full assigment

PMN 3023 STRATEGIC MANAGEMENT

1.0 COMPANY PROFIL

1.1 INDUSTRY OVERVIEW

Malaysia Airline Systems (MAS) like many other airlines is suffering financially,

this is due in part to world events that have occurred recently and market

conditions in Asia, although these market conditions have also been experienced

on a worldwide scale. People have been reluctant to fly after the events of

September 11 2001, the wars in Afghanistan and Iraq, and the outbreaks of the

Severe Acute Respiratory Syndrome or SARS, as it is more commonly knows.

There has also been the problem of more companies entering the airline market

sector especially the low cost operators such as BMI Baby or Easy Jet. If MAS is

to survive the next 3 to 5 years they are going to have to compete against

powerful carriers like BA and Qantas, low cost carriers, and strategic alliances

such as One world and Star Alliance. To win back and retain customers MAS is

going to have to implement a marketing plan and a strategic business plan, which

is going to have to incorporate the current positioning and branding of MAS and

how they want to be perceived in the future. This essay will attempt to answer the

question 'If MAS is to survive and thrive in the future how would you combine

the resources and skills of the operations and marketing functions over the next 3-

5 years?' This will do using marketing tools and models such as perceptual

maps, SWOT analysis. Being successful is about more surviving and if MAS

is to realize their vision “To be the largest, most successful and most respected

airline in the world”, they are going to have to realize that money will need to

spend.

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Malaysian Airlines is the pride of a nation, they carry the Malaysian flag and their

success is important to the country. This means that they can and have aided

by the government.

MAS have also invested a lot of money on IT, which has left them in a strong

position to leverage this IT to the benefit of their customers and performance.

MAS are an award winning company, having diversified into many areas of

travel, even during the difficult era for the airline industry.

1.2 OBJECTIVE

The objectives of our assignment are to find out the problems that Malaysia

Airlines System (MAS) is facing now such as the debt of MAS and the main

competitor of MAS. MAS are facing financial problems currently and many

solutions had taken to solve this problem. Is it this problems can be solved?

Alternatively, their financial problem will become more terrible. Moreover, MAS

is also facing their main competitor in the industry of airlines. What is MAS

going to do to ensure that it will be the winner in this “competition”? Is it through

the price, promotion or distribution? At the end of this assignment, all the

questions answered.

1.3 MISSION

To provide air travel and transport service that rank among the best in

terms of safety, comfort and punctuality.

To be a profitable airline.

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1.4 VISION

An airline uniquely renowned for its personal touch, warmth and

efficiency.

Going beyond expectation

1.5 LOGO

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1.6 NAME OF DIRECTOR

Dato’ Dr Mohd Munir bin Abdul Majid

Non-Independent and Non-Executive Chairman

Dato’ N. Sadasivan a/l N. N. Pillay

Independent and Non-Executive Deputy Chairman

Iris Jala @ Idris Jala

Managing Director/Chief Executive Officer

Tengku Azmil Zahruddin bin Raja Abdul Aziz

Non-Independent and Executive Director

Keong Choon Keat

Independent and Non-Executive Director

Martin Gilbert Barrow


Dato’ Mohamed Azman bin Yahya

Non-Independent and Non-Executive Director

Datuk Amar Haji Abdul Aziz bin Haji Husain


Dato’ Sri Izzuddin bin Dali

Non-Independent and Non-Executive Director

Dato’ Mohd. Annuar bin Zaini


Dato’ Zaharaah binti Shaari

Non-Independent and Non-Executive Direct

2.0 FINANCIAL ANALYSIS

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RATIO FORMULA 2005* 2005 2004 2003 2002LIQUIDITY RATIOS

