malaysia airlines strategic management (case study)

THE MALAYSIA AIRLINES STORY

Strategic Management (MBC712) Prepared for Dr Azni Zarina Taha Valerie Hew Yook Ping BGA140008 Sharifah Khairin Syed Mohd Ali BGA140013 Zakiah Hanim Mohd Hamdan BGA140014 Ahmad Syamil Mohamad BGA140004

HISTORY OF MALAYSIA AIRLINES

1937 – Malayan Airways Limited (MAL) – a joint iniJaJve of Ocean Steamship of Singapore & Imperial Aireways & Colonial Straits SeRlement

1947 – 1st chatered flight from Singapore to Kuala Lumpur, using an twin-‐engined Airspeed Consul

1960 – 84-‐seat Bristol Bitannia, lauched the 1st long-‐haul internaJonal flight to HK.

1963 – Change of name from 'Malayan Airways' to 'Malaysian Airways', (sJll known as MAL)

1963 – MAL took Borneo Airways Limited

1966 – Change of name to Malaysia-‐Singapore Airlines (MSA) due to separaJon of Singapore from federaJon

1971 – MSA ceased operaJon

1972 – Malaysian Airline Systems (MAS) as incorporated

1980 – ImplementaJon of InformaJon Systems into operaJon management

1985 – MAS was privaJsed. MAS entered into coporate sector, listed on KL stock exchange.

1987 – Change of name to Malaysia Airlines

1991 – Awards received – Asian InsJtute of Management / World ExecuJve's Digest Management Award in the General Management category, TDC 1990 Tourism Gold Award

1990s – diversifica/on of opera/ons i.e. HR, training, catering, property consultancy, technical ground support for the aircra>s (need to check)

1992 – Awarded its 4th Boeing award to B737 fleet for its reliability

1993 – MAS was first in SEA which served South America with its Boeing 747 aircrad

1994 to 1998 – MAS flew to Mexico City & had 5-‐freedom right to carry passengers between Mexico City and LA.

1997 – MAS suffered losses prior to Asian financial crisis

2001 – Awarded by Skytrax UK – World's Best Cabin Crew

2002 to 2004 – profit, peak of the business

2005 – Awarded a 5-‐star airline

2005 – Downturn of MAS

2006 – CEO introduced a 3-‐year Business Turnaround Plan

2007 – Profit of RM 853 million

2009 – 15 new Airbus A330 purchased – 10 opJons

2011 – Loss of RM2.52 billion due to fuel costs and mismanagement

2014 – Missing of Boeing 777 aircrad – MH370 & MH17

2015 – New CEO restructuring the firm – in progress

BACKGROUND

BACKGROUND OF MALAYSIA AIRLINES

The airline began as Malayan Airways Limited and flew its first commercial flight in 1947. A few years ader Singapore's independence, the airline's assets were divided in 1972 to form Singaporean flag carrier Singapore Airlines and Malaysian flag carrier Malaysian Airline System.

Despite numerous awards from aviaJon industry and recogniJon from the World Travel Awards as the leading airline in and to Asia (2010–11, 2013,2015) the airline struggled to cut costs to compete with new, low-‐cost carriers in the region since the early 2000s. In 2013, the airline iniJated a turnaround plan ader large losses beginning in 2011 and cut routes to prominent, but unprofitable, long-‐haul desJnaJons, such as the Americas (Los Angeles and Buenos Aires) and South Africa. Malaysia Airlines also began an internal restructuring and intended to sell units such as engineering and pilot training.

In 2014, Malaysia Airlines lost two aircrad—Flight 370 and Flight 17—less than five months apart with a combined 537 people killed, exacerbaJng the airline's financial troubles and leading to the renaJonalizaJon of the airline. Prior to 2014, MAS had one of the world's best safety records—just two fatal accidents in 68 years of operaJon,

including the hijacking in 1977 of Flight 653 that resulted in 100 casualJes.

An economic boom in Malaysia during the 1980s spurred growth at Malaysia Airlines. By the end of the decade MAS was flying to 47 overseas desJnaJons, including eight European desJnaJons, seven Oceania desJnaJons, and United States desJnaJons of Los Angeles and Honolulu. The airline then suffered three-‐cycle of unprofitability starJng with the Financial Crisis in 1997 and they had several business turnaround plan. To date, ader filing on a bankfruptcy and bailed-‐out by Khazanah Nasional (the biggest shareholder), they slowly building up the company as Malaysia Airlines Berhad (MAB).

