Strategic Management,

MBA550, Sec 02

Summer ‘19

Malaysia Airlines

Date of Submission: 3rd June, 2019

Submitted to: Dr. Nazmul Amin Majumdar

PhD (Australia), ALA Scholar

Group Members:

Ariful Hoq Chowdhury-1921356

Asmaul Husna-1831305

Jannatul Bankia-1721284
Letter of Transmittal
To:

Dr. Nazmul Amin Majumdar,

PhD (Australia), ALA Scholar

Independent University, Bangladesh

Bashundhara R/A, Dhaka.

Date: 3rd June, 2019

Subject: Malaysia Airlines a business turnaround.

Dear Sir,

With due respect, it is our pleasure and honor to be your students and have this opportunity to
present the report of Making Your Case with Malaysia airlines. While preparing the report, we
have given our all to best focus thoroughly on the topic regarding this report. We provided all
relevant information regarding this report and we believe and hope that our report will provide a
clear conception about the trend and pattern of changes in food production.

While preparing the report, we all have given our best to accumulate needed information and we
will be more than happy to answer any question and clarify it fully to your understanding. Thank
you for all your help and support which helped us significantly in preparing this report.

Sincerely yours,

Ariful Hoq Chowdhury

Asmaul Husna

Jannatul Bakia
Acknowledgement

In performing our assignment, we had to take the help and guideline of our respected faculty,
who deserve our greatest gratitude. The completion of this assignment gives us much pleasure.
We would like to show our gratitude Dr. Nazmul Amin Majumdar, PhD(Australia), ALA Scholar,
Independent University, Bangladesh, for giving us a solid guideline for the assignment
throughout numerous consultations. We would also like to expand our deepest gratitude to all
those who have directly and indirectly guided us in writing this assignment.

Many people, especially our team members themselves, have made valuable comments and
suggestions on this proposal which gave us an inspiration to improve our assignment by a large
margin. We thank all the people for their help directly and indirectly to complete our assignment.

Thank you
Executive summary
 Introduction

The international airline industry provides service to virtually every corner of the globe, and has
been an integral part of the creation of a global economy. The airline industry itself is a major
economic force, both in terms of its own operations and its impacts on related industries such as
aircraft manufacturing and tourism, to name but two. Few other industries generate the amount
and intensity of attention given to airlines, not only among its participants but from government
policy makers, the media, and almost anyone who has an anecdote about a particular air travel
experience.

During much of its development, the global airline industry dealt with major technological
innovations such as the introduction of jet airplanes for commercial use in the 1950s, followed
by the development of wide-body “jumbo jets” in the 1970s. At the same time, airlines were
heavily regulated throughout the world, creating an environment in which technological
advances and government policy took precedence over profitability and competition. It has only
been in the period since the economic deregulation of airlines in the United States in 1978 that
questions of cost efficiency, operating profitability and competitive behavior have become the
dominant issues facing airline management. With the US leading the way, airline deregulation or
at least “liberalization” has now spread to much of the industrialized world, affecting both
domestic air travel within each country and, perhaps more importantly, the continuing evolution
of a highly competitive international airline industry.

Today, the global airline industry consists of over 2000 airlines operating more than 23,000
aircraft, providing service to over 3700 airports. In 2006, the world’s airlines flew almost 28
million scheduled flight departures and carried over 2 billion passengers. The growth of world air
travel has averaged approximately 5% per year over the past 30 years, with substantial yearly
variations due both to changing economic conditions and differences in economic growth in
different regions of the world. Historically, the annual growth in air travel has been about twice
the annual growth in GDP. Even with relatively conservative expectations of economic growth
over the next 10-15 years, a continued 4-5% annual growth in global air travel will lead to a
doubling of total air travel during this period.

In the US airline industry, approximately 100 certificated passenger airlines operate over 11
million flight departures per year, and carry over one-third of the world’s total air traffic – US
airlines enplaned 745 million passengers in 2006. US airlines reported over $160 billion in total
revenues, with approximately 545,000 employees and over 8,000 aircraft operating 31,000
flights per day. The economic impacts of the airline industry range from its direct effects on
airline employment, company profitability and net worth to the less direct but very important
effects on the aircraft manufacturing industry, airports, and tourism industries, not to mention the
economic impact on virtually every other industry that the ability to travel by air generates.
Commercial aviation contributes 8 percent of the US Gross Domestic Product, according to
recent estimates.

The economic importance of the airline industry and, in turn, its repercussions for aircraft
manufacturers, makes the volatility of airline profits and their dependence on good economic
conditions a serious concern for both industries. This concern has grown dramatically since
airline deregulation, as stable profits and/or government assistance were the rule rather than the
exception for most international airlines prior to the 1980s. As shown in Figure 1, the total net
profits of world airlines have shown tremendous volatility over the past 15 years. After the world
airline industry posted 4 consecutive years of losses totaling over $22 billion from 1990 to 1993,
as a result of the Gulf War and subsequent economic recession, it returned to record profitability
in the late 1990s, with total net profits in excess of $25 billion being reported by world airlines
from 1995 to 1999. Even more dramatic was the industry’s plunge into record operating losses
and a financial crisis between 2000 and 2005, with cumulative net losses of $40 billion. The
pattern of ownership has been privatized in the recent years, that is, the ownership has gradually
changed from governments to private and individual sectors or organizations. This occurs as
regulators permit greater freedom and non-government ownership, in steps that are usually
decades apart. This pattern is not seen for all airlines in all regions. Growth rates are not
consistent in all regions, but countries with a de-regulated airline industry have more competition
and greater pricing freedom. This results in lower fares and sometimes dramatic spurts in traffic
growth. The U.S., Australia, Canada, Japan, Brazil, India and other markets exhibit this trend.