Current Ratio Current assetCurrent liabilities

3,464 4,293

= 0.81 times

4,5283,946

=1.15 times

4,2243,578=1.18 times

3,2633,089=1.06 times

2,3098,360=0.28 times

Quick Ratio Current asset – inventoryCurrent liabilities

3,464 – 4554,293

= 0.70 times

4,528 – 4463,946

=1.03 times

4,224 – 3693,578

=1.08 times

3,263 – 3623,089

=0.94 times

2,309 – 3528,360

=0.23 timesLEVERAGE RATIOS

Debt-to-Total-Assets Ratio

Total debtTotal assets

0X1006330

=0

0X1007276

=0

0X1006616

=0

0X1005718

=0

8968X10014620

=61.34%Debt-to Equity Total debt

Total stockholders' equity0

2023=0

03319

=0

03024

=0

02615

=0

89681215

=7.38Long Term Debt-to-Equity Ratio

Long-term debtTotal stockholders' equity

02023

=0

03319

=0

03024

=0

02615

=0

46801215

=3.85ACTIVITY RATIOS

Inventory Turnover

SalesInventory of finished

goods

8851455

=19.45

10951446

=24.55

8588369

=23.27

8675362

=23.96

8378352

=23.80Fixed Assets Turnover

SalesNet fixed assets

88512224

=3.98

109512054

=5.33

85881662

=5.17

86751819

=4.77

837812044

=0.70Total Assets Turnover

SalesTotal assets

88516330

=1.40

109517276

=1.51

85886616

=1.30

86755718

=1.52

837814620

=0.57Accounts Receivable Turnover

Annual credit salesAccounts receivable

88511830

=4.84

109511888

=5.80

85881664

=5.16

86751968

=4.41

83781540

=5.44

Average CollectionPeriod

Accounts receivableTotal credit sales/365

days

18308,851/365

=76days

188810,951/365

=63days

16648,588/365

=71days

19688,675/365

=83days

15408,378/365

=67days

PROFITABILITY RATIOSGross profit Margin

Sales - cost of goods soldSales

8851 - 10,329X100

8851=-16.70%

10951 - 11,047X100

10951=-0.88%

8,588 - 8,585X100

8588=0.03%

8,675 - 8,722X100

8675=-0.54%

8,378 - 9,155X100

8378=-9.27%

Operating ProfitMargin

Earnings before interest and taxes (EBIT)

Sales

-1241X1008851

=-14.02%

365 X10010951

=3.33%

351 X1008588

=4.09%

484 X1008675

=5.58%

-432 X1008378

=-5.15%

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RATIO FORMULA 2005* 2005 2004 2003 2002PROFITABILITY RATIOS

Net Profit Margin Net incomeSales

-1265 X100 8851

=14.29%

326 X100 10951

=2.98%

461 X100 8588

=5.37%

339 X100 8675

=3.91%

-836 X100 8378

=-9.98%Return on Total Assets

Net incomeTotal assets

-1265 X100 6330

=-19.98%

326 X100 7276

=4.48%

461 X100 6616

=6.97%

339 X100 5718

=5.93%

-836 X100 14620

=-5.72%Return on Stockholders’ Equity (ROE)

Net incomeTotal Stockholders'

Equity

-1265 X100 2023

=-62.53%

326X1003319

=9.82%

461X1003024

=15.24%

339X1002615

=12.96%

-836X1001215

=68.81%Earnings Per Share (EPS)

Net incomeNumber of shares of

common stock outstanding

-12651253

=-1.009

3261253

=0.2602

4611253

=0.3679

339900

=0.3767

-836800

=-1.045

Price-Earnings Market price per shareEarnings per share

2.84-1.009

=-2.81

3.80.2602

=14.60

5.50.3679

=14.95

3.320.3767

=8.81

3.72-1.045

=-3.56Growth Ending value -

Beginning valueBeginning value

2.84 - 3.803.8

=-0.25

3.80 - 5.505.5

=-0.31

5.50 -3.323.32

=0.66

3.32 -3.723.72

=-0.11

3.72 - 3.423.42

=0.09

2005* - The financial period is from April 2005 to December 2005

2005 - The financial period is from April 2004 to March 2005

3.0 INDUSTRY PROFILE

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3.1 Threat of New Entrants

On the international stage there may not be a threat of new entrants to the

market, because of the current attractiveness of the market sector, although this

can also meant that there will be new competitors created by the merger of two or

more airlines. If two of the big airlines had a good match in their value chain, they

could create a dominant world leader in the marketplace.

In the local market, there have been new entries recently and there is no

reason why this trend will not continue. Low cost operators have increased in

number recently and could be a threat to any entries hoping to move into this

market. The low cost, no frill operators seem to be making an impact into the

market, as Ryan Air, who recently purchased one of its rivals Buzz and has

announced record profits.

3.2 Power of the Customer

The airline industry is full of operators that fly to many locations form

many other locations; therefore it is possible for a customer wanting to travel to

be able to select from a whole range of companies. No one company has a

monopoly on flights to a country. This means that the customer will have a lot of

power and be able to select when they want to fly at the price that they are willing

to pay. The power did belong to the airlines in the late 1990's with business

airfares rising 74% in the 4 years up to 2000.

3.3 Power of the Supplier

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Boeing dominates the supplier market of aircraft, although there is

competition from Airbus and other smaller companies. Boeing has supplied MAS

for a very long time and it is for this reason that the supplier has a lot of power in

this market, as all the staffs at MAS are trained to use the Boeing systems.

3.4 Substitutes

Substitutes are not possible for long cross continental flights, as nothing

can offer the comfort, ease of travel and speed that air travel offers. For short

distance trips, people are able to use coach, train, car or buses, these forms of

travel are also more environmentally friendly and there is a possibility that they

may be pushed by governments trying to be seen as environmentally responsible.