BACKGROUND OF MALAYSIA AIRLINES

MAS Financial Crisis and series of event

Prior 97 : Asian Financial Crisis, loss RM 260M.

03/04 : Profit RM 461M

00/01: Loss RM 417M

01/02 : Loss RM 836M

96/97 : Profit RM333 M

98/99 : Loss RM700 M

99/00 : Loss RM259 M

2005 : Loss RM 1.3B

cost increases included staff costs, handling and landing fees, aircrad maintenance and overhaul charges. Low yield per available seat kilo (ASK) because poor management and inefficient route network

06/07: Profit RM 853M

2011 : Loss RM 2.52B

2014 : Loss RM 443.4M MH 370 & MH17

2014 : Declared bankrupt

MAS Financial Crisis and series of event

Dec 2014 : Appointment of Christoph Mueller as CEO

Nov 2014 : Khazanah Nasional created a new company known as NewCo, to control the airline group.

Sept 2014 : Centre for AviaJon (CAPA) analysed on planned job cuts, which are aimed at improving producJvity and closing the gap with the group’s Asian compeJtors. CAPA also examined the expected reducJon of long-‐haul capacity as the recovery plan outlines a focus on regional operaJons within Asia-‐Pacific while relying on partnerships to cover other markets.

FLEET AGE LIST

PESTLE ANALYSIS

PESTLE ANALYSIS

PoliWcal/Legal

•  Ownership & effecJve regulaJons •  Open skies agreement with the US in 1997 •  Government enforcement on unprofitable routes •  Government focus in developing tourism & hospitality industry – turning

KLIA into a regional air hub – improve connecJng transportaJon from city to airport (ERL)

•  Bilateral air rights agreement increases landing & navigaJon chargers •  ImplementaJon of government official rates & discounts

Economic (local to

worldwide)

•  Increasing fuel prices (bunker cost) eg: in 2008 •  Global financial crisis in 2008 •  Large populaJon in Asia and rapid growth of air travels in the region •  Investment in improved airport infrastructure •  Increasing number of low cost airlines

PESTLE ANALYSIS

Society

•  Passengers are looking into cheaper flights and compromising on food and frills

•  ARract mostly high cost and premium travellers •  Access to alternaJve choices like low cost carriers •  Increased working populaJon and disposable income

Technology

•  IntroducJon of e-‐commerce for online Jcket purchasing •  Online check in services& e-‐kiosks •  IntroducJon of social media/networks and mobile applicaJon •  IntroducJon of onboard infotainment system

Environment

•  Global pandemic disease -‐ H1N1 •  Rise of terrorism in parJcular ader 911

PORTER’S 5 FORCES FRAMEWORK

PORTER’S 5 FORCES FRAMEWORK 1)  CompeWtors •  Airline Local players – Air Asia, Fireflyz & Malindo •  Airline internaJonal – Singapore, Cathay Pacific, EJhad, Emirates, Sri Lankan Airlines, Biman Airways, BriJsh Airlines, Garuda, •  Other low cost players – Tiger Airways, Jet Star, Virgin Blue, Compass, Cebu Pacific, Impulse 1)  Supplier Power •  Airline industry is monopolized by two air crad manufacturers – Boeing & Airbus •  Increasing fuel prices – high supply power •  Ageing fleet – increase orders for new air crad & increase use of fuel •  Sell off used fleet reduces new sale by Airbus •  25 years contract with one food caterer -‐ Brahim

1)  Bargaining Power •  High cost premium travellers •  Mostly Malaysians •  No switching cost imposed •  Frequent flyer programme create customer loyalty – Erich Miles •  Online travel sites provide mulJple choices – affordability, locaJon, service provider preference, cost

1)  PotenWal New Entrants •  High barrier to enter and exit the business •  License to operate is high •  No economy of scale •  Di-‐regulaJon has reduced the entrance into airline industry

