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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AVN 4010 Air Transport Economics Malaysia Airlines Strategic Plan

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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AVN 4010 Air Transport Economics Malaysia Airlines Strategic Plan

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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