CASE STUDY MAS AIRLINES (GROUP 6)

1. INTRODUCTION
The aim and purpose of this report is to examine the strategic
management process to organization which is in airline industry. The
strategic management process will be more emphasize in this report
where its importance in the organization play an important factor in order
the organization to grow and expand. Malaysia Airline System (MAS) has
been chosen as an organization for this report. The background section
will explain the history of the organization itself since the year it start its
services. After that, a strategic analysis of the Malaysian Airline will be
explained more which includes general environment, internal environment
and competitive environment.
The tools that will be used in this analysis report are SWOT Analysis, Tows
Matrix, BCG Matrix, Pestle Analysis, Porters Five Forces and Strategic
Map. From the result, we will propose the recommendation and the
conclusion at the end of this report.
2. BACKGROUND
The airline began as Malayan Airways Limited and flew its first
commercial flight in 1947. A few years after 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.
However, MAS used brand logo Wau Bulan, a traditional Malaysian kite
design since the beginning of their operation.
Despite numerous awards from aviation industry, such as the five-star
rating from Skytrax (2005-7, 2009, 201213; one of just seven airlines in
the world with this rating in 2013 and recognition from the World Travel
Awards as the leading airline in and to Asia (201011, 2013), the airline
struggled to cut costs to compete with new, low-cost carriers in the region
since the early 2000s. In 2013, the airline initiated a turnaround plan after
large losses beginning in 2011 due to increase of oil prices and high
operating cost whereby cutting the routes to prominent, but unprofitable,
long-haul destinations, such as the America (Los Angeles & Buenos Aires)
and South Africa. Malaysia Airlines also began an internal restructuring
and intended to sell units such as engineering and pilot training.

However in 2014, the situation getting worst when Malaysia Airline

System (MAS) lost two aircraft (Flight MH307 and MH17) in 131 days with
a combined casualties of 537 passengers exacerbating the airlines
financial troubles and leading to renationalization of the airline.
3. FINDINGS

Malaysia Airlines struggling for survival where it has lost money around
$1.3billion for the past 3 years. Many expert question that is MAS still
capable to restore its reputation as it was rank 14 th superior sky services
by 2013 Skytrax Global Airline Rankings. However due to recent airline
tragedy whereby MAS has lost its two jumbo jets within few months. Thus
MAS now is connected with aviation tragedy in the public eyes. Hence it
will be a long battle for MAS airline to restore its image.

As a result, government was considering a name change for the airline

with others effort to boost up the airline images. Some airline has been
successful transforming their reputation after fatal crashes. For instance
the incident of planes by ValuJet crashed in Everglades. After the crash
the image gone down to negative and one year later the company
merged with AirTran Airways and remove the name of ValuJet which has
been a successful and in 2010 it was acquired by Southwest Airlines.

Although there has been successful cases in transforming the reputation,

crisis management expert Eric Dezenhall mention that MAS should do
more than just changing an new name and launch some campaign.
Dezenhall mentioned that MAS should focus more on the way to
communicating the policy changes of the company that will make their
passengers safer. The combination of time, policy changes and
substantial reassurances are more likely to yield results, he said. You
cant fool people who dont want to be fooled. Youre dealing with life and
death issues. This was further support by David Hedley Noble, CEO of
airline branding company Aerobrand. As MAS is a national carrier with
long history since 1947.

