Individual Assignment

UC3F1911IBM

BM026-3-3-INTSM

Hand in date: 14th August, 2020

Sanya Shoaib
TP048114
Table of Contents
CHAPTER 1. INTRODUCTION OF MALAYSIA AIRLINES ............................................................ 3
CHAPTER 2. DISCUSSION .................................................................................................................. 4
2.1 CHALLENGES FACED BY MALAYSIA AIRLINES .............................................................. 4
2.1.1 Global Financial Crisis and Asian Economic Crisis. ............................................................ 4
2.1.2 POOR MANAGEMENT AND FINANCIAL LOSS ........................................................... 4
2.2 EXISTING STRATEGIES ........................................................................................................... 5
2.2.1 Marketing/Promotional Strategy ........................................................................................... 5
2.2.2 Distribution Strategy ............................................................................................................. 5
CHAPTER 3. BUSINESS EXPANSION STRATEGY ......................................................................... 6
3.1 SWOT ANALYSIS OF MALAYSIAN AIRLINES .................................................................... 6
3.2 SWOT ANALYSIS OF AIR ASIA .............................................................................................. 6
3.3 ANALYSIS OF BOTH ................................................................................................................ 7
3.3.1 Ownership ............................................................................................................................. 7
3.3.2 Strategic Issues ...................................................................................................................... 7
3.3.3 Human Issues ........................................................................................................................ 8
3.3.4 Financial Issues ..................................................................................................................... 8
4.0 RECOMMENDATIONS .................................................................................................................. 8
References ............................................................................................................................................... 9

CHAPTER 1. INTRODUCTION OF MALAYSIA AIRLINES
Malaysia Airlines System Berhad (MAS), more commonly known as Malaysia airlines is the national
carrier airlines of the country which is majorly owned by Khazanah Nasional Berhad through a
strategic investment government fund (Jones, 2017)
The company came in formation in 1937 and was initially named Malayan Airways. Since then the
airline has had its fair amount of ups and downs including the major split into Malaysia Airlines and
Singapore Airlines in 1971. Except for offering transport to passengers between different countries,
the airlines also provide cargo shipping through MASkargo which follows the same routes as its
passenger transport. Another division of the company is its repairs, overhaul and aircraft maintenance
division (Malaysia Airlines, 2020)

The business model that Malaysia Airlines operates is called Brick and Click business model in which
all the offered services and products of the company and be easily accessed at their company offices’
physically and online through their official mobile apps as well as their official website. Malaysia
Airlines has done extremely well with regards to technology adaptation in their operations so that
their clients can purchase tickets online and check in online as well. On their official website,
Malaysia Airlines also provides complimentary and affiliate services and products for example
holiday packages, car rentals, hotel bookings as shown in the diagram below (Malaysia Airlines,
2020)

Malaysia Airline website.

Source: (Malaysia Airlines, 2020)
CHAPTER 2. DISCUSSION

2.1 CHALLENGES FACED BY MALAYSIA AIRLINES

2.1.1 Global Financial Crisis and Asian Economic Crisis.

Prior to the 1997 Asian Economics Crisis, Malaysia Airlines had been negatively affected and had
experienced losses. The entire airline industry was severely damaged by the crisis just like ever other
economic sector of the country. The company had ordered 25 new Boeing airplanes in 1995, just 2
years before the crisis struck which were going to be delivered over the period of 5 years (Santos-
Vijande & Alvarez-Gonzalez, 2007). This was initiative planned by the company to be able to expand
by spreading its operations and wings globally and specially in the ASEAN region. This purchase had
a major and negative impact on the Airlines after the 1997 crisis. Malaysia Airline took the hardest hit
in the Asian Economic Crisis in comparison to all the other Airlines in the country at the time because
of the order of those 25 new Boeing planes. Moreover, the airlines had paid for those planes using US$
in 1995 when the Malaysian ringgit was extremely stable against the US$. However, the Asian Financial
Crisis ended up devaluing the Malaysian Ringgit along with raised interest rates. All of this lead to
impact the deal negatively as no hedging techniques were employed while placing the order. Due to
this, the price that had to paid for those planes was sharply increased since more Malaysian Ringgits
had to be paid against the US$ and this resulted in losses for the company year of year after 1997. A
total loss of RM1.3 billion was recorded in 2001 and RM800 million in 2003 (IMF, 2016)

