Strategic Analysis of Malaysian Airlines: Navigating Competitive Aviation Market

1. Malaysian airlines Presented by

2. content • Introduction • History • Competitive advantage • Pest/swot analysis • Porter’s 5 forces framework • Value chain analysis • Conclusion and recommendation • references

3. Introduction Malaysian Airline System Berhad is the primary airline of Malaysia. Malaysia Airlines (MAS) operates flights from Kuala Lumpur International Airport mainly and with a secondary hub at Kota Kinabalu and Kuching. From the report, the strategic management of Malaysia Airlines is analysed. The report is produced for Mr Mathew Teale. Most of the resources in this report are based on report and journal. Besides, articles and newspapers are also being used as the secondary resources. Gather from latest data, Malaysia Airlines has revenue worth as much as RM13 billion. In stategy management, there are Strategy Analysis, Strategy Formulation and Strategy Implementation which are the process to overcome that external factor which consist of objective to fulfil(Hambrick, 2007). Under the effect of globalization, the world has changed in every sector and those changes had influenced most of the corporation activities with obstacles to execute their strategy. A company's finances will be affected if their management fails to formulate and implement the most efficient and suitable strategy. Strategy analysis, strategy formulation and strategy implementation are the fundamentals to solve negative factors regardless what is the problems.

4. History Malaysia Airlines was founded in 1937 through an idea by the Alfred Holt's Ocean Steamship Company in Liverpool work together with the Imperial Airways in from Britain and Straits Steamship Company in Singapore. This had build the outcome of Malayan Airways Limited(MAL) on the same year. As usual, this airline faced different types of industrial challenges throughout these seven decades. Therefore, the company had improved and repackaged their image and services. Malaysia Airlines started their flight services originated in Subang Airport and later relocate to Kuala Lumpur International Airport (KLIA). Malaysia Airlines serve different class of customers in society pyramid. Therefore, Malaysia Airlines provide different class of seating's which are first class, business class, and economic class. According to Malaysia Airlines Annual Report on 2012, incredible loss of RM481,457,000 was hit after the loss on 2011 which was two billion. This shows the in capabilities of management in Malaysia Airlines to manage the company. Therefore, the management needs to be rearranged and restructured. Besides, Malaysia Airlines are facing more competitors in the industry such as Air Asia. To overcome this challenge, Malaysia Airlines tried to upkeep with their competitors by providing high quality of services in order to win customer's faith and loyalty so that they could have stable coming back customers. Their strategy was a success and this can be seen when several awards are awarded by Sky-trax UK and World Travel Awards. The awards are the Asia’s Leading Airline(2011), Asia’s Leading Business Class Airline (2010) and Five Star Airline (2012). Malaysia Airlines built up their image as the top airline in Malaysia by winning those award.

5. Competitive advantage COMPETITIVE ADVANTAGE: is whereby a firm has over its competitors, allowing it to generate greater sales or margins or retain more customers than its competition. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support.  • Substantially less expensive than other major international airlines • Courteous and comfortable services • Well maintained modern fleet • Excellent in-flight service • Spacious and wide leg room • Airport facilities and services • Extension of the special culture of warmth and friendliness • Improved website and booking engine performance • Competitive promotions

6. Pest analysis To analyze the economy in the macro perspective we need to study the Political, economic, social and technological environment of Asia as a whole. •  a) Economics .The rapid growth of Asia fuels the growth of the air travel in Asia. The growth is also because of the region being geographically dispersed and the countries having a large population. The governments of the various countries have invested in the development of airlines and travel infrastructure and have made investment in the airports to make them competitive with the rest of the world. Again with high growth and increase in trade and business the competition has increased which has led the full service airlines like MAS to start cost cutting. In the view of many economists Asia would soon be on the top of the global economy growth charts. •  b) Political/ Legal: Government policies are important drives for the success of Asia. In the late1990s, there was increase privatization and deregulation of the airline industry in Asia. It was noticeable that some Asian countries established open-skies agreements while others allowed the entry of private airlines. For instance, in 1997, a few LLC spouted quickly after Malaysia signed an “open-skies” agreement with the United States. Hence, it appears that although the travel market will be expanded, in reality MAS would also have to operate in a more challenging environment with intense competitions. •  c) Social-Cultural: Surveys revealed that more people were willing to compromise on food and other services in exchange for lower prices. In fact, it was stated that price of tickets was the single most important consideration that influenced passengers’ decision in case of a  conscious leisure passengers who are always looking to make their budgets decrease further. This presents an opportunity for all LCC increase their revenues by offering travelling at a much lower fare. With the entry of such low cost carriers the competition for the full service airlines like MAS increased so the company has to segment its market and target only those high class premium business travels for whom service and luxury is very important and are not concerned about their budget. •  d) Demographic: In 2005, the total population in Asia stands at more than 3.5 billion. The United Nations’ statistics also show that Asia has an astonishing demographic dividend – where more than 35% of its population is below the age of 25 and more than 55% hovers below the age of 35. This shows that the population of middle age is group is increasing thereby increasing the number of working population which results in the increase in the overall disposable income and so the number of business and leisure travelers is bound to increase. This therefore presents a golden opportunity for MAS. • e) Technological: The technological advancement including introduction of services like internet telephony and use of various other telecommunication services ( like buying of tickets online) provides MAS a new arena to boost up its sales by leveraging the new technology. The use of e-commerce and internet based activities which includes reserving a holiday online and even buying tickets online opens ways to derive ancillary revenues. Technology advancements sometimes also help in reduction of the operational cost such as savings on commissions for travel agents.