3.5 Competitive Rivalry

The other big competitor in the Asian flight market is Singapore Airways

and any promotions or discounts that they run will have an effect on taking at

MAS. On a global scale all the big airlines in Europe and America, especially the

ones that have merged in recent times because of world events are competitors.

3.6 Prospects

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MAS has signed many code share agreements, with companies such as

MEA, that have created many more routes for MAS to fly, the routes that prove

profitable should be kept going whereas it may prove wise to cut the routes that

prove to be making a loss. There are three main areas where MAS can improve to

enhance its situation, these have become known due to the SWOT and five force

analyses of MAS, These areas are the management, the financial situation and

operational issues. These operational activities include the integration of other

related business into the MAS group; these have proved a problem because of the

rapid expansion and the downturn in the financial markets. MAS will need a

marketing plan, as part of a strategic business plan and to implement this plan, as

the management system has been called into question it may be wise to re-

evaluate the team and replace them with others that are more energetic and

innovative. The management team should have implemented changes earlier

when they noticed things were going wrong instead of allowing them to propagate

and cause the current situation.

4.0 STRATEGY ANALYSIS

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4.1 SWOT ANALYSIS

4.1.1 STRENGTHS

MAS Has World Class Image

Malaysian Airlines is the pride of a nation, they carry the Malaysian flag

and their success is important to the country. This means that they can and have

been aided by the government. Malaysian Airline System Bhd's (MAS) current

on-time performance of 87% is amongst the highest globally, measured against a

delay of 15 minutes and above. "Barring any wars, large-scale terrorism or

disease outbreaks, the market prospects for MAS are better with steady regional

deregulation, growth of tourism and rising disposable incomes. The full

benefits of the hassle-free process from point to point, however, can only be

realized if both Changi and KL International Airport maintain similar

facilities and procedures. It will defeat the purpose if the passenger has to

confront kinks at one end. MAS have received 'Top Airline-Service Staff

Service' in their World First Class Survey by a UK based in- flight Research

Services in year 1999.

MAS Have Good Facilities

MAS have also invested a lot of money on IT, which has left them in a

strong position to leverage this IT to the benefit of their customers and

performance. MAS are an award winning company, having diversified into many

areas of travel, even during the difficult era for the airline industry. MAS

provide comfortable seats, safeties, and food and beverage supplies. The next

best thing is for the airlines and the airport authorities to work on making the

transfer less cumbersome. Malaysian organized an extremely plush hotel,

transport and lunch for absolutely no charge for all of us flying on to other

destinations. In any case, the budget carriers carrying passengers who

connect to other airlines are already facing this challenge. MAS, the Malaysian

flag carrier bills itself as the "Golden Airline" and in many ways, it is

justified in doing so. The food and drinks were great. The service was great.

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In addition, the best part about it was that each chair had a liquid crystal display

television. The TV had 6 movies, a music channel, and a video game console.

In 2000, MAS was awarded the Five Star Diamond award by the American

Academy of Hospitality Sciences.

MAS Have Experienced Top Management

Successful alliances require a great deal of commitment by personnel and

management and potentially significant amounts of capital and other resources.

Such resources may be difficult to continually contribute and may adversely

divert management’s attention from their primary responsibilities. MAS have

been also rated as 'Number One Airline' for cabin staff operations by Australian

travel magazine, 'Luxury Travel’ Notched top placing for best cabin staff service

in first class in the 2000 World First Class Survey conducted by In-flight

Research Services (IRS) of United Kingdom. MAS have also received 'Best

Cabin Staff 2002' award in an international airline survey conducted by Skytrax

Research of London, UK. In what may seem a contradiction the management

team at MAS received an award from the Asian Institute of Management and the

World Executive Digest, for its excellence in general management and success in

positioning itself in the airline industry.

MAS Is Subsidies by Government

MAS have been always stable even with financial. This is because MAS is

subsidies by government. Even if there is a problem arises in MAS, government

will always protect it. MAS may be concerned about connections between their

shuttle services and long-haul flights, but transiting across terminals is not

uncommon at most major international airports. Alliances can sometimes make

one partner particularly dependent on another partner. This can be damaging in

the event the other partner’s performance on behalf of the alliance deteriorates or

in the event the other partner’s business suffers adverse developments. Malaysia

Airlines aims to improve services on key routes to provide at least daily

frequencies, subject to availability of traffic rights and slots. The airline is

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currently working closely with the Ministry of Transport to secure these rights.

Malaysia Airlines is also in advanced alliance discussions with KLM. This will

allow Malaysia Airlines to build on KLM’s extensive network and enhance its

reach into Europe.