The industry has been observed to be cyclical in its financial performance. As in many mature
industries, consolidation is a trend. Airline groupings may consist of limited bilateral
partnerships, long-term, multi-faceted alliances between carriers, equity arrangements, mergers,
or takeovers. Since governments often restrict ownership and merger between companies in
different countries, most consolidation takes place within a country. In the U.S. over 200 airlines
have merged, been taken over, or gone out of business since deregulation in 1978. Many
international airline managers are lobbying their governments to permit greater consolidation to
achieve higher economy and efficiency.
 Background of Malaysia Airlines

History of Malaysia Airlines:

Malaysian Airlines System (MAS) also known as Malaysian Airline Berhad (MAB) has been one
of Malaysia’s remarkable prides as it was the first Malaysian Airlines company that managed to
establish and brand itself worldwide. They have been proudly flying the Malaysia’s flag to more
than 200 destinations within and outside Malaysia. In the year 1937 a joint activity of the Ocean
Steamship Company of Liverpool, the Straits Steamship of Singapore and Imperial Airways
prompted to a proposition to the legislature of the Colonial Straits Settlement to run an air benefit
amongst Penang and Singapore, bringing about the fuse of Malayan Airways Limited (MAL).
After ten years, MAL worked its first flight as a national aircraft, transforming from a household
bearer into a worldwide carrier in only 10 years. In 1963, after the development of Malaysia,
MAL changed its name to Malaysian Airlines Limited and joined Borneo Airways before long.
In 1965, after Singapore's partition, MAL turned into a duo national carrier, changing its name to
Malaysia-Singapore Airlines (MSA). In less than two decades from its creation, MAL developed
to more than 2,400 representatives and an armada utilizing the Comet IV planes. In addition
they were also different compared to other airships available in those days which created a
competitive advantage to their business. New administrations were continually included.
However in 1973, MSA vanished, every accomplice going a different way. Malaysia presented
Malaysian Airlines Limited, which was along these lines renamed Malaysian Airlines System
and known as MAS. In 1986 it was rebranded as Malaysia Airlines. Since 1973, Malaysia
Airlines had its highs and lows. The airline managed to get more than 100 nobilities in the last
two decades, particularly the Excellence in a Loyalty Marketing (Bronze Winner), Silver Award
in Transportation, Travel & Tourism Category (Putra Brand Awards), and Best Partnership in a
Loyalty Program (Bronze Winner). From the time of their establishment, the airline has been
making continuous success and gaining a noticeable amount of profit into their business.
Unfortunately, sometime during the 2008 economic recession, Malaysia Airlines was seen to be
making noticeable loss ever since. The carrier seems to have lost its route, swaying from one
misfortune to another misfortune as the administration tries to force a turnaround plan that hasn't
worked in this way. In an online newspaper, editor Siva Sithraputhran in his writings reported
that the airline’s misfortunes engorged to RM1.2 billion in 2013, which was three times more
than in 2012 and after a record RM2.5 billion misfortune in 2011. The board of Directors at that
time proposed for more spending by purchasing new crafts in order to maintain their market
share in the competitive environment domestically and what's more internationally. Despite the
tremendous crisis within the organization over the years, when no one expected something worse
could hit the airline, they had to face two tragedies within a short period of time. The year 2014
was a huge tragic year to Malaysian Airlines and also to fellow Malaysians when they lost an
aircraft and within few months later they lost another plane in a catastrophic crash. In a report
released in March 2014, the Director General of the Department of Civil Aviation Malaysia,
Azharuddin Abdul Rahman published a public report to announce the tragedy of losing the
aircrafts. In the report, he stated that on 8 March 2014 at 1.22 a.m. Malaysia Local Time, a
Malaysian Airlines air ship, a Boeing 777-2H6ER, enrolment 9M-MRO and call-sign MH370,
lost its contact with Air Movement Control after waypoint IGARI amid a move of airspace
between Malaysia and Vietnam while on its way to Beijing. Four months later the nation was
again shocked by the news of MH 17 tragedy that killed 283 passengers and 15 crew on board on
the 17th July 2014 as reported in the local newspaper on the next day. With all the disasters faced
by Malaysia Airlines throughout the decades, the government finally decided to intervene. With
the intentions to get to the bottom of the crisis and implement changes in the organization’s
management, the airline’s entity was entrusted under Khazanah Nasional Berhad as a whole in
August 2014. Khazanah, according to their statement, emphasized that they are endowed to
hold and deal with the business resources of the Government of Malaysia and to embrace the key
venture for the benefit of the country. From the venture, Malaysia Airlines was rebranded inside
out including their vision to “An Airline of Excellence”. Gradually, the airline shows
improvements in their profit and loss statements. Recently, the U.S News reported that in an
interview with the Chief Executive Officer (CEO), the Malaysia Airlines is finally making a
profit. The CEO said that the airline recorded a gain in February 2016, which was the first
positive month recorded and is on track to be fully profitable by the year 2018.
Malaysia Airline’s timeline:
Year

Event

1937

Malayan Airways Limited (MAL) – a joint initiative of Ocean

Steamship of Singapore & Imperial Airways & Colonial Straits

Settlement.

1947

1st chartered flight from Singapore to Kuala Lumpur, using an twin-engine Airspeed Consul.

1960

84 seat Bristol Bitannia, launched the 1st long-haul international flight

to HK.

1963

Change name from 'Malayan Airways' to 'Malaysian Airways', (still known as MAL).
MAL took Borneo Airways Limited.

1966

Change name to Malaysia Singapore Airlines (MSA) due to separation

of Singapore from federation.

1971

MSA ceased operation.

1972

Malaysian Airline Systems (MAS) as incorporated.

1980

Implementation of Information Systems into operation management.