7. Swot analysis STRENGHT: • 1. Strong Backing of Malaysian Govt • 2. It has extensive operations in South Asia, Middle East, Australia and other global destinations • 3. One of the most popular airlines across the world • 4. Strong brand recall and visibility due to excellent advertising and marketing • 5. The company has a strong workforce of over 20,000 employees • 6. It covers over 50 international and 35 domestic destinations with a fleet size of over 100  WEAKNESS: • 1. Relying Heavily on International Onward Moving Traffic 2. Very Little Domestic Traffic and limited market share growth OPPORTUNITY • 1. Increasing Global Presence • 2. More Routes internationally to popular destinations • 3. More services and choices to customers at airport facilities THREAT • 1. Rising Fuel Costs2. Changing govt, Policies and regulations of regulatory bodies2. Increasing Competition in SE Market

8. Porter’s 5 forces framework Porter five forces is a framework which analyzes the industry and business strategy development to determine the competitive strength (Porter, 1979). By using this analyzing technique, Malaysia Airlines can identify the threat of new entrants. Since the needs to start an airlines company are hard, consequently, the threat of new entrants has reduced. Furthermore, brand name is important to the customers these days. Adding to that, to go into this business not also need high capital but also need an establish brand name. Thus, rather than start an establish brand name, the new threat entrants will focus more on the loyal customer. The only new threat entrants Malaysia Airlines need to focus more are the international airlines. There are two companies that are competing against each other in the aircraft manufacturing industry which are Boeing and Airbus. Since Malaysia Airlines are choosing Boeing as their main aircraft, therefore, Boeing has no option to increase their aircraft prices. If Boeing increases their aircraft price, most probably Malaysia Airlines will change their aircraft to Airbus. Consequently, Malaysia Airlines can use its bargaining power of consumer to bargain the aircraft price. This undoubtedly will be an advantage to Malaysia Airlines to save their buying cost that led Boeing with no other choice to sell its aircraft to Malaysia Airlines since they’re having a tough time in competing in the aircraft manufacturing industry. The bargaining power of suppliers is depending on the numbers of alternatives the consumer has. For Malaysia Airlines, it is difficult to change to another aircraft manufacturer such as Airbus since their maintenance staff are experienced with Boeing’s aircraft. By changing the aircraft manufacturer, Malaysia Airlines need to spend a lot of money to train their maintenance staff which and switching cost is high. Therefore, the power of suppliers cannot be a negative factor since Malaysia Airlines only rely on one aircraft manufacturer. Plus, the power of suppliers is insignificant where Malaysia Airlines has their own aircraft maintenance subsidiary company. For fuel, the bargaining power of suppliers is not really high since in Malaysia there is only little petrol organization and the price is set by the government.

9. Value chain analysis Malaysia Airlines primary income is based from logistics services and secondary activities are aircraft maintenance and technology development. By coordinate these value chain analysis activities, Malaysia Airlines can have a lower cost structure and increase the value of outcome product. By increasing the value of outcome product, Malaysia Airlines can compete better in the industry by understanding the connection between each of the value-chain activity. Additionally, a proper coordination with their union, customers and suppliers can reduce cost and adds up the bonding between customers and company itself. As its outcome, improvement of the performance in Malaysia Airlines primary and secondary activities can be achieved and higher profit can be gained in the process. .

10. Conclusion and recommendation MAS though currently does not have a strong presence in the region, the macro environment of Asia presents vast opportunities to enlarge the company’s market shares. The Airline businesses are closely linked to economic activities in Asia and the world. As such, MAS needs to be cognizant with the business cycle so that it can to take full advantage of such effects especially when there are changes in discretionary income and consumer spending patterns. The company should also keep in mind that increases in the demand of fuel and limited supply can lead to higher fuel price that will decrease the yield. Last but not least, the impact of crisis such as 9/11 (2001) and SARS outbreak (2003) was able to hit the airline industry badly and as such they continue to pose serious threat to airlines. References • http://myassignmenthelp.info/assignments/marketing-strategy-malaysian-airlines-porters-forces-model-pest-analysis/ • http://www.coursework4you.co.uk/essays-and-dissertations/value-chain-analysis.php • http://en.wikipedia.org/wiki/Malaysia_Airlines • http://www.scribd.com/doc/53389253/malaysia-airline-competitive-advantages • http://www.mbaskool.com/brandguide/airlines/524-malaysian-airlines.html