2.1.2 POOR MANAGEMENT AND FINANCIAL LOSS

New management was placed in 2005 for Malaysia Airlines and a revised Business Turnaround Plan
was introduced. Dato Idris Jala was the new helm of the company and for the next couple of years
until 2011, the company was able to cut costs until the rising fuel costs enabled the resurfacing of
Malaysia Airlines’ financial problems. To overcome these issues, the management had been changed
again and similarly, things began to improve until the 2014’s Double Airplane disaster (Tolpa
Ekaterina, 2016). On 8th March 2014, Malaysia Airline Flight 370 was flying from Kuala Lumpur to
Beijing. The pilot last communicated with ATC after 38 minutes of takeoff. However, the aircraft was
lost from Air Traffic Control’s screens minutes after the communication. Later, the plane was able to
be tracked by the Military radar and was seen to deviate from its original path. The 227 passengers
and 12 crew members were all presumed to be dead. The disappearance of this flight was considered
to be the worst incident the history of Malaysia Airline’s operational history until the Malaysia
Airline’s Flight 17 incident in which the airplane was shot while it was crossing above Ukraine on
July 17, 2014. This double loss resulted in major financial issues for the company and the airline was
renationalized by the Government in December 2014. The company’s financial statements were
worsened prior to the 2014’s double disasters according to a report by (Reuters, 2015). Following are
the stock prices of Malaysia Airlines between the years of 2005-2014 and stooping low prices are
extremely evident.

Source: (Reuters, 2015)

2.2 EXISTING STRATEGIES

2.2.1 Marketing/Promotional Strategy

Malaysia Airlines has made a number of efforts to rebrand itself after the incidents of 2014. It
currently sponsors English premier league team, Liverpool FC and presents to be their airline partner.
Moreover, Malaysia Airlines advertises its products and services through Newspaper, TV
advertisements, digital media and Google ads. Additionally, it also offers discounts on selective travel
routes during the entire year. To retain their customers, they also provide flyer programs which gifts
them points and other amenities. Their website is also well maintained for easy bookings and self
check ins etc (Nancy Fawzy, 2019)

2.2.2 Distribution Strategy

Malaysia Airlines uses a hub system by operating its flights from their home based cities, Kuala
Lumpur and Kota Kinabalu. It provides flights to several domestic and international flights by
providing access to 150 plus countries. Their global alliances with partner airlines also aid in
distribution of their services and products. Malaysia Airlines also has a code sharing arrangement
with Cathay Pacific, Qatar Airways, American Airlines, SriLankan Airways etc. It has also signed a
code sharing with Emirates to be able to provide its services in 90 destinations throughout Africa,
Asia, Middle East and Americas (Nancy Fawzy, 2019).
CHAPTER 3. BUSINESS EXPANSION STRATEGY
3.1 SWOT ANALYSIS OF MALAYSIAN AIRLINES

- Strengths
• Strong support from the Malaysian Government.
• Improvement in Revenue generation.
• Strong and huge workforce (over 19,406 employees)
• Management and Leadership team
- Weaknesses
• Limited to zero interest in collaborating with other formidable airlines.
• Extremely inefficient network
• High costs
• Super Frugality
- Opportunities
• Increase in passenger traffic
• Expansion of Cargo traffic
• Improvement in fleets
• Increased global presence
-Threats
• Increased fuel prices
• Strong competition in the market
• Economic instability
• Political unrest and terrorism

3.2 SWOT ANALYSIS OF AIR ASIA

-Strengths
• Low operational costs
• Focused, effective and aggressive management.
• Simplistic business model that focuses on delivering lowest fares possible
• Stimulates and penetrates successfully within potential markets.
-Weaknesses
• Services are limited due to low costs
 • Less employees hence unable to handle irregular situation
• Strict government regulation and interference on airport and passenger dealing.
• Unusual locations of certain airports
• Major dependence on outsourcing.
• Infant airlines with similar prices.
-Opportunities
• Current industry consolidation has introduced mew routes and airport deals
• Increased fuel prices will shut down unprofitable competitive airlines companies
-Threats
• Bigger airlines start cutting costs to offer pocket friendly fares
• New LCCs
• Increased fuel prices decrease profits
• Terrorist attacks, accidents and disasters negatively impact the company’s image.
• Disruption in sales due to heavily depending on online sales