1985

MAS was privatized. MAS entered into corporate sector, listed on KL

stock exchange.

1987

Change of name to Malaysia Airlines.

1991

Awards received – Asian Institute of Management/World Executive's Digest Management

Award in the General Management category, TDC 1990 Tourism Gold Award.

1992

Awarded by 4th Boeing award to B737 fleet for its reliability.

1993

MAS was first in SEA which served South America with its

Boeing 747 aircraft.

1994 to 1998

MAS flew to Mexico City & had 5 freedom right to carry passengers between Mexico City and
Los Angeles.

2001

Awarded by Skytrax UK for World's Best Cabin Crew aggressive cuts.

2002 to 2004

Profit, peak of the business.

2005

Awarded as 5 star airline and downturn of MAS.

2006

CEO introduced a 3 year Business Turnaround Plan.

2007

Profit of RM 853 million.

2009

15 new Airbus A330 purchased.

2011

Loss of RM 2.52 billion due to fuel costs and mismanagement.

2014

Missing of Boeing 777 aircraft – MH370 & MH17.

2015

New CEO restructuring the firm in progress.

Malaysia Airlines Slogan:

A slogan is a short, memorable catch phrase, tagline or motto used to identify a product or
company in advertisements. The advertising slogan, or business slogan most associated with
Malaysia Airlines, is

“Going Beyond Expectations”

Vision Statement:
Become an airline uniquely renowned for its personal touch, warmth and efficiency.

Mission Statement:
To provide air travel and transport service that rank among the best in terms of safety, comfort
and punctuality.

Present position of Malaysia Airlines

It announced that the airline will be transferred to a newly founded "Malaysia Airlines Berhad"
(MAB) by 1 September 2015, with rebranding of the airline also commencing that day. The new
company will see a heavily reduced workforce and adjusted route network with focus on Asia
according to its newly appointed CEO, Christoph Mueller. He also announced that Malaysia
Airlines put some of its Airbus A380s up for sale. Four months later, MAB announced that they
will add four new Airbus A350-900 aircraft to their fleet by the end of 2017 till the middle of
2018. The aircraft will be leased from Air Lease Corporation.[46] The airline also expects to add
two more A350-900s as well as two Airbus A330-900neo aircraft in the upcoming future. MAB
then announced that it is set to undergo a brand overhaul involving a new name, logo and livery
for its aircraft, with the changes to be unveiled on a date unknown.

In April 2016, CEO Christoph Mueller resigned from his post after less than a year of leading the
carrier's reorganising efforts, citing changing personal circumstances. Mueller initially planned to
continue to serve as CEO until September 2016 and stay on the airline's board as a non-executive
director to oversee the transition to a new CEO.[49] It was subsequently announced that Peter
Bellew has taken over Mueller as the new chief with effect from 1 July 2016, effectively cutting
Mueller's tenure by a further two months. In April 2017, Malaysia Airlines announced that the
airline's entire fleet will be tracked with the satellite flight tracking system.

In October 2017, an unexpected announcement was made that Malaysia Airlines CEO Peter
Bellew will return to Ryanair as Chief Operations Officer to help fix pilot problems. Bellew
worked as flight operations director at Ryanair until 2014. Bellew's decision to leave Malaysia
Airlines comes just over a year after former chief executive Christoph Mueller left the airline
citing personal circumstances a year after being hired on a three-year mission to revive the state-
controlled firm.

Top Competitors of Malaysia Airlines

Malaysian Airlines is the holding company for Malaysia's national airline carrier, one of Asia's
fastest growing airlines. Malaysia Airlines has grown into an award-winning airline with a fleet
of more than 100 aircraft, servicing more than 114 destinations across six continents. For which
they have to face competition within the airline industry. Their top competitors are-

 Air Asia
 Singapore Airlines
 Star Cruises
 Etihad Airways
 Emirates
 Qatar Airways
 Air France
 Services

Lounge:
The Golden Lounge is the airport lounge for Malaysia Airlines Business Suite Class, Business
Class passengers and Enrich Platinum and Enrich Gold, eligible one world and code-share
partner members. The Golden Lounges have open bars and food catering. There are Golden
Lounges throughout the world, and qualified passengers have reciprocal privileges at lounges
operated by selected partners. The lounge offers services such as business centers, food catering,
slumber rooms and child-care centers.

Lounges are maintained at the following airports:

 Kuala Lumpur–International
 Kota Kinabalu
 Kuching
 London–Heathrow

Cabin Crew:
The airline received the "World's Best Cabin Crew" award in 2012, bringing home the
international accolade eight times since 2001. All of Malaysia Airlines' aircraft have an economy
and a business class section, whilst Business Suite class is only present on Airbus A380 and
A350 aircraft.

Business Suite Class:

Business Suite Class (previously known as First Class) is offered only on the Airbus A350 and
the Airbus A380. Malaysia Airlines offers the widest fully flat Business Suite class seats in the
world on its A380 aircraft. The A380s feature eight semi-enclosed suites with a 23-inch flat-
screen television.[91] On the Airbus A350, the airline offers four fully enclosed suites with
doors, and storage cabinets along the sides of the seats.

Business Class:
Business Class is also available on all of Malaysia Airlines' fleet. In 2011, Malaysia Airlines
introduced the new Business Class seats on their brand new Airbus A330-300. Newer regional
business class seats were also introduced on the Boeing 737-800 to be used on short-medium
haul routes such as Kota Kinabalu, Taipei and Manila, seats made by Recaro within the business
class cabin of new Airbus A380-800 are configured in pairs (2-2-2) layout, fitted with in-seat
power and USB port, as well as new Select 3000i on a 15.4 inches touch screen panel and have
recline ability.
In April 2016, Malaysia Airlines introduced a new Business Class seat provided by Thompson
Aero Seating equipped with fully lie-flat seats. The same seat is subsequently used on the Airbus
A350 fleet.