1)  SubsWtute •  Rail transportaJon local and internaJonal •  On road transportaJon •  Online – web and video conferencing

CompeWtors (local)

PORTER’S 5 FORCES FRAMEWORK 1)  CompeWtors •  Airline Local players – Air Asia, Fireflyz & Malindo •  Airline internaJonal – Singapore, Cathay Pacific, EJhad, Emirates, Sri Lankan Airlines, Biman Airways, BriJsh Airlines, Garuda, •  Other low cost players – Tiger Airways, Jet Star, Virgin Blue, Compass, Cebu Pacific, Impulse 1)  Supplier Power •  Airline industry is monopolized by two air crad manufacturers – Boeing & Airbus •  Increasing fuel prices – high supply power •  Ageing fleet – increase orders for new air crad & increase use of fuel •  Sell off used fleet reduces new sale by Airbus •  25 years contract with one food caterer -‐ Brahim

1)  Bargaining Power •  High cost premium travellers •  Mostly Malaysians •  No switching cost imposed •  Frequent flyer programme create customer loyalty – Erich Miles •  Online travel sites provide mulJple choices – affordability, locaJon, service provider preference, cost



CompeWtors (InternaJonal)

•  The worlds top 10 airlines •  MAS is listed as 18 best airline


CompeWtors (world’s low

cost)

Supplier Power


•  25 years contract with one food caterer

•  Airline industry is monopolized by two air crad manufacturers

•  Increasing fuel prices – high supply power

•  Ageing fleet – increase orders for new air crad & increase use of fuel

•  Sell off used fleet reduces new sale by Airbus



Bargaining Power


•  High cost premium travellers

•  Mostly Malaysians

•  No switching cost imposed

•  Frequent flyer programme – Erich Miles

•  Online travel sites provide mulJple choices – affordability, locaJon, service provider preference, cost


PotenWal New

Entrants


•  High barrier to enter and exit the business

•  License to operate is high

•  No economy of scale

•  Di-‐regulaJon has reduced the entrance into airline industry

SubsWtute


•  Rail transportaJon local and internaJonal

•  On road transportaJon

•  Online – web and video conferencing

AddiWonal •  Longer lay overs •  Crew shuRle services •  Strong Union

VALUABLE, RARE, INIMITABLE, NON-‐SUBSTITUTE (VRIN)

No Items V R I N

1 •  Established and strong brand name -‐ MAS •  Associated with tagline Malaysian Hospitality Phase II •  Renamed to Malaysia Airlines Berhad (MAB)

O O O

O O O

O O O

O O O

S S S

2 Human Resource •  World recognised and well trained crew •  Crew and service represent Malaysian Hospitality (MH) internaJonally

Phase II •  New CEO & Key Management with Airline & Hospitality experience •  Rightsizing workforce to match operaJonal requirements (14,000 offered/6,000 exiJng) •  Promote business ethics and integrate high ethical standards as the company’s cultural system •  Enforce Conflict of Interest Avoidance •  Encourage whistle blowing /open door policy

O O O O O O O

X O X X X X X

X O X X X X X

O O O O O O O

N S N N N N N

3 Asset •  5 types of air crad (Airbus A330, Airbus A380, Boeing 737, Boeing 747, Boeing 777) •  Ageing fleet of average 5.1 years (13 units of Boeing 777 aged 15.6 years) •  Entered into lease agreements for 4 new Airbus A350s with Air Lease CorporaJon (2 x A350-‐900 &

2 x A330-‐900 neo aircrad) •  In 2015 – offer sale or lease of six Airbus A380, 2 Boeing 747, four Airbus A330 & four Boeing 777

– may cease MAS Cargo operaJons •  14 orders Boeing 737 placed and 10 opJons unJl market improve •  Marketable MAS Airbus A380 is 12 years younger and more than Singapore & Emirates Airlines

O O O O O O

X X X X X X

X O X X X O

O O X X O O

N S N W N S


•  O = Yes / X = No

No Items V R I N

4 FaciliWes •  Introduced self-‐service kiosk •  Online Jmetable for real Jme flight informaJon •  Dedicated premium check in lanes

O O O

X X X

X X X

X O X

W S W

5 Financial •  Embark on a route profitability project & revenue enhancement project •  Diversified revenue stream – established global presence in Europe, Middle East, America, Australia