MAS Is a Five-Star Brand

MAS focus on service quality has earned the company the status of a top-

tier global brand. In 2004, SkyTrax, the preeminent airline quality

monitor, awarded MAS ‘Five-Star’ status and MAS is one of only four

airlines across the globe to have achieved this rating. This recognition follows four

consecutive years of winning the 'best cabin crew' (also from SkyTrax). These

SkyTrax awards are not anomalies. In 2005, TTG designated MAS as the ‘Best

Airline to Asia’, and in January 2006, Travel Weekly, a UK-based travel

periodical, awarded MAS the same status. Our employees continue to deliver

outstanding service and the world is watching. MAS have a loyal and captive

customer base. As we interview our customers, particularly Malaysians, we are

encouraged by the extent to which they are passionately loyal to MAS. This is

not a luxury that all national carriers enjoy. In many cases the market power held

by a local carrier results in animosity and frustration. We have very strong

technical skills and highly trained cabin crew MAS' maintenance staff; flight

operations staff and ground crew are world- class in their technical skills. Our

strong safety record has much to do with our staff and crews' attention and

capabilities. These skills are not just a source of strength for MAS, but also a

potential source of revenue as MAS looks to broaden its business activities. Our

cabin crew are highly trained and committed to excellent service and our five-star

rating owes much to their grace and professionalism.Wehave some of the

lowest labors costs in the region. The fact that we have low labors costs, a

function of a comparatively low cost of living in Malaysia, is perhaps the most

important 'building block' and something that we must strive to maintain.

Malaysia does not have the large base of business traffic enjoyed by our

neighbors to the south and therefore it will be difficult to match them on

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absolute revenue performance. To be competitive, we must maintain a cost

advantage.

4.1.2 WEAKNESSES

Economic Crisis

Financially speaking, pre 2003, MAS made a loss for 5 years running,

although before this MAS was known as a company that was happy to invest for

the future. This may have helped cause the current situation. One of the reasons

for this was the purchase of 25 Boeing planes to be delivered over 5 years the

purchases of the aircraft were made in US Dollar and no hedging method was

used at that time because of the stable currency between Ringgit Malaysia against

U.S Dollar. Unfortunately in1997, Asian countries including Malaysia

incurred economic down turned which, has resulted the devaluation of Ringgit

Malaysia and an increased of interest rate. Consequently, MAS' cost of

purchase increased tremendously.

MAS Pricing Power Significantly Lags the Industry

MAS substantially lag its peers on yield and this is MAS central issue.

Some of this gap is due to differences in traffic mix (less business traffic to and

from Malaysia than to and from Singapore), but much of it is due to weaknesses

in pricing and revenue management, sales and distribution, brand presence in

foreign markets, and alliance base.

MAS’ Costs Have Risen Out Of Control

Despite a low starting point, MAS' costs have risen by over 20% in the last

year and show no signs of flattening. Furthermore, MAS productivity is at the

low end of our peer group. We need to have much higher productivity than

the peers to be able to survive and prosper in smaller revenue environment. As

MAS factor costs rise, MAS will see a disproportionate increase in costs unless

MAS can become much more efficient with the resources. Of particular concern

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is our fixed cost base. MAS have millions of Ringgit invested in some real estate

and equipment through its offices around the world that do not directly contribute

to revenue production.

MAS Current, and Future, Fleet and Product are Poorly Matched

to MAS' Strategic Realities

The markets in and out of, and around, Malaysia are relatively small.

However, the MAS fleet is predominantly made up of some of the largest aircraft

in their class, putting it in the league of the leading international airlines. In

addition, Mas produced one of the world's most attractive products by upgrading

cabins generous seat pitch in economy and business, and a flat bed in first class.

Unfortunately, stronger yields or loads have not offset higher costs. Given the

limited business traffic, are more dependent on low yield connecting traffic,

and as our aircraft have relatively few seats in them, this drives up unit costs.

A MAS 777-200 has only 247 seats in economy, compared with 293 in

Singapore Airlines

.

MAS Lack a Disciplined Performance Culture

Discussions with managers and employees have made it clear that today

MAS does not have the leadership, accountability or teamwork needed to survive

and prosper in this more challenging environment. One external analysis suggests

that MAS needs approximately 300 more leaders. Potential leadership talent

definitely exists lower in the organization but it has not been unleashed through

the right opportunities. We are also a company with relatively little experience

with accountability. Based on internal employee survey last year, employees

report little confidence in the management team and managers report that they do

not feel that there are any repercussions for staff who miss targets and deadlines

or who do not meet key performance indicators (which have recently been

adopted). Further, people tend to be jealous of success, rather than being inspired

by it. Simply put, MAS will require a significant organizational overhaul to be

able to survive in the new world.

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There Are Significant Social and Political Obligations

The pundits are of the view that political and social obligations present the

most overwhelming and significant constraints to our ability to transform the

business. As a largely state-controlled airline in a regulated industry, it is argued

that MAS does not always have the freedom to act according to pure market

principles. MAS are constrained from freely changing destinations, routes and

pricing within its domestic sector. In addition, even though there are no explicit

constraints on the international routes, MAS might not have full flexibility to

make changes to destinations, schedules or pricing. For example, flying to Vienna

costs MAS approximately RM30 million per annum.