In March 2018, following the delivery of the Airbus A330-200 fleet, Malaysia Airlines
introduced another Business Class seat configuration retained from the previous operator of the
aircraft, Air Berlin. Business Class is configured from manufacturer, Stelia. These planes are
usually flown to high demand regional destinations.

Economy Class:
Economy Class is available on all of Malaysia Airlines' fleet. Most of the fleet, including the
Airbus A380, Airbus A350-900, Airbus A330-300 and Boeing 737-800 features a seat pitch of
30-32 inches and width of 17-18 inches. Some of the Boeing 737-800, of which are leased, have
no personal TV but overhead TV's located in the aisles of the plane and feature a seat pitch of 29-
30 inches.[citation needed] All A380s, A350-900s, A330-300s and newer Boeing 737-800 have
the Select 3000i personal in-flight entertainment systems.In 2010, the Malaysia Airlines'
economy class was awarded as the "World's Best Economy Class" award by Skytrax.

Baby ban and child-free zone:

Malaysia Airlines has attracted both criticism and praise for its controversial decision to prohibit
children from travelling in certain classes or cabins of its aircraft.

Infants are not permitted in First Class on Malaysia Airlines' Airbus A380s due to the non-
availability of baby bassinets in the cabin. Then-CEO Tengku Azmil Zahruddin explained the
policy, saying the airline received complaints from First Class passengers that they "spend
money on first class and can't sleep due to crying infants".

Malaysia Airlines subsequently claimed that an upgrade of the First Class cabin to fit new seats
and an ottoman meant "there was no facility for positioning bassinets in the First Class of the
747s. Malaysia Airlines has also stated that children under the age of 12 may not travel in the 70
seat upper deck economy section of the A380. The economy seats on upper level will be
allocated for business travellers. Passengers accompanying children under 12 years old age will
be excluded from booking these seats.
 Malaysia Airlines Market share

20.00%

Air Asia
Malaysia Airlines
Malindo
9.00% 50.00% others

21.00%

Objectives

The main objective of this case study report is to find out the following questions with a brief
external and internal environment analysis.

1. What steps should an established carrier such as MAS take to counter the threats posted
by low cost competitors?
2. What are the major driving forces for MAS as per Porter’s five forces?
3. What Macro-environmental challenges will affect MAS in the future?

External Environmental Analysis

A company’s external environment includes all relevant factors and influences outside the
company’s Boundaries. By relevant means important enough to have a bearing on the decisions
the company. Ultimately makes about its direction, objectives, strategy and business model.
Components of External Environment:
 ✓ The macro environment

✓ Industry structure

✓ Strategic group mapping

✓ Competitor analysis

✓ Critical success factors

Macro Environment:
Every aspect of business directly and indirectly related to the factors of macro-environment. A
complete, critical and continuous analysis of macro-environment helps a business avoid risk and
spot business opportunities. To complement the understanding of the general macro environment
for commodities, it is necessary to now move to an analysis of the external market through six
segment analysis.

Macro environment of a company consists of six components which are commonly known as six
segments analysis. These are:

 Political
 Economic
 Social and cultural
 Technological
 Environmental
 Legal

Political factors:
This factor deals with the government policy and its effects on the firms. This factor includes the
policy and legal factors such as, taxation policy, government stability, and government regulation
on the market. The government influences the market either directly or indirectly. The political
stability of the government domestically and in other countries is taken into account for the
development. Malaysian Airlines is a national flag airline, therefore it must follow the
government rules, regulations and policies. MAS had faced obstacles during economic crisis.
Government formulated rules, regulations and policies, which resulted into substantial losses for
MAS. In 2011, MAS reported an after tax loss of MYR 576 million in 2014 which was higher
compared to the tax loss of MYR 433 million in 2012.

Economic:
The government had announced minimum wage rule in the private sector in Peninsular Malaysia.
MAS had to face this obstacle due to imposing the new wage policy. The wages of crew and fuel
costs account for a large proportion of total expenditure. The minimum wage was imposed in
order to improve the standard of living for the employees. MAS had to bear higher operational
cost due to rise in fuel price in the global market. The unstable fuel price in the world market
results in losses in the airlines industries. In order to cover their losses, MAS had to cut a number
of international unprofitable routes. MAS had experienced huge losses due to high inflation rate
and increasing cost of operation. The fall in exchange rate has affected the airlines industry
heavily. The volatile exchange rate has affected MAS airlines because some of their spare parts
are imported from abroad. The increasing cost of airlines also results in low revenue earnings

Social and Cultural:

Social and cultural factors influence the values, beliefs and lifestyles of a society. People’s
attitudes and lifestyles determine their demand for certain products. The social and cultural
factors are taken into account for production and marketing of goods and services. The
preferences are different among different type of people. The airlines company is concerned
about customers’ need and preferences. The passengers need their “safety” as an important factor
for choosing a particular airline for travelling. Business passengers prefer the reliable airline as
mode of regular travelling but other travelers especially the family and younger generation prefer
their travelling as a luxury item. Malaysia Airlines had two fatal accidents in its history. The
passengers of Malaysia Airlines were not happy with the airlines company due to their inefficient
handling when Flight MH370 disappeared. The travelers especially the Chinese customers lost
their trust and confidence in MAS that resulted in huge revenue fall. The second incidence
occurred just after four months of the first incidence when MH 17 was shot down over Ukraine.
These two major incidents have affected the airline's reputation and competitive sales. As a
result, the Chinese and other customers moved to other airlines. Both incidents put the Malaysian
airlines under extreme commercial pressure. Firms face high competition within the industry
because of the pressure of the new entrants who might enter with cheaper and innovative
products.

