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MALAYSIA AIRLINES (MAS)
PRESENTED BYLuluk Nor Khotima Bt Nursam
Ashvenee Devi SelvarajuNoor Armi Addila Bt Noor Ariff
Nur Azlinda Bt A.AzamanNorliza Bt P P Mohamed
INTEGRATED CASE STUDY (PAS 3183)
AGENDA
• INTRODUCTION
• MANAGEMENT CONSTRAINT
• COMPETITION
• UNPROFITABLE ROUTES
• INCREASED IN FUEL PRICE
• MAINTENANCE COST
• RECOMMENDATION
INTRODUCTION• 1994- Privatized 32% controlling
stake to Tajuddin Ramli through
Naluri Berhad
• 1998- Asian Financial Crisis MAS
faced substantial losses
• 2005- MAS reported loss RM1.3b
• 1 Dec 2005- Idris Jala became CEO
of MAS
• 27 Feb 2006 - BTP 1 was announced
1. MANAGEMENT CONSTRAINT
Constrained freely
changing destination,
routes and pricing
Government intervention
Action taken by
management
Constrained Freely Changing Destination, Routes And Pricing
• MAS suffered high losses due to poor
management & fuel price increases.
• MAS operations were identified as the
causes of the RM1.3 billion loss are:
– Escalating fuel prices
– Increased maintenance and repair costs
– Staff costs
– Low yield per available seat kilometre
Government Intervention
• Transformation Programme:
- Widespread Asset Unbundling
(WAU)
RM7bil in debt were shifted to
Penerbangan Malaysia Berhad (PMB)
- Government Linked Corporation
(GLC)
BTP is also part of the GLC which aims
to make all GLCs more successful.
Action Taken By The Management
• Increased domestic price
• Major cost reductions were
made
• Improve MAS network
• New low cost community
airline
• Malaysia’s first commuter
airline was launched
2. COMPETITION
LOCAL AND INTERNATIONAL COMPETITORS
LOCAL INTERNATIONAL
• EUROPEAN• AUSTRALIAN• UNITED STATES
COMPETITIVE RIVALRY
NEWENTRY
POWER OF SUPPLIER
POWER OF BUYER
SUBSTITUTE
THREAT OF NEW ENTRY :• Need huge investment to
setup this business. • Less threat 5 – 10 years
before.• Now bank increase the
possibilities through offering long term loans with low interest.
COMPETITIVE RIVALRY :• Many airlines with same
routes.• Most of MAS competitors offer
lower fare to customers.• International airlines
somehow have access to many routes that MAS do not have
• In term of safety
SUPPLIERS POWER :• Less opportunity for bargaining
because not many suppliers.
THREAT OF SUBSTITUTE :• For international do not ha ve
problems because the only way to travel fast is using airline.
• For domestic have to compete with other cheaper substitute.
BARGAINING POWER OF CUSTOMER :• High bargaining power as customers
can easily shift to AirAsia which is cheaper.
• However, if they prefer a high and good quality services, only MAS can provide it.
COMPETITIVE ADVANTAGEWHAT?Business should concentrate their efforts on things they do well
WHY?To stay in business and become success
HOW?From one or combination of these factors ; price, service, quality, location, or customer base.
1. Find out factors that important to the customers • Good quality of services – best Cabin Crew Award #1• Low fare rate• Safety
2. MAS competencies and things that they do well ?3. Identify whether MAS can develop what important to
customers as their competitive advantages?• Low fare : reduce costs
FOLLOW COMPETITORS STEPS
WHY ?“if you can’t beat them, join them”
HOW ?1. Alliance - ONEWORLD 2. E-ticketing3. Promotion packages in off-season –
MATTA FAIR
BENEFITS?4. More routes and benefits5. Cut-costs6. Increase sale in off-season
3. 60% Unprofitable of MAS Routes
• Pricing properly to maximize yield (profits)
• Yield = Revenue per Revenue Passenger Kilometer (RRPK)
• MAS made the past ‘strategic mistake’ of not joining a global airline
alliance.