4. ANALYSIS
4.1.

SWOT ANALYSIS

STRENGTH
Strong brand image
Personnel
Fleet
Financials
Manpower

WEAKNESS
Low Margins
Personnel
Financial
Management

OPPORTUNITY
Low Cost Opportunity
Launch of Firefly
Expanding passenger traffic
Increasing Cargo Traffic
Improved Fleets
Medical Tourism

THREAT
Economy
Competitors
Intense Competition
Technology
Foreign Currency Fluctuation
Issues in Airlines Industry

4.1.1.
Strength
i. Highly recognizable brand name established a strong brand
image domestically as well as internationally. MAS Airlines has
built a strong name for themselves in the aviation industry.
ii.
Cabin crews of Malaysia Airlines as representative of Malaysia
hospitality and friendliness. In a way to transform their business
plan Malaysia Airlines have come out with the new branding
strategy slogan which is MH is Malaysia Hospitality. It is to
highlight the hospitality of its cabin crew instead of the airlines
extensive network and its premium cabin and economy class
cabin products.
iii.
The fleet of Malaysia Airlines consists of five types of aircraft:
the Boeing 777-200ER, the Boeing 737-400 and -800, Boeing
747-400F, the Airbus A330-300 and Airbus A380-800. Malaysia
Airlines moving forward and competing for dominance in the
Asian region.
iv.
The Government and Khazanah Nasional Berhad currently
supporting financial distress or any other difficulties faced by
MAS Airlines.
4.1.2.

Weakness

i.

ii.

iii.

iv.

MAS has a strong revenue growth, its operating margins are well
below industry average. These effects the airlines growth plans
and puts it at a competitive disadvantage.
The Management team has set their objectives clearly and has
the best strategies to obtain their objectives but at the same
time, a portion of their employees did not know exactly how to
implement the strategies effectively.
MAS announced net losses of RM576.11mil in the third quarter
ended Sept 30, 2014, widening from the net losses of
RM375.44mil a year ago. This was after accounting for
depreciation, amortization and impairment of RM218.4mil (2013:
RM238.4mil), unrealized foreign exchange loss of RM42.2mil
(2013: RM86.1mil loss), finance costs of RM123.8mil (2013:
RM121.2mil) and fair value change of derivative of RM18.1mil
loss (2013: RM4.7mil gain).
MAS has suffered losses due to inefficient and incompetence of
management. Poor revenue management and expansion
decision lead to the negative return of the business. This gives
bad impression to the carrier.

4.1.3.
Opportunity
i. Malaysia Airlines are promoting cheaper air fares that travel on a
certain date to various destinations. Customers now can log on
to the Malaysia Airlines website and search for potential low
fares and purchase it directly online.
ii.
Malaysia Airlines has introduced its own low cost subsidiary
called Firefly to reduce the impact on its domestic and South
East Asia market. Firefly was able to break in the market by
introducing its own brand of marketing and low cost packages to
compete head on with Air Asia which has helped Malaysia
Airlines to slowly regain its domestic and SEA customers.
iii.
Malaysia Airline has a strong occurrence in Asia. The company
covers several regional destinations and various destinations in
China, Japan, India and the Middle East where demand for travel
is high.
iv.
There has been a rise in cargo traffic in the South East Asian
countries. The rise in demand is driven by growth of export
related industries particularly agro-based products in Southeast
Asian countries. The group has a dedicated cargo carrying
subsidiary (MASkargo) and a wide global network in place.

v.

vi.

Therefore it is well poised to benefit from increasing demand for

air cargo services.
With the Malaysian governments effort in promoting Malaysia as
a medical tourism, Malaysia Airlines is currently promoting
medical packages for its customers.
Malaysia Airlines has acquired newer and fuel efficient aircrafts
such as the Airbus A380 and other Boeing aircrafts to compete
further with its rival.