Technological:
Technology has major effects on the growth of industry (Dess et al, 2007). The development of
technology will lead to lower costs of production and increase customer satisfaction.
Organizations can compete in the competitive market with modern technology. Technological
innovation is an important strategy for broadening the existing industry. An efficient company
can utilize its resources effectively and be able to pass their additional cost onto the customers.
Thus the cost could be lowered by using technology to compete in the fierce market. The
internet service plays a significant role in our decision making process. In order to increase
revenue through reducing cost, MAS has introduced Online Ticketing. The interest of online
buying has shown a tremendous growth in the airline industry, including MAS. People now
prefer the fast and convenient mode of delivery and payment. Passengers can purchase their
tickets without directly visiting the counter. Passengers can use credit card or debit card to buy
online air ticket. MAS have utilized the opportunity to promote its services to the youth and
technology savvy segments of the market. MAS can compete with the other airlines through
better computerized system. They have utilized advanced distribution process and are able to
meet a passenger’s specific requirement. Baggage tracking can help to trace a lost baggage very
quickly, and to ensure settlements of claim promptly by using bar code.

Environmental:
Customers are increasingly aware and concerned about environmental problems. The customers
now prefer eco-friendly airlines. The rising demand for air transport and the rising crude oil
prices could impact the industry’s carbon emissions. The environmental impact could also
influence sustainability of airline business. MAS could adopt a CO2 emission standard for their
new aircraft. It can also increase the growth of alternative fuel production such as bio fuel
through using advanced technology. The airline has been developing corporate social
responsibility programs to address these issues.

Legal:
In many countries, the government has introduced various rules, regulations and quality
standards for airlines industry in order to ensure safety and security of passengers. The airlines
which use an airport for landing must comply with the regulation and rules of that country. This
has increased cost for the airlines industry in order to maintain the quality of the services. In
Asia, landing in gateways like Singapore, Bangkok and other countries has become expensive.
The enforcement of bilateral agreements for the airlines has been strict in order to avoid issues
that may arise from different airlines. Due to the legal regulations in the countries, the airlines
are facing unprecedented challenges.

Porter’s five forces

Porter's five forces analysis is a framework that attempts to analyze the level of competition
within an industry and business strategy development. It draws upon Industrial Organization (IO)
economics to drive five forces that determine the competitive intensity and therefore
attractiveness of an Industry. The competitive structure of an industry is another important
component of identifying factors that are a threat to diminish profitability. One of the most
efficient ways to assess competitive issues is to consider Michael Porter's five-force analysis.
Porter has highlighted five such factors:

 Bargaining power of suppliers

 Bargaining power of buyers
  Threat of substitute products or services
 Rivalry among existing competitors
 Threat of new entrants

Bargaining power of suppliers:

In the market place both consumer and producer play important role. Power is enjoyed by the
suppliers in the form of price and quality of supplies. Suppliers can increase the price or lower
the quality of their goods and services. The demand for their planes is very high due to the fact
that there are many airlines, and the manufacturers can produce differentiated services.
Therefore, the power of suppliers is quite high and they have a firm grip on the market.
Moreover, the price of oil is one of the major factors of cost for all the airlines; and as MAS
follows a cost focus strategy, it is more vulnerable to changes in oil prices. Thus, the bargaining
power of suppliers is quite high for MAS. In Malaysia, the bargaining power of suppliers in
terms of fuel is relatively low as the price of fuel is set by the government. Malaysia Airlines
uses Boeing as their main aircraft; therefore, Boeing has no option to increase their aircraft
prices. There is a high risk for Malaysia Airlines, to change to another aircraft manufacturer since
their operation and maintenance staffs are experienced with Boeing aircrafts. This would lead to
a huge switching cost; and hence the power of supplier is relatively high since MAS is only
depending on Boeing. MAS operates Boeing as their aircraft, the increase in price for using
Boeing influences on improving the quality of services because they would need to make more
profit to pay higher costs. It will be difficult for MAS to change aircraft manufacturer from
Boeing to Airbus because all of their staff is familiar with Boeing aircraft. Changing will
implicate higher costs of human capital.

Bargaining power of buyers:

The companies transfer products to the end users such as, retailers and wholesalers. The
customers are the ultimate consumers of the product. The buyers have a lot of power when there
are few buyers available and they can force to lower the price in the market. According to Dess
et al (2007) the buyer group is powerful when they buy large volume; as there are lot of sellers
and low switching costs. Buyers are usually customers and they have the ability and power to
reduce prices, ask for high quality products and services. The buyers with their high purchasing
power are able to influence the terms. In the airline industry, the bargaining power of buyers is
high, and is increasing as there are a number of options. Moreover, there are lots of travel agents,
and customers can now buy tickets online from even intermediaries. Therefore, they do not really
have to stick to one airline, and this increases the power of the customers. There are three types
of travelling methods in MAS, economy class traveler, entertainment traveler and commercial
tourists. The Malaysian Airline faces obstacles to pursue the economy passengers, compared to
other travelers because of their pricing, which is relatively higher compared to Air Asia. MAS
can apply a strategy to provide incentives such as providing duty free items through the online
portal to their loyal customers in order to retain them. Hence, the passengers would not move to
other airlines.