& Asia

O O

O O

O O

O X

S S

6 Services •  Flies direct over 60 desJnaJons worldwide, over 30 countries •  A part of One World Alliance •  Enter into code-‐sharing with Cathay, Qantas, Japan Airlines to enhance air connecJvity •  Enrich loyalty programme with major hotels – earn 3x Enrich Miles •  Intro six feeder flights from Kelantan to KL for Haj •  Collaborate with Tourism Australia for first redempJon programme focusing on Australian market

– Enrich Hearts Australian •  Launched inaugural redempJon campaign (30-‐50% discounts) for Greater China – Wo Ai Ni •  Provide 5 star special charter services •  Special services for infants •  Offer special meals – muslim, vegetarian, koscher, baby meal, health related meals •  Provide faciliJes and special services for physically challenged & disabled people

O O O O X O O O O O O

X X X O O O O O X O X

X X X X X X X O X O X

X O O O X X X O O O O

W N N S W N N S N S N


•  O = Yes / X = No

SWOT ANALYSIS

STRENGTH

•  Strong brand image (well-‐known airlines across the world). •  Strong backing from Malaysian Government. Ader filing the bankruptcy, Malaysia Airlines was bailed out

by Khazanah Nasional and rebuilt as Malaysia Airlines Berhad (MAB). •  Strong workforce with more than 20,000 employees •  Best cabin crew •  Cover more than 60 routes internaJonally and domesJcally with the fleet size of 97 aircrads. •  Won a lot of presJgious awards and have a broad network of desJnaJon. •  Offer high quality services to their customers. •  Offer mulJple range of meal during the flight.

WEAKNESS

•  High operaJng cost such as the landing cost and airport tax. •  War price with Air Asia as they are dominaJng the low-‐ cost carrier market. •  Change of business model very frequently •  Relying heavily on the internaJonal routes and plenty of those routes are not revenue-‐making and do not

have high demand from customers. •  Limited market growth domesJcally, especially ader Air Asia entered the market. •  Weak financial status especially ader having a loss of about RM 1.3 Billions in 2005. •  MAS suffered trust issue ader the crisis of MH 370 and MH 17 •  Senior Management with no Airline experience. •  Strong employee union prevenJng change.

OPPORTUNITY

•  The launch of Firefly – to compete in the low-‐cost carrier market. •  Expand their services in the Asia Pacific region as there is a trend of increasing traveler from China and

Japan. •  Increase their cargo services. •  Increase more internaJonal routes to highly demand desJnaJon. •  Rejuvenated fleet. •  Improved entertainment onboard.

THREAT

•  Have no control on the highly fluctuaJng fuel price. •  The fast emergence of low cost airlines. •  Highly intense compeJJon with other airlines in the region such as Singapore InternaJonal Airways,

Cathay Pacific Airways and Garuda Indonesia Airways. •  CompeJng with other well-‐known airlines company such as Emirates and EJhad Airways. •  Changing government policies and regulaJon of regulatory bodies. •  Terrorism and poliJcal unrest.

In September 2015, Malaysia Airlines, welcome the start of its new company Malaysia Airlines Berhad (MAB). The main objecWve of the restructuring is to enhance the inflight experience of their customers and embodying the reason for people to travel with MAB. Right ader the announcement, MAB recorded 89.8% on-‐Jme performance. One of their vision and new business strategy is to stabilise its operaJons and to ensure perfect on-‐Jme performance. MAB also introduced a refreshed Senior Management line-‐up that will focus on improving revenue efficiency and network design for MAB.