Yields Are Lower Than Those of Their Competitors

While MAS has award-winning products and services, competitive cost

base, and only slightly below average load factors, yields are dramatically lower

than competitors are. Even though we currently have a competitive cost structure,

costs are rising and productivity is low. Therefore, immediate problem is one of

low cash and low yield and, in the medium term, will face a cost challenge.

4.1.3 OPPORTUNITIES

Only Airlines Offer International Flight

Malaysia Airline is the national airline of Malaysia that serving

international destination. It is the largest airline in South Asia by fleet size.

Malaysia Airline is actually very renowned around the world, this is due to the

reason where Malaysia Airline has been voted and awarded for the best cabin

staff for four consecutive years from 2001 until year 2004.When it come to

international flight, Malaysia Airline is always the first choice for most of the

people simple because Malaysia Airline is one of the world best and most

comfortable airline services. It is one of only four airlines to have been awarded a

five star rating by Skytrax. Malaysia Airline is the only Asian Airline to offer

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services to Ministro Pistarni international Airport in Buenos Aires, Argentina.

MAS also as it’s own in flight magazine going place their own catering services.

Code Sharing Agreement

Code sharing is a business term, which first originated in the airline

industry. It refers to a practice where a flight operate by an airlines is jointly

marketed as a flight for one or more other airlines. Most major airlines nowadays

have code sharing partnership with other airlines and it’s a key feature of the

major airline alliances. Malaysia airlines system get opportunity to open up routes

and services with enter a code sharing agreement with Gulf Air. The agreement

inked at a signing in Subang, allow Malaysia airlines to market seat under its code

on Gulf Air flight between Kuala Lumpur and the Middle East countries of

Bahrain and Oman as part of its “hub and spoke strategy. Code sharing enable

traveler of Malaysia airlines to enjoy seamless product, as a single airlines

supervises the passenger entire journey. Such an arrangement offers significant

economic and consumers benefits giving passenger price and services options.

They are very excited with this Gulf Air because it’s an opportunity to their

strategy of shifting from point to point network to hub and spoken connecting

network. This agreement is yet another manifestation of the ‘Winning Coalitions’

thrust of MAS business turnaround plan. MAS will get opportunity advantage on

such arrangement to build out they hub and spoke approach to reduce cost and

con currently improve both load factor and yield. Under a code sharing agreement

participating MAS can get opportunity to present a common flight number

include connecting flight, flight from both airlines that fly the some route and

perceive service to unserved market.

Visit Malaysia Year 2007

Malaysia a tourism industry has great potential with the lot of tourism site,

beautiful islands, unique areas and long beautiful beaches, that will attract more

tourist in another country in the world to come Malaysia. So it is the one of

opportunity to MAS fir increase their customer from outside to use services and to

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stability their financial. MAS must take this benefit to improve their operation and

management especially in Visit Malaysia year 2007. The Visit Malaysia Year

2007 is the opportunity for Malaysia airlines system to increase their customers

and get the profit .Where they expect a significant jump in the number from all

regions during Visit Malaysia Year 2007. In Addition Malaysia is popular

destination for visitors especially from Middle East. With steady increase and

improving of tourism, site in Malaysia its benefits to MAS.

Purchasing A380 Airbus

Model A380 of Airbus for Malaysia Airline will used to further enhance

its performance. Where the Airbus A380 has 555 seater twin decker super jumps

seat to enter service in 2007. It would snatch the little of biggest passenger plane

from rival Boeing’s 747. It also as MAS assets including its entire fleet and with

using the Airbus can give opportunity to MAS to improve and help revive the

trouble carriers.

Changes in the Boardroom

Changes in the boardroom are one of the opportunities to Malaysia

Airlines when En. Idris Jala, who joined Malaysia Airlines on 1 December 2005,

to replace Dato’ Ahmad Fuad bin Mohd Dahalan, as Managing Director. En. Idris

joins Malaysia Airlines at a critical point in the company’s fortune and possesses

a proven track record for turning around companies. Because of this change in the

boardroom, En Idris Jalal tried to increase MAS income and solve problem in

MAS.

MAS Expects Revenue Growth from Charter Flight Services

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Malaysia Airlines (MAS) expect 10% annual growth in revenue from its

charter flight services, refer what Capt Nik Huzlan Nik Hussin said as an

assistance general manager (haj and charter service). MAS recorded about

RM120million in revenue from its charter flights last year. MAS recognized a

huge business potential in the passenger air charter business and has develop a

comprehensive product catering to both schedule and ad-hoc charter needs of

customer around the Pacific Region.