Threat of substitute products or services:

In the airlines, the threat often comes from outside the industry. In the airline industry the threat
of substitutes is mainly applicable for national airlines. Being an international airline, MAS has a
very low level of threat of substitute. Competition arises when other organizations produce
similar product and services in the same market. The threat of substitutes is high when customers
have the accessibility of any particular product or services from another organization, producing
and marketing same items or services. Boeing and Airbus are the two companies in the aircraft
manufacturing industry. There is high competition between the two aircraft companies. MAS
have been using Boeing as their main aircraft which is relatively expensive, compared to Airbus.
Therefore, MAS can use its bargaining power and negotiation strategies for aircraft prices. This
will be a competitive advantage for MAS to cover the cost. There are different modes of
transport and the individuals can choose other modes of transportation to reach their desired
locations. Since airlines ticket is not cheap compared to other modes of transportation, and
customers have several options for airlines, MAS will find difficulty to retain its share even in
the local market. Time is an important factor for travelling. Among the modes of transportation,
airlines are one of the fastest modes of transportation, and it is certainly the easiest way to travel
international destinations. The availability of Internet has shaped today’s world so much that
people have a choice to either travel or not. Video call or video conferencing will allow
consumers to save a lot of their money and time particularly as regards travelling for business
purposes.

Rivalry among existing competitors:

Firm will face competition if the industry is growing and is also attractive. When the competition
between the firms is very high it absolutely becomes a price war scenario; and the consequence
is that all the firms in the industry suffer from low profitability ratio. These factors depend on the
growth, life cycle and the number of competitors in the industry. The competition within the
airline industry is very high as there are so many service providers in the market. There are many
airlines flying the same route. As MAS focuses on cost strategy, it faces competition from a great
deal of companies. The rivals are always trying to increase their market share by offering best
prices for the services they offer, launching promotional campaigns, and advertising. However, it
is quite difficult to keep the prices down, and also maintaining the quality of services at the same
time. They are in an immense pressure to reduce the prices and improve quality. The business is
getting more challenging now as most of the airlines run on very low profit margins. MAS have
to come up with good service initiatives and decent planes in order to survive in this industry.

Threat of new entrants:

When the market is highly profitable and attractive, the potential firms who try to enter in the
industry face a great challenges, such as high capital requirement, government rules and
regulations and high competition with low cost airlines. The existing firms usually discourage
new firms from entering the industry as they might face more competition in the market.
Malaysian Airlines has low threats from new entrants in the airline industry. The airline industry
operates with a high barrier to entry and exit, because airline industry requires high capital
investment to operate efficiently in order to achieve customers’ loyalty; and the industry will face
huge financial crisis when it decides to exit from the market. Moreover, customers today are
more conscious about brand. If the threat of new entrants is high, Malaysian Airlines could
concentrate on their loyal customers instead of trying to create a brand. MAS is one of the most
recognized airlines for their excellent services, professional cabin crews and people working on
the ground as well as for being a safe airline. MAS should focus its strategic underpinnings on
the international airlines as the potential new entrants.

Strategic Group Mapping

The best technique for revealing the market positions of an industry of industry competitors is Strategic
Group Mapping. A strategic group map consists of those industry’s members with similar competitive
approaches and market positions in the market. The closer strategic groups are to each other on the map,
the stronger the cross-group competitive rivalry tends to be. So, it’s necessary to learn who are in the
strategic group along with Malaysia Airlines because those will be called as MAS’s competitors. We have
designed the strategic group mapping based on Ownership and Number of destination.

Figure: Strategic Group Mapping

From this strategic group mapping of the world airlines industry, we can see that, Air China & Air Pacific
have very limited number of destination because these two airlines are government owned carriers.
Qantas, Malaysia Airlines, Air New Zealand have medium number of destinations but these airlines have
mid-sized carriers & these airlines are private ownership. American Airlines & British Airways have
mega carriers. There number of destination is high & these are private ownership. So we see in the
strategic group mapping graph that Qantas, Air New Zealand, American Airlines & British Airways are the
major competitors of Malaysia Airlines.

Competitor Analysis
To prosper in any business every industry should analyze their competitors available in marketplace.
Malaysia Airlines faces five major competitors: Qantas, Air New Zealand, American Airlines, British
Airways have mid size carriers & mega-carriers. These airlines are very high profiled and famous airlines
all over the world. Their ownership and number of destination is near to Malaysia Airlines.
The competitor analysis between: Qantas, American Airlines and Malaysia airlines is given below:

Qantas

Qantas is one of the world's longest-established and most recognised airlines, as well as a founding
member of the oneworld alliance. As the only Australian airline in any global airline alliance, Qantas
offers travellers an extensive domestic network in addition to connections serving Asia, the South Pacific,
Europe, North and South America and Africa. Overall, Qantas serves more than 80 destinations in 20
countries.

American Airlines

American Airlines is a founding member of oneworld. Its wing span extends around the world, serving
nearly 350 destinations in more than 50 countries, with major US hubs in Charlotte, Chicago, Dallas/Fort
Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C.

Malaysia Airlines

Malaysia Airlines is the national carrier of Malaysia, flying to over 50 destinations across Asia, Australia,
Europe and the Middle East. The airline carries up to 40,000 guests daily on memorable journeys inspired
by Malaysia’s diverse richness. Malaysia Airlines embodies the incredible diversity of Malaysia,
capturing its rich traditions, cultures and cuisines via its inimitable Malaysian Hospitality across all
customer touch points.

So read the facilities of other airlines now we say that Malaysia Airlines, there are various types of
competitive advantages such as the cost structure of the company, offerings of product, distribution of
network as well as customer support. Malaysia Airlines can build a competitive position in the airline
industry, as it is less expensive than other international airlines (Pearson et al. 2015). It is a well-
maintained modern fleet, excellent in in-flight service, better airport facilities and services and
comfortable services. This company is given an extension towards a culture of warmth as well as
sociability, improved website with better booking engine and competitive promotions. The competitors of
Malaysia Airlines are Singapore Airlines, Jet Airways and Air India Express (Thomas, 2015). The
competitive advantage of Malaysia Airlines is based on differentiation such as in the first and business
class; there is fast check-in, extra places of cabin baggage and golden lounge. In the economy class, there
is in-flight entertainment and in-flight shopping.

