low yields
insufficient to cover an increasingly uncompetitive cost structure. In order to win back its
customers MAS should improve customer satisfaction at every touch point which is pre
flight, in-flight and post flight. It should focus on building its brand making sure it delivers
on its brand promise consistently. Measures MAS needs to focus on are to refresh
Enrich Loyalty Programme, competitive product roll out, enhanced advertising and
promotion development and finally to focus on branding revamp. The below figure
depicts Malaysia Airlines recovery plan for Branded Customer Experience.
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2.3 Human Resource and Knowledge Efficiencies
2.3.1 Human Resource Department
Currently Malaysia Airlines have more than 20,000 employees all over the world from
various ethnic groups and have reduced their workforce in recent years to cut down cost.
The airline recruits high skilled employees and train them in their academy as a part of
human resource development. The performance of a company tallies with the Human
Resource Management strategies and efficiency as the output of the individual
performance can affect the whole organizations performance.
2.3.2 The Five Key Elements of MAS Human Resource development strategies
1. Stringent selection processes
The most significant advantage is the right people. Human resource strategy begins with
hiring right people, where we implement a highly accurate and strict selection process. It
includes meeting a multitude of criteria, interview, etc. This particular selection process
makes sure that the company hires applicants with the preferred characteristics.
2. Developing staff holistically Recruitment
The holistically recruitment goes on for the whole term of employment, it starts from the
new recruits on-the-job training for four months, to make sure that they understand the
company's corporate values and the promise of being ‘a great way to fly. Once they join
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the company, the training serves focus on improving coalition between the employee's
individual value system and the company’s corporate values. However, everyone,
including senior managers has training and development plans. It is an ongoing
procedure that calls for all management's attention. These programs constantly enhance
the alignment of individual with corporate values by the communication and shared value
of experiences.
3. Investment on Training and retraining
Once a company has good people hired, investment in training and retaining can bring in
excellent outcomes. Malaysia airlines experience emphasizes how recruitment and
development should be managed, aiming to realize well managed human resource
which can efficiently sustain the company’s competitive advantage. The company placed
substantial stress on training, so that training is considered as one of the important
points in human resource development and service excellence strategy (Managing HR
for service excellence & cost effective). The training intends to ensure that the cabin
crew offers excellent service. This on-going training and retraining has been essential to
the company’s objective of constant development, and it is important to the company in
maintaining service excellence through managing employees to be open minded, to
adapt to change and improvement and to bring new services that introduces regularly.
4. Quality of Management (Building high-performance service delivery teams)
In terms of the significance of the teamwork in the delivery of service excellence, MAS
aims to create ‘team spirit’ among employees. Team concept is the approach to improve
teamwork among the diversity of group of staff. In doing so, the company has divided the
staffs into groups, in which team staff are managed to work together quite often; this lets
them create better understanding of each other’s personalities and abilities within a
team.
5. Communication and Motivation (Motivating staff through rewards and recognition)
To ensure that staff will deliver service excellence, we created reward systems which are
the major contributor to motivation and reorganization. Motivating and rewarding
proactive service staff is also the most effective method of retaining them.
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2.3.2 Organizational Hierarchy
2.4 Differential Efficiencies
2.4.1 Service Differentiation (Human Element)
Malaysia Airline has come a long way in terms of their service. Being part of the ASEAN
region, quite a lot is expected from the airline. Whether it is their customer service, staff
hospitality; be it on the ground or in-flight, all have displayed true Malaysian hospitality
and have not disappointed. Malaysia Airlines is committed to provide, to the best of its
abilities, safe and dependable air transportation services to its valued customers who
choose to fly them. The airline is committed to achieve the service goals that have been
defined by them. Malaysia airlines had initiated a very creative tagline in the year 2007
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which was “MH is not just a code, it stands for Malaysian Hospitality”. This inimitable
Malaysian sense of graciousness is branded as "Malaysian Hospitality" and symbolized
by the acronym MH which is also the airline's flight code. This stood to be true and still
is. The airline has received various accolades and awards by Skytrax, few of them being
“World’s Best Cabin Staff” for six years, a “5-star ranking”, all displaying excellence in
terms of product service and quality, Malaysia Airline does show that it deserves to be
ranked as a good airline in terms of quality and hospitality. As part of its business
transformation, Malaysia Airlines is committed towards providing a quality, safe and
conducive working environment for its’ 19,000-strong employee base, by being the
nation’s largest employer. Malaysia Airlines has definitely been and continues to be an
airline well known for their service differentiation by being unique and bringing in a
personal touch in their services to customers.