3.3 ANALYSIS OF BOTH

A merger with Air Asia can definitely be of great help for Malaysia Airlines and if the airlines want to
increase its fortunes by being more sustainable and in order to get back on its feet. However, there are
a number of factors that need to be considered before proceeding.

3.3.1 Ownership
As mentioned above, Malaysia Airlines is a government airline whereas Air Asia is a private one. An
issues that might surface is that Air Asia would probably not want government interference in its
operations. Additionally, both the airlines have their own values for theirs balance sheets which might
cause hindrance in deducing the ownership structure setup. If both the companies can compromise on
one thing or another, then both companies can immensely benefit from this merger through increased
sustainability and market share since each company has an advantage that the other one lacks
(Lazzarini, 2015).

3.3.2 Strategic Issues

The second challenge that might be posed between Malaysia Airlines and Air Asia’s merger is that
both the airlines currently follow the same regional and domestic routes. Coming to a conclusion and
division of locations will end up being a huge challenge (Ahmed, 2018). Deciding on a headquarter
for the merger would also pose as a challenge (Cavusgil et al, 2017). Again, compromising will be the
only solution as both the airlines need to acknowledge the fact that this merger will end up highly
profitable for both companies.

3.3.3 Human Issues

Putting together the leadership structure of the merger will also put both the companies in a
challenging situation. Moreover, both the company’s employees will fear losing their jobs as the
merger might involve reduction in number of employees. (Brown & Moberg, 2017).

3.3.4 Financial Issues

Undoubtedly, financial problems will be the biggest issue. Firstly, Malaysia Airlines has been
experiencing financial losses whereas Air Asia has been earning profits. Malaysia Airlines has huge
amounts of debts and Air Asia might feel threatened that their profits might erode away due to this
merger (Bubnicki, 2018).

However, if there are certain issues with this merger then there are a number of advantages as well. If
we look at it in this way, that AirAsia is a budget airline with limited resources and services to offer to
the passengers, Malaysia Airlines is an airline that offers all services such as on-board food,
entertainment facilities and a large amount of staff to cater passenger’s before, during and after flight
issues. Whereas, AirAsia has a limited amount of staff that cannot cater to unusual circumstances as
well as limited on-board food and beverages’ availability and limited entertainment facilities.
Moreover, Malaysia Airlines has unlimited funding from the government and AirAsia has a huge
target market.

Concluding, Malaysia Airlines and Air Asia both would benefit from this merger however, Malaysia
Airlines will get a slightly higher benefit from it since AirAsia would have to carry the financial
burden and drag Malaysia Airlines out of the debts. Forming this merger would prove to be a
beneficial decision for both the airlines since this merger would dominate the regional markets,
domestic markets and international markets.

4.0 RECOMMENDATIONS
Overall, Malaysia Airlines has brought itself up from the ground after being struck down the financial
crises in 1997 and then again in 2005 but is still somehow struggling due to a certain amounts of
financial debts. In my opinion, the company should consider merging or partnering up with another
airline company that does not provide the services that they themselves provide so together the
companies can target a set number of audience together. Merging with AirAsia would prove to be a
beneficial decision for Malaysia Airlines as is highly recommended. Now is the perfect time to form
this alliance since the airline industry has been highly affected due to the COVID-19 pandemic.

In order to overcome the management issues, Malaysia Airlines needs to hire highly professional
employees, preferably people who have worked with other international airlines and have an
experience of a few years. This would benefit the Airlines in a way that even after being hit by
unexpected circumstances, the professionals would be able to cope with them and keep the company
put together.

Concluding it all, this paper has analused the case studt on Malaysia Airlines and has proposed a
strategic merger with Air Asia while keeping in mind the relative facts and figures of Malaysia
Airlines.

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