4.1.4 THREATS

Main Competitor

Air Asia is a low-cost airline based in Kuala Lumpur, Malaysia. It

operates scheduled domestic and international flights and is Asia's leading low

fare no frills airline and first to introduce "ticket less" traveling (no specific seats

allocated before boarding). Air Asia has been expanding its operations extremely

rapidly and is very popular, but also infamous for frequent significant delays. Its

main base is Kuala Lumpur International Airport (KUL). It currently operates

from the 1st ever low cost carrier terminal in Asia at KLIA. In 2003, Air Asia

opened a second hub at Senai Airport in Johor Bahru near Singapore and

launched its first international flights to Thailand. Air Asia has since started a

Thai Air Asia subsidiary, added Singapore itself to the destination list, and started

flights to Indonesia. Flights to Macau started in June 2004, while flights to

mainland China (Xiamen) and the Philippines (Manila) were started in April

2005. Flights to Vietnam and Cambodia followed later in 2005.

Competition with Air Asia also became threat to MAS because many

passengers prefer use Air Asia service compare than MAS. Air Asia is a one-

airline system provides low-cost airlines. The flight to certain locations can be as

cheap as RM9.99 if the customer book very much in advance. Recently Air Asia

has started to fly to several South East Asian countries; all this was built on their

success story of providing incredibly affordable flight tickets. The emergence of

Air Asia has filled a gap in the customer demand and has even force other major

Airlines in the region to come up with such a service. From Kuala Lumpur

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Thailand to Bangkok and customer from Bangkok that using Air Asia can go

Chiang Mai, Chiang Rai, Nakhon Ratchasima, Udin Thani, Kon Kaen and

Hadyai. Air Asia has been able to grow earnings, achieve strong passenger

growth, and reduce unit costs to remain the leading low-cost pioneer in the region.

Air Asia's very success has bred fears among MAS staffers that its seeming

failures vis-a-vis its upstart competitor could lead to policies that could have a bad

effect on the national carrier. Air Asia has one of the lowest costs in the industry

and they can offer the low fares to consumers irrespective of the oil price.

Although, they revenue management system is very sophisticated and they

address to movements in their cost. Air Asia has encountered and overcome many

adversities, including high fuel prices, in the early stages of its growth. They also

will have more experience than the new LCCs to cope with the new adversities.

Air Asia became main competitor to MAS because they monopoly domestic

route. MAS can’t compete with Air Asia in term of price in domestic route.

Because of this many domestic customer prefer to use Air Asia compare than

MAS. Although Air Asia just monopoly domestic route but it also became

strength to MAS. It is because through domestic route Air Asia get more profit

and successful in industry.

Social and Government Regulation

Most of the view show that social and government regulation present the

most overwhelming and significant constraints to MAS ability to transform the

business. As a largely state-controlled airline in a regulated industry, it is argued

that MAS does not always have the freedom to act according to pure market

principles. MAS are constrained from freely changing destinations, routes and

pricing within its domestic sector. And even though there are no explicit

constraints on the international routes, MAS might not have full flexibility to

make changes to destinations, schedules or pricing. For example, flying to Vienna

costs MAS approximately RM30 million per annum1 in losses and it is unclear if

MAS can simply exit this route. They are committed to serving the nation and

enhancing the country's economic prosperity, and serving the market as they do

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today certainly meets the national interest, but it does not necessarily fulfill their

commercial interests. In moving forward, both the Government and MAS need to

establish a workable mechanism to ensure that both the social objectives of the

the interests of MAS and the Government will be guided by the principles laid out

in the Government and the commercial objectives of MAS are catered for. To

this end, GLC Transformation Manual issued by the Putrajaya Committee for

GLC High Performance

Right-Sizing the Staff Force

As a direct result of the domestic route rationalization, MAS will be right-

sizing the staff force. It became threat to MAS because they will lose high skill

workers. While this is not an immediate desire of the management, the reduction

in domestic routes serviced from 118 to 19 has naturally resulted in the need to

close certain stations and cut back on operations. A Mutual Separation Scheme

(MSS) has been announced and, depending on take-up and acceptance, it has been

estimated by the management as many as 5,000 members of staff may leave the

company. The cost of the MSS will be funded by the compensation from

Penerbangan Malaysia Berhad (PMB) for early termination of the Agreement for

Domestic Business Unbundling. Even if the terms of the MSS are attractive and

the approach to termination of service humane, such separation is never easy, how

to start a new life after, what will be in many instances, many years of being in

the Malaysia Airlines family. They will help those who decide to leave as far as

they can.