2.4.2 Product Differentiation (Non-Human Element)
Malaysia Airline not only shows great service in terms of the human element but, also on
the non-human element as well which happens to be their product. Even though they
receive tough competition from other regional carriers like Singapore Airlines, Thai
Airways and Cathay pacific, MAS has still made a mark in the ASEAN aviation industry
for their service. The on-the ground service of the airline is one of their product
differentiators. A passenger is made to feel more like a guest rather than just a
passenger at MAS (Malaysia Airline), welcomed with a smile and interacting with award
winning ground staff as well. The presence of a golden lounge makes it all the more
better for a customer, offering a place for a traveler; be it a tourist or a businessman. The
golden lounge, equipped with wifi, a buffet counter, a kid’s corner and much more, has
received an award for Asia’s leading lounge in the year 2011. Getting off the ground,
MAS has an excellent on-board product as well configured in three classes: first,
business and economy, catering to needs of all classes of travelers. These are further
divided into regional and international products. Achieving on-board excellence is at
utmost priority in terms of service for the airline. This includes an in-flight entertainment
system known as ‘Select’, designed to provide high quality entertainment onboard in
order to enlighten the customer’s senses. With an advanced fleet compromising of the
Boeing 737s, 747s, 777s and Airbus A330s, MAS is very much on track with its safety
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and comfort. The induction of the Airbus A380 happens to be another milestone for the
airline, in line with their corporate makeover, making it the eighth carrier to operate the
aircraft type. The first A380 is to display their new corporate logo which is due to be
received soon, to be operated on long-haul routes.
2.4.3 Operational Process Enhancements
As part of operational process enhancements, MAS has brought about quite a few
significant changes into their operations in order to have smooth functioning, one of
them being collaboration with Air Asia. On August 9th 2011, MAS signed a Collaboration
Agreement with AirAsia and AirAsia X which provides all three airlines with a step-
change improvement in operations through best practice sharing in select areas (such
as fuel efficiency) and lower procurement costs (such as in fleet, ground handling and
engineering & maintenance services). This also gives customers access to more
destinations than previously. Without question, the collaboration is an essential element
of Malaysia Airlines’ overall recovery and will further enable our sustainability going
forward. Apart from this, there are three key dimensions here related to operational
enhancements which are commercial effectiveness, flight operations and cost
management. Continuous improvement in areas like revenue management and direct
sales are formed of commercial effectiveness. The delivery of new technologically
advanced fleet sets the new benchmark for excellence – for both aircraft and airport
operations. Finally, while Malaysia Airlines has always had the potential to be the lowest
cost player in the full service segment. Improvements in on-time performance are also
another enhancement which is being brought about in the company at the moment along
with improvements in asset utilization and reduction in aircraft turnaround times.
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3 STRATEGIC POSTIONING AND STRATEGIC FIT
To further study Malaysia Airlines position in the Aviation industry and in the outside
market SWOT Model has been depicted. The SWOT analysis is as follows:
3.1 Strengths
Highly recognizable brand name
Malaysia airlines is one of the service companies that established for more than 70years
being the oldest airlines company in Malaysia and its brand image has been highly recognized.
Government Support
MAS as a national flag carrier have a very important role to Malaysian reputation. MAS
could depend on the government to protect it from financial distress or any other
difficulties.
Diversified revenue stream
Malaysia airlines generate revenues from various services such as flight operation and
Aircraft cargo. The Airline has diversified into related industries such as aircraft ground
handling, aircraft leasing, aviation engineering, air catering and tour operations.
Accredited by Awards and Recognition
Theairline holds a lengthy record of service and best practices excellence, having
received more than 100 awards in the last 10 years.
Network Growth
To date, Malaysia airlines has served more than 100 destinations worldwide and are
growing every year.
3.2 Weakness
Low Margin
Although MAS has a strong revenue growth, its operating margins are below the industry average.
This is due to the airlines growth plans and MAS competitive disadvantages.
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AVN 4010 Air Transport Economics Malaysia Airlines Strategic Plan
Weak Cash Flow
The airlines reporting negative inflow cash from its operations. Several weaknesses
were due to the RM 1.36 million loss which was caused by the increasing fuel prices.
Weak cash flow means that spending is more than earning.
High costs
Costs include staff costs, handling and landing fees, aircraft maintenance and overhaul
charges. The rising cost of fuel will lead to high cost of operation.
3.3 Opportunities
Expanding passenger traffic
Passenger traffic in Asia pacific grew by 13.5% towards destinations such as china,
India, and Japan.
Increasing cargo traffic
There has been an increase in cargo traffic in south East Asian countries. This is due to
growth of export related industries. Hence, MAS airlines benefits from the increase in
demand for air cargo services. In February 2010, cargo traffic improved by 26.5%.
Expanding Fleet with A380
As of now Malaysia airlines have six A380's in order, and will receive its first aircraft this
July. Employ the aircraft to specific routes to enjoy the maximum benefits of the A380.