• 66 of the airlines' international routes are unprofitable while 48 are
profitable.
• Example – Kuala Lumpur-Manchester – routes to be dysfunctional –
140% capacity-full to break even.
The Main Causes of Unprofitable Routes1. There has been a slowing of global
Revenue Passenger Kilometer (RPK) growth• relatively large ratios between RPK growth and GDP
growth.
2. Factor costs—particularly fuel—have increased• increase in fuel prices alone.
3. Low cost competition is on the rise• Competitors hoping to stimulate demand by dumping
large numbers of very low price seats in core markets
4. The frequency and impact from global demand shocks is increasing• many of their customers do not need to travel. • with the current transparency and immediacy of
global media - end up with increasingly volatile demand.
EVALUATION1. Launched the Route Profitability Project.
efforts around eight route-cluster ‘labs’
2. Implemented a Revenue Enhancement Project
(REP).
various surcharges and administrative
fees in line with the rest of the market
have been introduced to align revenue
with costs
3. Launched 'Travel Fair 2006‘.
rewarded our customers by selling 5
million seats at up to 70% discount
EVALUATION ( CON’T )4. Terminated any unprofitable routes
freeze recruitment except for front-line
staff, and crack down on corruption
5. Joining global airline alliance adopt regional alliances
‘hub and spokes’ strategy - allows
partner airlines’ networks to ‘feed’
passengers to MAS regional hubs
saving MAS from spreading itself too
thin flying all over the place
4. INCREASE FUEL PRICE
• Global economic crisis (2008 – 2009)
• Price is in US dollar – cause the price
of fuel affected
US$ 166.48 per barrelJuly 2008
US$ 52.78 per barrelFebruary 2009
Price of Jet Fuel & Crude Oil
EVALUATION• Price hedging strategies
– Foreseeable for the following month, heating oil futures should be the chosen hedging instrument
– Greater supply than demand, the oil prices will decrease
• Fuel surcharges to the customer– Ex : SIA and SilkAir, fuel surcharge increase
between US$3 and US$25 per seat, depending on the distance and class of travel.
• Buy a new aircraft– That are superjumbo airplane has more seats
and fuel savers (A320neo)
ADVANTAGES
Advantages
Mitigate losses
More profitable
Cost most consistent & manageable
Reduce volatile
5. MAINTENANCE COST
Sell the old aircraft Managing the maintenance cost
Profit centre
2003 2004 2005 2006 2007 20080
200000400000600000800000
1000000120000014000001600000
Maintenance Cost
50%
8.5% 3.5%70%
20%
RM’000
YEAR
Sell The Old Aircraft• The average age of the aircraft is
between 10 and 12 years.
• Older aircraft require more maintenance
and there has been a 10% increase in the
number of annual heavy maintenance
since 2004.
• An organize structure of selling the
aircraft
• Buy new aircraft
• Considering leasing
Managing Maintenance Cost
• Well documented the maintenance
cost
• Properly classified the maintenance
cost and modification cost
• Maintenance cost based on the
accumulated flight hour and aircraft
life cycle
• Reducing the cost while maintaining
the same quality
Profit Centre
Project Delta
E&M Breakthrough Programme
Malaysia Aerospace
Engineering (MAE)
• Optimize the used of fixed assets
• Optimize maintenance schedules by
maximising maintenance during off
peak season
• Improve inventory management
through Integrated Material
Management
• Joint venture with other international
airport
• Revised third party maintenance
marketing plan
RECOMMENDATION
• Reduce government intervention• Internet based service (e-ticketing)• Terminate unprofitable routes &
joint Alliances One World member• Properly analyze fuel price before
make hedging agreement• Selling old aircraft & focus Malaysia
Aerospace Engineering (MAE)
Q&A
THANK
YOU