4.1.4.
Threat
i.
The MH370 and MH17 twin tragedies have affected the MAS
Airlines industry. Besides the current economic downturn also
have its effects on the airline industry.
ii.
Intense rivalry from Thai Airways, Singapore Airlines and
emerging low carriers such as Air Asia and Jet Star. These
competitors were proven to be a major threat for Malaysia
Airlines.
iii.
Intense Competition - Malaysia Airlines having global scale of
operations faces intense competition from both domestic full
fare and low cost airlines. In the international competition front,
the group faced stiff competition from both established airlines
and new start-up operations.
iv.
Technology - Consumers satisfactions are the most important in
any airline company and it will be satisfied if that airline
commands better technology within its aircrafts and ground
operations.
v.
As an international airline, the group's revenue streams are
denominated in a number of foreign currencies resulting in
exposure to foreign exchange rate fluctuations. The use of
foreign currency borrowings and currency derivatives to hedge
future operating revenues is the group's strategy to manage the
risk of foreign fluctuations.
vi.
Malaysia Airlines have formal declarations of their codes of
ethics. Usually, this can be categorized under a series of topics
such as conflict of interest, asset protection and working
together. Conflict of interest refers to those scenarios where
employees or company representatives have to decide between
their interests to their employer or their personal, investment,
relationship obligations
4.2.

TOWS MATRIX

INTERNAL
FACTOR

1.

EXTERNAL
FACTOR

2.
3.
4.
5.

OPPORTUNITY
1. Low Cost
Opportunity
2. Launch of Firefly
3. Expanding passenger
traffic
4. Increasing Cargo
Traffic
5. Improved Fleets
6. Medical Tourism
THREAT
Economy
Competitors
Intense Competition
Technology
Foreign Currency
Fluctuation
6. Issues in Airlines
Industry
1.
2.
3.
4.
5.

4.3.

STRENGTH
Strong brand
image
Personnel
Fleet
Financials
Manpower

S1O1 Leverage on
strong brand to heavily
promote low cost flights
S1O6 Leverage on
strong brand to work
with health care
providers to promote
medical tourism

1.
2.
3.
4.

WEAKNESS
Low Margins
Personnel
Financial
Management

W1O1 Cut cost by

introducing low cost
flights, and improve
profit margin

S4T1 Leverage on
financial backup from
government in tough
economic situations

W1T5 Leverage on
weaker currency to
boost profit margin

S4T2 Leverage on
financial backup from
government to compete
with rival airlines

W4T2 Reduce threat of

competition by
improving companys
management

BCG MATRIX
Relative Market
Share
(Cash Generation)

High

Low

Market Growth

High

STAR

QUESTION
MARK

Rate

Low

CASH COW

DOG

The current position of MAS is that of a Question Mark i.e. the

company currently has low market share in a fast growing market. The
goal for MAS is to become profitable in this growing market i.e. to be a

Star. Since the demand and market growth in air travel is strong in the
Asian region, there is potential for MAS to achieve its goals. However,
they would need to invest substantial amount of capital to regain and
capture market share from its competitors.
4.4.

PESTLE ANALYSIS

4.4.1.

Political

i.

Government owned airline

ii.

International tension MH17 which involve with few countries

4.4.2.

Economy

i.

High Maintenance and operating cost

ii.

Fluctuation of fuel price

4.4.3.

Socio-cultural

i.

Recent accident of MH17 and MH370 cause concern on the

airlines safety

ii.

Changing demographics of travelers (travelers preferences)

4.4.4.

Technology

i.

Video conference as substitutes for business travels

ii.

Fast pace of advancement in technology

4.4.5.

Environment

i.

Concept of go green Green flying

4.4.6.

Corporate Social Responsibilities Legal

i.

Highly regulated industry

ii.

Struggling with lawsuit by relative of recent accident

4.5.

PORTERS FIVE FORCES

Porters 5 forces model is a framework to analyze level of competition

within an industry and business strategy development. Its capture key
element of industry of competition such as;
i.

Rivalry among existing competitors

- Local competitors are Air Asia, Malindo Airways, etc.
- International competitors- Singapore airlines, Garuda, Cathay
Pacific, Thai International Airways.
- Other Low cost Airlines- Compass, Tiger Airways, Cebu Pacific,
Jetstar Asia Airways, Impulse, Virgin blue Airlines.
- The number of competitors is very high and with the emergence
of low cost carrier and deregulation the internal competition has
increased and the only reason that reduces it is the low and
highly volatile profitability.

ii.