Critical Success Factors

The airlines industry is big in its nature, huge numbers of people are associated with this, throughout the
industrial revolution this industry has been very competitive and global big players have been striving for
their share all over the world. As globalization is there and there are also rising prices for oil, now it has
been difficult for major player to stay competitive and earn profits because of the high costs associated
with their industry.

Leveraging alliance and strategic partnerships

Malaysia Airlines officially began its global aviation partnership agreement with Emirates Airlines (Emirates)
in the quarter with both carriers placing its codes on the Kuala Lumpur-Dubai route, as well as other routes
under the agreement. The codeshare is an integral part of the airline’s future network plan as it focuses on
getting customers connected globally, opening up a host of new destinations for customers by providing
unprecedented access to Emirates’ network. The first phase of the agreement will see 11 destinations
introduced, including Rome, Paris, Madrid and Frankfurt, with the rest being added progressively over the next
few months subject to regulatory approvals. Once complete, Malaysians will have access to over 30
destinations in Europe, Middle East, Canada, and Africa.

The codeshare is an important element towards Malaysia Airlines’ proposition of being the preferred way to fly
to, from and around Malaysia as it seamlessly opens up new destinations to our customers whilst feeding new
customers into Malaysia and ASEAN. Malaysia Airlines will also be looking to leverage other partnerships and
collaborations more, such as the existing oneworld alliance, to provide our customers access to untapped
markets whilst further encouraging passengers to experience Malaysia.

Malaysian flavour to customer-centric products

The quarter saw the introduction of new menus showcasing Malaysia’s diverse and unique flavours. Alongside
the new menus, a personalised ‘dine-on-demand’ service, where guests are able to have meals at their
convenience, was introduced for First class passengers in the quarter. The service will be rolled out to Business
class over the next few months. Hot meals were also introduced for short haul economy passengers, which
have already garnered very positive responses from customers. Moving forward, the airline will be taking the
five star Malaysian experience further by collaborating with top- ranked hotels and culinary personalities.

The airline’s new customer proposition of bringing the Malaysian experience to customers will be introduced
at all points of the travel experience. This starts at the lounges which now showcase Malaysian dishes together
with a brand new ‘Laksa’ bar which reflects the airline’s aspiration to be the ambassador of Malaysia to the
world.

Other product enhancements will be the new A330 lie-flat-bed business class seats which will commence
operations at the end of March 2016 to Sydney. A cabin refresh program will also be completed on all A330s
along with the new seats by 31 August 2016.

Performance and product improvements

Revenue per available seat kilometre for the quarter improved 10% year-on-year on the back of the
route optimisation exercise conducted earlier. Seat load factor is also showing improvements with
over 350,000 passengers traveling with Malaysia Airlines over the Chinese New Year holiday.

Improving punctuality and on time performance (OTP) is a core goal for the operations team.
Malaysia Airlines needs to win on customer service and this is being benchmarked against our
competitors , who are operating at 85% OTP at the highest end and 57% OTP at the lowest.
Numerous initiatives were put in place in the last quarter, which led to a marked improvement in on
time performance. After a dip in December, due to adverse weather conditions and constraints in
availability of aircraft, punctuality reached 85% in February 2016. On 17 February 2016, the airline
hit a record 95% punctuality across all flights with 100% on domestic operations.

The quarter saw continued progress on revamping the experience for Malaysia Airlines’ customers.
Over the next quarter, new initiatives will be introduced to improve service quality and to shorten
waiting times for passengers. Other improvements include refreshed aesthetics in the lounges
showcasing Malaysian creative talent, new Business Class seats on our A330s, and new on-board
cuisine.

Consolidation at KLIA Main Terminal Building

To ensure convenience and improved connectivity for passengers, Malaysia Airlines is also planning
a move to concentrate most of its operations in KL International Airport’s (KLIA) main terminal. The
plan will mean quicker connections for ASEAN passengers between international and domestic
flights. This will improve flight connection times, provide faster and more reliable baggage transfer
and ultimately ensure better customer satisfaction. With a successful trial conducted earlier this year,
the airline is working closely with Malaysia Airports Holdings Berhad to realise the consolidation.

Fleet optimisation
The partnership with Emirates will contribute to Malaysia Airlines’ fleet consolidation and has
enabled the airline to retire the B777-200s completely. The consolidation will drive down complexity
in maintenance, engineering and flight operations.

Malaysia Airlines has ordered four brand new Airbus A350-900s aircraft. The aircraft will deliver great
performance and is able to operate non-stop from Kuala Lumpur to London and throughout Asia.
Deliveries will start in October 2017 but major work has already been completed with the seats,
layout and technical specification all now finalised. The manufacturing of major parts of the new
aircraft has already commenced at Airbus plants globally. Beyond this, the airline is evaluating
additional A350s in order to reach a critical fleet size, allowing standby aircraft for any scheduled
maintenance and enabling future network expansion. Malaysia Airlines actively assesses new route
opportunities on an on-going basis and is currently evaluating the possibility of serving unique and
new destinations that would require new equipment.

The airlines’ A380s are due for scheduled maintenance at the beginning of the second quarter this
year, which will mean an average of one A380 aircraft being out of commission for the remainder of
2016. In anticipation of this, the airline is exploring reinstating a former flagship aircraft to ensure
minimal interruptions on the London route.

Cost savings
Managing costs is a key component in reaching the projections under the approved Malaysia
Airlines’ Business Plan. A key performance indicator for the entire organization is now centered
around cost management with a focus on managing to budget and improving procurement.
The quarter saw the successful renegotiation of contracts with a majority of operating lessors with
revised lease rates that are significantly lower and on economically feasible terms. The revised lease
rate, now at market rate and at levels consistent with Malaysia Airlines’ Business Plan, has enabled
the airline to enter into Letters of Intent with lessors to take on the underlying aircraft.