4.2 IFAS ANALYSIS

Internal Factor Analysis Summary Table

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Internal Factors Weight Rating Weighted Score

Comments

1 2 3 4 5Strengths:

World class image Experienced operation

management Good facilities Government subsidize

(GLC’s) Assets

0.15

0.050.05

0.200.05

5

44

34

0.75

0.200.20

0.600.20

Provide best service

Staff are trained wellAirport and International arrival, service

Support by Government

Weaknesses: Cultural differences

Resources Global positioning Financial management R & D process Administrative

management

0.05

0.100.100.150.05

0.05

1.00

1

2221

2

0.00

0.05

0.200.200.300.05

0.10

2.85

Different class and different tasteUnprofitable resources

4.3 EFAS ANALYSIS

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Eternal Factors Weight Rating Weighted Score

Comments

1 2 3 4 5Opportunities:

Fly low cost commercial flight

Partnership Market expansion Government MAS cargo management Internet availability

0.10

0.150.050.050.050.10

3.0

4.54.03.02.01.5

0.300

0.6750.2000.1500.1000.150

Opportunity in low cost commercial flightCo-sharing with Air AsiaBuying airbusGLC

Technology improvement

Threats: Other Asian Airlines Government regulations Increasing of oil price Increasing burden of debt

Terrorism

0.150.100.050.15

0.05

1.00

5.04.04.52.0

1.2

0.00

0.7500.4000.2250.300

0.060

3.310

Air AsiaInterior by governmentFuelFacilities and accommodation11th September-effect Islamic country

4.4 TOWS ANALYSIS

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Internal Factors

External Factors

Strengths (s) Weaknesses (W)S1 World class imageS2 Experienced operation management S3 Good facilitiesS4 Government subsidize (GLC’s)

W1 Cultural differencesW2 ResourcesW3 Focus global market onlyW4 Financial managementW5 R & D processW6 Administrative management

Opportunities (O) SO strategies WO strategiesO1 Fly low cost commercial flightO2 PartnershipO3 Market expansionO4 GovernmentO5 Mas cargo ManagementO6 Internet availability

Market development(O1,O2,O3,S1)

Strategic alliances(O4,O5,S3,S4)

Joint venture(W1,W3,O2,O3)

R & D strategy(W2,W5,W6,O5,O6)

Threats (T) ST strategies WT strategiesT1 Other Asian AirlinesT2 Government regulationsT3 Increasing of fuel pricesT4 Increasing burden of debtT5 Terrorism

Joint venture(S1,S2,T1,T2)

Speed based strategy(S3,S4,T2,T5)

Financial strategies(W2,W4,T3,T4)

Low cost strategies(W4,W5,T3,T4)

4.4.1 SO STRATEGIES

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4.4.1.2 Market Development Strategy

Spread out the market to global market and increase the number of flights.

For an example flight from India to Bombay.

As a municipal city, many passengers are willing to travel everyday but

MAS only provide service 3 days per week.

4.4.1.3 Strategic Alliances

Surrogate programmer with other airlines. Such as ( Star Airlines,

Lufthansa and Singapore Airlines)

4.4.2 WO STRATEGIES

4.4.2.1 Joint venture

Joint venture with other countries airlines will trim down cultural barriers.

Besides that, can gain more information and secret of their development

that can be using in MAS maturity.

4.4.2.3 R & D strategies

Accentuate more on R & D and new technology. R & D will help MAS to

do more improvement. Furthermore, MAS can in excess of come with

new strategy and new standardizations to over come their weaknesses.

4.4.3 ST STRATEGIES

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4.4.3.1Joint venture

Amalgamate with world class airlines such as Star Airlines, Lufthansa and

Singapore Airlines. This will help MAS to exchange their technology and

business plan.

4.4.3.2Speed based strategies

Provide more thighs securities for international influx and disappearance

to meet customer needs directly or indirectly more rapidly than its main

competitors. Customers will feel calmer and safely.

4.4.4WT STRATEGIES

4.4.4.1 Financial strategies

Provide more funds in the future. Which is can examine the financial

implication, business influence and distinctiveness the best economic

cause of action.

4.4.4.2 Low cost strategies

Use other alternatives as a substitute of fuel to overcome limited resources

to institute long-term competitive advantages by emphasizing and

perfecting value chain activities that can be accomplish at costs

substantially below what competitors are capable to match on a persistent

basis.

5.0 RECOMMENDATION

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Overall, we would like to recommend to MAS Company to apply certain

strategies to overcome their problems. Such as market development, market

penetration and joint venture. MAS had taken lot of alternative to solve their

problem. MAS used turnaround strategy to improve their management problem

and get profit in their future. Our group provides some recommendation that MAS

can use to make their management more efficient.

5.1Listening to the customer problem

Malaysia Airline should listen, understand and try giving the best

feedback with the customer problem to increase the management efficiency. For

the customer problem, MAS can get the information by collect the random

sample in flight, do the benchmarking survey and can get the information trough

the internet. Beside that, MAS can get the information from customer’s trough

their staff because staffs are very important people to contact intimately with

customers. The information is including the management, services, staff,

performance and others. The company should tracks and analyses all the feedback

it receives and take action to solve the problem.