3.4Threats
Increasing fuel prices
The dramatic increase in fuel prices affects most airlines. The increase in fuel price will lead to
increase operation costs; this will lead to losses or lower profit.
High competition
MAS face strong competition from other airlines. MAS have direct competitor that are
Singapore International Airways, Thai International Airways, Cathay Pacific Airways and
Garuda Indonesian Airways if competing internationally and Air Asia domestically.
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AVN 4010 Air Transport Economics Malaysia Airlines Strategic Plan
Economy
Changes in economy will directly influence business positively or negatively in many
aspects. In global economic downturn, it will affect all the business worldwide including
the aviation industry.
Terrorism and Health Scare
Terrorism acts such as the September 11 attack or viruses such as swine flu affect the
aviation industry considerably.
4 STRATEGIC PLANS
After careful analysis of MAS’s current position internally and externally, the airline could
enact on the following 3-5 years medium strategic plans in order to overcome their
current stage of crisis.
5-star airline:
MAS must keep bringing innovation in its products and services in order to maintain
its rank as a high quality carrier in terms of products and services.
Lower Costs and Competitive Fares:
MAS should reduce its structural and operational costs. This will enable MAS to offer
lower & more competitive fares when compared to other airlines.
Increase customers and revenue:
With high quality services and products at low fares, MAS can attract more
consumers who wish to fly with Malaysia Airlines. Tapping this demand will generate
more revenue and help in MAS growth. They should also invest in more campaigns to
higher their ancillary revenue as well.
Grow network and build capacity:
With increased revenue, MAS could invest in growing its network and building its
capacity. Through this investment in growing its network, MAS will open up more
routes and provide easier connectivity to its guests.
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AVN 4010 Air Transport Economics Malaysia Airlines Strategic Plan
Alliances and partnerships:
By the third quarter of 2012, MAS plans to be a new member of the one world alliance.
This will increase the global network as well as increases the traffic. Being a member
of an alliance creates a competitive stronger position.
Launch of a new regional premium airline:
MAS plans to launch an entirely new Boeing 737-800 fleet in the first half of 2012. This
new airline will set new standards for product and service quality, cost efficiency and
operational excellence which will eventually set the template for airline success.
Winning coalitions:
MAS need the resolute support of the partners, government, its employees, managers,
customers, suppliers, agents and investors. MAS needs to take certain measures in
order for the share price to increase, hence attracting numerous investors.
Business model improvements:
MAS need to enhance flight operations through faster turnaround times, higher aircraft
utilization and improved employee productivity.
Win back customers :
MAS plans to win back its customers with the scheduled delivery of 23 new aircrafts in
2012 including the A380 aircraft, which will reduce its average age of fleet size from
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12.2 years to 7.7 years. These substantive improvements in product will be matched
by service improvements aimed at winning back customers.
5 CONCLUSION
After careful analysis of MAS we can come to a conclusion that the airline needs to
take crucial measures in order to recover from their current crisis. Based on the
efficiency model and SWOT model it’s clear that if MAS continues to follow their
current business model, they will be out of cash by middle of the second quarter of
2012 in short go bankrupt. This has been MAS’s greatest challenge faced as a
business; therefore a fundamental and radical overhaul is required to put them back on
the path to profitability. This may mean bearing more expenditure in terms of getting
new fleet but it would settle the cost in the long run. In order to rebuild MAS as the
preferred premium carrier which states their vision MAS will harness the country’s geo-
economic centricity in ASEAN, emphasize natural cost competitiveness as a hub,
expand their network, coordinate their commercial functions and synchronize
operations with similarly minded airline partners. Therefore, Malaysia Airlines' well-
being and strength is a major component to the country's economy. Knowing the fact
that MAS are in a crisis and the current scenario of the company is a serious concern
to the people, stakeholders, customers and business partners, MAS requires taking
hard decision which will in turn enhance its growth, survival and future success.
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AVN 4010 Air Transport Economics Malaysia Airlines Strategic Plan
REFERENCES
http://mae.malaysiaairlines.com/media.php?id=18
http://www.malaysiaairlines.com.my/content/dam/mas/master/en/pdf/corporate-info/
Malaysia%20Airlines%20Business%20Plan.pdf
http://ir.chartnexus.com/mas/doc/ar/ar2011.pdf
http://ir.chartnexus.com/mas/index.php
http://ir.chartnexus.com/mas/doc/presentation/Qtr1-12-Analyst-slide-21_5_12.pdf
http://www.hicbusiness.org/biz2003proceedings/M.%20Sadiq%20Sohail%202.pdf
http://www.centreforaviation.com/analysis/malaysia-airlines-new-business-plan-targets-premium-sector-following-strategies-of-cathay-and-sia-64235
http://uia2k.tripod.com/MAS.htm
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