The overall review and renegotiation of supply contracts with key vendors, crucial towards setting
the airline on the right path to recovery and sustained profitability, also continued in the quarter.

Malaysia Airlines will also be investing in new ground service equipment that will improve on-time
performances and turnaround times.

IT as an important enabler
The quarter saw the launch of a new software upgrade programme which includes new collaborative
platforms to enable staff to work in a more connected manner. This is part of the planned over-haul
of the entire technology framework and infrastructure to remove unnecessary complexity and
improve seamlessness. This includes the transformation of our data centre into a pay per-use,
secure and agile cloud facility which will improve time to market.

Further progress was also made in the quarter in transitioning the data centre to a cloud
environment

for better mobility, collaboration, ease of use and security. IT security capabilities have been
tightened to mitigate any advanced security threats.

Enhancing corporate governance

The new Corporate Approving Authority Policy (CAAP) has now been approved. The airline is further
strengthening its internal governance with the hiring of a Head of Investigation and Head of Business
Integrity department, responsible for ensuring better compliance and transparency whilst minimising
fraud and illegal practices.

The Works Council, promoting dialogue between employees and management, moved into its next
phase in the period under review, with active participation from staff who have nominated council
representatives across all the divisions. The full formation of the council is expected to be
operational by the second quarter of this year with the first Works Council expected to sit in April
2016.

Investing in a talent pipeline

People development and succession planning, an integral part for the organisation’s sustained
success, remains a key focus in 2016. To this end, the quarter saw the introduction of the revamped
Performance Management System, which will encourage productivity by providing clear targets as
well as a clearer path for career progression. The system will enable us to spot skills gaps and
escalate retraining programmes.
To address skills gaps, the airline will also be exploring joint ventures with established international
organisations to provide training and specific skillsets. Whilst being beneficial for the airline, the
venture is also very much in line with the Government’s Economic Transformation Programme.

The airline has been working hard in closing the skills gap via the Malaysia Airlines Academy which
will be based in KLIA, providing a centre of aviation skills for Malaysia. The newly revamped
academy will ensure future generations of leaders for the airline will be groomed entirely from within.
To this end, Malaysia Airlines has successfully recruited 20 management trainees towards building a
talent pipeline as well as growing the aviation skillsets in Malaysia. The trainees will be assigned and
rotated across the various divisions in Malaysia Airlines to ensure exposure across all functions of
the organisation and to inspire passion for the industry.

The quarter saw further strengthening of the leadership team with the announcement of a new Head
of Revenue Management and Head of Engineering. The new team is an important strategy of
having world class and diverse talent to reflect the company’s global business and operations.

Internal Environment Analysis

Internal environment analysis involves identifying the business' strengths and weaknesses, by analyzing
its competencies. It also involves highlighting the business' competitive advantage. For strategies to be
effective, the organization must exploit and expand on its strengths, as well as reduce or eliminate its
weaknesses; thus furthering its competitive advantage, in order to achieve profitability.

Resources
Resources are inputs into a firms’ production process. They cover a spectrum of individual, social
phenomena, such as capital, equipment, the skill of individual employees, patents, finance and talented
managers. There are two types of resources – tangible and intangible. Tangible resources include land,
building, equipment, inventory and money on the other hand; intangible resources include brand names,
company reputation, employee knowledge and experience, intellectual property, etc.
Malaysia Airline’s resource analysis is given below:

Tangible resources
Physical resources: We would like to address Large Scale Operations as one of the significant physical
resource of MAS which allows leverage operations to maintain growing presence in emerging markets
and strengthen worldwide market position.

Technological Resources: Malaysia airlines uses many high technology for their passengers. They always
updated their technology. In 2017 they used first Space-based flight tracking technology. In 2018 MAS
use three new digital technology MH Guardian, MH Feedback, facebook messenger bohMH chat.

Intangible resources
The intangible resources of MAS are its brand image and its reputation. Malaysia Airlines has its strong
reputation for innovation and services in the airlines industry. This means that customers will often
associate the brand with new technology and services. MAS core competencies including innovation.
They constantly strive to deliver new and exciting services to their customer, and human resources. MAS
have a well prepared knowledge and flexible workforce who is concentrated on reaching business goals.

Human Resource: Under human resources, Leadership is the most important aspect in Malaysia Airlines.
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.

Innovation: MAS always strives and seeks for new innovation. In 2017 they used first Space-based flight
tracking technology. In 2018 MAS use three new digital technology MH Guardian, MH Feedback,
facebook messenger bohMH chat.

Reputational Resource: Brand name is the reputational resource for MAS. Their name is well-known and
established in airlines industry and there is a positive impression about their service to the customers.

Capabilities
Capabilities refer to “an organization’s skills in coordinating its resources putting them to productive use”
or “are the capacities for a set of resources to interactively perform a task or activity”. The functional
areas of capabilities are distribution, human resources, MIS, marketing, management, manufacturing
and research and development. Some of the capabilities of MAS are mentioned below:

Financial
Due to MAS bad financial standing,the government has to step in to save the entity from further
deterioration. MAS should implemented a restructuring plan, issues more share &divestiture what is
swap share with Air Asia or other established company.

Management

In order to revive MAS back into its healthy condition, A new professional management team should be
once again established to manage MAS.

A few reputable consultant firms were also appointed to advise and consult MAS on how to transform
the losing company into efficient and profitable one.

Marketing

Market penetration reducing flight ticket for those customer who buying earlier through online. MAS
improved customer loyalty program & it create student card to encourage them to flying.

Research & Development:

MAS is involved in continual improvements for high technology aircrafts, alternative fuel and engine
technology, as well as maintains focus on fuel efficiency.