5.2 Team concept

MAS should create esprit among its cabin crew by divide the staff

members in small units. By flying together with their own team can make more

comfortable and the crew feel like they are part of a team. Flying together, as a

units, allows them to build a strong teamwork and the team leader will get to

know their strengths and weaknesses well. By this concept, MAS will have good

control to build the excellent management system.

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5.3 Job rotation in executive rank

The job rotations in executive rank between departments for a few years

are important to understand the overall of the management. This policy has

resulted in several benefits. Managers acquire an understanding of the working of

more of the organization than they would otherwise. It also promotes a corporate

outlook among managers and minimizes inter-department disputes. This practice

also creates an appetite for change and innovation as people constantly bring fresh

perspective and new ideas to their new position.

5.4 Prepaid system

In order for MAS to eliminate last minute cancellation, the prepaid system

is the best mechanism as customers, such as individual and especially groups

(from travel agents) do not “play around” with the loose MAS system. Payment

must made 24hours upon departure. Cancellation of tickets 24 hours before

departure should given a penalty. In order to educate customers to be prudent of

their travel arrangement MAS need to be stern. Flight missed by a customer

should not be penalized by imposing fines but instead automatically be null

and forfeited.

5.5 Maintenance and inventory management

Maintenance and inventory management is one of the part MAS should

focus because this part also influence the financial management in overall the

company. To avoid the problem in overstocking in this part, MAS should apply

the principles just-in-time (JIT) system. By the implement the JIT system, the

company can ensure spare parts are always availability.

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5.6 Mobile check-in service

MAS can apply the mobile check-in service to manage status of their

customer. The check-in procedure is a routine task, which is predictable

(typically shortly prior to departure). The service is different for status and basic

customers. Prior departure status customers receive a check-in request via SMS.

They only need to reply with “y” for yes followed by the flight number that

was giving in the check-in request message. They will then get a confirmation-

SMS with flight information. In contrast to status customers, basic customers and

non-members must initiate the check-in service by themselves via WAP

(Wireless Application Protocol). In five steps, they must enter the URL, M&M

number, as well as last name. Then they must select the flight. All customers

having used the SMS Check-in have to pick up their boarding pass at Quick

Check-in machines supporting reduced pick-up times. This service can improve

their operation management and give customer satisfaction.

5.7 Joint venture, Market development and penetration

In order to create a good strategic formulation, companies need to have a

new market opportunity. This can reach by doing joint venture. It provides access

to a better market as well as distribution system. Company that has a smaller

market might enter to a better market during the joint venture. For example, if

MAS joint with Air Asia, MAS might enter better market opportunity, which is

lead by Air Asia Airline such as their high amount of local passengers. Besides

that, through joint venture the partners also might share its strength in terms of

the marketing strategy such as sharing the promotions strategy.

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For instance, Air Asia has one of the best promotions strategies in the

airline industry, therefore if MAS venture with Air Asia, MAS can share their

promotions strategies and apply the strategies in the companies in order to

increase profit. As return to Air Asia while sharing the strategies is by offering

them more MAS domestic flights which is not profitable to MAS. Other a

example ready success in applying this strategy is STAR Airline. An alliance

consists of five members. (Air Canada, Deutsche Lufthansa, Scandinavian Airline

System, Thai Airways International and United Airlines. Star Alliance has the

joint marketing agreement and they apply a joint marketing campaign during the

alliance.

6.0 CONCLUSION

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It is conclude that, in our assignment, we found Malaysia Airlines System

(MAS) is facing with many management problem especially in financial and

threat from their competitors. The main competitor for MAS is Air Asia. The

competitions are in term of their service, price, management, promotion and

others. MAS do many things to compete with Air Asia and their want to win in

this competition because of this Malaysia Airlines System plans five central

thrusts to compete with Air Asia. Have many cause or factor MAS facing in their

financial problem such as in term of fuel cost, operate on unprofitable route, staff

cost, aircraft maintenance, Widespread Asset Unbundling (WAU) charge &

leases, handling and landing fees, renovation of aircraft cabins, order fir six

Airbus A380 planes and sponsorship programme. To solve this problem MAS

take many action plan to become more competitive. To improve their

management, MAS also used turnaround strategies such withdraw from routes,

internal cost cutting: labor downsizing, fares increased and sale of assets.

Malaysia Airlines System also take five central trust plans to make effective

solution for their problem. The plan includes flying to win customers, mastering

operational excellence, financing and aligning the business on P&L, unleashing

talents and capabilities and winning coalitions.

BIBLIOGRAPHY

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David F.R. (2005).Strategic Management. New Jersey: Prentice Hall.

Haim Hilman Abdullah.(2006).Pengurusan Strategik. Sintok: Universiti Utara

Malaysia.

http://www.malaysia airlines com/my

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http://www.malaysia/

full assigment

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