Bargaining Power of suppliers

- Fuel prices are ever increasing affecting the cost so the supplier
power is high.
- The Asian airline industry is very optimistic about the growth
potential of the Asian aviation industry so is placing huge aircraft
orders thereby increasing the bargaining power of the suppliers
again.
- The civil aircraft industry is monopolized by two major aircrafts
manufacturers.
- Large capital required so the leasing companies come into
picture.
- Highly specialized and professional employees are required to
maintain the status of five star carrier services.

iii.

The recent crisis in the overall airline industry has to some

extend lead to a reduction in the prices of the aircrafts.
Bargaining power of customers
- Local population (Malaysian)
- Southeast population- Indonesia, Thailand, Singapore, etc.
- There is no switching cost as the buyer can easily switch from
one airline to another so the power of the buyers increases.
- There is a very low product differentiation so to succeed
providing either services at very low cost or give a five star
experience so that customer pays the price for the superior
services offered.
- The availability of information is really high and with the
emergence of travel portals who guarantee that they can search
for the lowest fares out of all the options available and book it for
the client with just a click which even provides the ease of
purchase, the bargaining power of the buyer is increasing.
- Frequent flyer programme and online duty free purchase services
can create customer loyalty and reduce the threat of customer
switching over to other airlines to some extent.
- Low buyer concentration can also reduce the power of buyers.

iv.

Potential entrant
- Airline industry has a high barrier to entry and exit as once an
airline is operative then exist from the industry would amount to
huge amount of loss.
- Licensing is one of the major barriers for the industry.
- JV and partnership is the most recent trend in the industry which
has increased the threat to this industry.
- High unit cost makes the entry to the industry unattractive.
- There are no economies of scale and scope available.
- Deregulation has to some extend reduced the restriction to the
entry in the industry.
- Internet has again increased the new entrant possibility in the
industry.

v.

Threat of substitutes
- The surface transport can be substitute.
- With the advancement in technology for many things travelling
personally is not important as with the help of web conferencing
and services like online counselling the need for travel is
reduced.

4.6.

The customer can switch to modes which are reasonable in terms

of fare as air travel to some extend is expensive as compared to
other modes of travel.
The factor which alone reduces the attractiveness of the
substitutes in the minds of the travelers is the fastness and
reliability of air travel.
STRATEGY MAP

FINANCIAL
PERSPECTIVE

CUSTOMER
PERSPECTIVE

INTERNAL
PERSPECTIVE

Business
Process (SOP)

Management
Style Process

Customer
Relations
Management
Investor
protection

Khazanah
Transparenc
doing a
y
Fairness
talent
Compassion
assessment
Prioritizing
to identify
on the
new
leadership
employees
and top
managemen
t
Reskilling,
job creation
and
redeploymen
t
Determine improvement in performance target,

CREATING

STRATEGY MAP
To generate first profitable year in 3 year time
operations
To make MAS as image name, prominent in Airline
industry
To reduce the operation cost by reducing 30% of
manpower
Taking advantage of exchange rate
Optimize asset utilize with expenses
Hedging crisis
The quality and services offer
Handholding investor
improve beyond a positive attitude towards
experience
organization design and management

ALIGNMENT

LEARNING
AND GROWTH
PERSPECTIVE

job description, transformation and change

management
Alignment of the operational activities support
business model change
Developing staff holistically
Process excellence depend on having a motivated
workforce
Strong leadership, collaborative clear line sight
Process excellence require employee have access
to information system data and other tools.
Protection in system data

5. RECOMMENDATION
Based on the current circumstances, Khazanah Nasional Bhd have
identified few recovery plans for the MAS Airlines over four categories that
are governance and financial framework, reset the operating business
model, leadership and human capital, and regulatory and enabling
environment.
6. CONCLUSION
Taken together, these steps will support a specific timeline for the return
of MAS to sustained profitability.