MALAYSIA AIRLINES NEW BEGINNINGS

MOVING FORWARD PLAN

MAB changing the business model : The development of a business model is on track and will change the following : -‐  Flying network that is regionally focused. -‐  Focus on routes where MAB can win by rebuilding its KUL hub -‐  Review incremental and fleet replacement for 2017 and beyond -‐  Products and services offering befiung targeted customer segments. -‐  Look into major cost reducJon based on industry benchmarked -‐  Apply transformaJon iniJaJves by NewCo -‐  Structural cost reducJon

COMPETITIVE STRATEGY

Lower Cost

Overall Low-‐cost Provider Strategy

Broad DifferenWaWon Strategy •  Brand also known as the Malaysian

Hospitality (MH) •  Acknowledged to have the World’s Best

Cabin Crew •  OperaJons excellence – Skytrax Award

for passengers choice •  Provide 5 star special charter services •  Customised meals MH Gourmet •  Malaysian Airlines Golden Lounge •  Enrich miles programmes and

partnerships with major hotel chains

Focused Low-‐Cost Strategy

Focused DifferenWaWon Strategy

MALAYSIA AIRLINES GENERIC COMPETITIVE STRATEGIES

DifferenWaWon

Broad cross secWon of buyers

Narrow buyer segment (or Market Niche)

Low

GlobalisaWon Strategy •  Treats world as a single global market •  Standardises global products/adverJsing

strategies

TransnaWonal Strategy •  Balance global efficiencies and local

responsiveness •  Combines standardisaJon and

customisaJon for product/adverJsing

•  DomesJcally focused •  Exports a few domesJcally produced

products to selected countries InternaWonal Strategy

•  Handles market independently for each

country •  Adapts products/adverJsing to local

tastes and needs

MulW-‐DomesWc Strategy

MALAYSIA AIRLINES GENERIC COMPETITIVE STRATEGIES

High

High

Low

Modern Global

Need for Local Responsiveness

Need for G

loba

l IntegraWo

n

MALAYSIA AIRLINES POINTS OF PARITY & DIFFERENTIATION Category Point of Parity Points of DifferenWaWon

Service Offerings Experience and skillful pilots. High demand in market.

Provide mulJple range of seat class such as economy, business & first class. This is to accommodate the different needs & types of customers.

Crew Provide onboard services. Provide highly trained crew and best quality service.

Food & Beverage Offers selecJon of meals that does not specifically cater to special dietary needs.

Can cater to various customer dietary requirements for all types of classes.

In-‐fight entertainment Provide infotainment for customers.

Hubs MAS is the only airline that has 3 airport hubs.

Average fleet age On average age of fleet is 5.1 years. One of the youngest in comparison to other airlines.

Branding Other airlines focus on service and not specifically aRached to a culture.

Well known for Malaysian Hospitality.

MALAYSIA AIRLINES POINTS OF PARITY & DIFFERENTIATION

Current •  MAS main compeJtors focuses on service efficiency and comfort with emphasis on ensuring that the

passengers will reach their desJnaJon. •  MAS has always focused on their best crew services & frills and downplayed on service efficiency. They

always focus on customer experiencing the Malaysian Hospitality in line with Malaysia’s Tourism tagline – Malaysia Truly Asia.

Propose •  MAS should focus more on their service reliability and greater flight experience– eg: Well trained & skillful,

world sought pilots. •  DifferenJaJon focus should be more on only selected classes like Business & First Class services. •  Focus on revamping their routes to only profitable locaJons and reduce government influence.

REFERENCES

•  hRp://www.worldairlineawards.com/Awards/worlds_best_lowcost_airlines.html •  hRp://www.cargoforwarder.eu/2015/05/03/final-‐curtain-‐for-‐maskargo/ •  hRp://www.worldairlineawards.com/awards/world_airline_raJng.html •  hRp://leehamnews.com/2015/04/30/malaysia-‐air-‐fleet-‐restructuring/ •  hRp://www.malaysiaairlines.com/my/en/corporate-‐info/press-‐room/2015/

rightsizing_workforce_mab.html

•  hRp://www.nydailynews.com/news/world/malaysia-‐airlines-‐selling-‐fleet-‐airbuses-‐jets-‐arJcle-‐1.2205379 •  hRp://www.themalaysianinsider.com/malaysia/arJcle/mas-‐sells-‐enJre-‐airbus-‐fleet-‐in-‐move-‐to-‐manage-‐

losses •  hRp://www.airfleets.net/agefloRe/Malaysia%20Airlines.html •  hRp://www.freemalaysiatoday.com/category/naJon/2015/05/04/sale-‐of-‐airline-‐fleet-‐too-‐premature-‐

mas-‐ceo/ •  hRp://www.airfleets.net/agefloRe/Malaysia%20Airlines.htm

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