Question 1.

a Conduct external environmental assessment using the five external forces to identify the five (5) major opportunities and five (5) threats for aviation industry in Malaysia.

Generally, external environmental assessment in Strategic Management perspective outlines five major external forces that impacts ones organization, they are: (1) economic forces; (2) social, cultural, demographic, and environmental forces; (3) political, governmental, and legal forces; (4) technological forces; and (5) competitive forces. In fact, external forces affect the types of products developed, the nature of positioning and market segmentation strategies, the type of services offered, and the choice of businesses to acquire or sell. In simple term, external forces affects almost everything that involve in the business from competitors, suppliers, distributors, creditors, customers, down to the employees, communities, managers, stockholders, labour unions, Governments, trade associations, special interest groups, products, and services. Therefore, these external forces are significant and can be used to identify the opportunities and threats in any business or the industry itself. First and foremost, it is obvious that the aviation industry in Malaysia had grown in a tremendously rate. Historically, Malaysia and Singapore (after Singapores separation from the federation) started to build a joint airline called MSA (Malaysia Singapore Airlines) however they ceased their operation due to certain circumstances which mainly because the differing needs of the two shareholders, they became Malaysia Airlines (MAS) and Singapore Airlines (SIA). After years later, Air Asia (AA) came into the game and took the opportunity to grab the low and middle income citizens of Malaysia, primarily, which result in MAS bleeding red ink. So, due to unknown benefits, MAS and Air Asia made an agreement to help each other out. For that reason, we can certainly identify the opportunities and threats of the Malaysian aviation industry today. In economic perspective, Malaysia is doing well in growing growth domestic product (GDP) and growth national product (GNP) with the encouragements from the Government to pursue the National Key Economic Areas (NKEA). As result, the aviation industry grows in parallel. Due to those circumstances, purchasing power should increase

meaning people will willingly spend for leisure travelling and in return the aviation gets the profit. However, there will always be a threat in gambling economic status as economy is volatile. War in the Middle East is rising and the major contributors to the global economy, United States and Europe are in debts causing the economy to suffer worldwide. Other than that, certainties of inflation might happen and interest rates will also rise resulting the aviation industry also to slowdown. But, in the presence of Air Asia (AA), a leading low cost carrier in Asia, people can still afford to travel. As we can see from the demographical side of Malaysia, majority citizens of Malaysia earn less than RM3,000 monthly will find it difficult to travel with premium airline such as MAS. Yet, from the whole perspective of Malaysian aviation industry, this is good. Either we are making green at least during economic downturn or we make nothing at all. Moreover, people mainly in Malaysia are always afraid of unknown safety/ security rumours. This can be a threat to airlines. For instance, the 9/11 was a big threat to the nation as well as globally. People were afraid to fly even it does not concerns Malaysia at all! Besides that, the spreading diseases such as SARS, H1N1 and others also can be a threat to aviation as statistic shows a major decrease in demand of air travel during this period of time. Thirdly, as Malaysian aviation industry is considered a middle-sized industry in Malaysia to be compared with palm oil and oil and gas, political as to Governmental forces play a key role in determining the future of it. The aviation industry will be capable of grabbing any opportunities that they have to gain even stronger by having Government support. The Government wanted to increase inbound tourist arrivals and stay in Malaysia so that they spend more. Due to that, they (Government) will supply any kind of support in terms of advertising, capital, legal rights and many more in order to ensure the growth of aviation industry. However, we should remember the basic rule of investment that is; investors will always wanted things in return. A major threat from these forces could be Government interference. It is widely clear that The Government is having control of MAS (because MASs parent company is Penerbangan Malaysia Berhad) and this is not good for business. We can see from

past events how the Government interferes with FAX which as result FAX did not make any gain as all government funds were used to cover expenses. Furthermore, constantly technological forces play significant function in this developing era. Large communities of the aviation market segments are keen for new aircraft to board into. As the increasing of speed of technology transfer and having the capabilities to retain such technology in Malaysian aviation industry, the airlines should invest more in new dominant but compelling aircrafts to attract more customers. Besides that, there are also other opportunities that the industry can provide such as; higher technology of baggage system, more effective security system, as well as check-in systems. Yet, threat such as economic inflation will affect the efforts to get hold of higher technology. Lastly, the competitive forces are the unavoidable forces. In any industry, competition will be present. The MAS was competing with other legacy carrier (premium airlines) before Air Asia came and interrupts their business. But to look into aviation perspective, legacy carrier should not compete with low cost carrier because it is neither rational nor reasonable. It is like having apples to taste like oranges which in any ways would not ever taste the same. Each serves their own market segment (MAS serves the elites/ high incomes, AA serves the middle incomes) and this should not be an issue as if MAS is bleeding red ink and search for something or someone to blame upon. In addition, as whole, competitive forces can be considered as opportunity or even a threat. In a way, if there was no competition at all meaning there will be slow improvements in the industry but AA did create threat which they took the opportunity amongst MAS and other carriers around the world, and this should be used efficient and effectively by MAS to gain competitive advantage over others not the low cost carriers.

Question 1.b Is the aviation industry in Malaysia considered attractive? Explain. I would modestly bold my statement as yes, the aviation industry in Malaysia is considered attractive. First of all, how it is not attractive as aviation industry in Malaysia based on International Air Transport Association (IATA) reported that average passenger load factor for the year 2011 was 78.4 per cent, which was a 2.7 percentage improvement from 2009; while a 5.2 percentage point improvement to 53.8 per cent was recorded on the freight load factor. This simply shows how attractive Malaysian aviation industry is. Next, we have our own legacy carrier (MAS) and also a successful low cost carrier (Air Asia) which serves for almost all attractive regions of the world and this creates rivalries amongst other nations aviation industry. Based on the Strategic Management Thirteenth Edition by Fred R. David, rivalry also increases when consumers can switch brands easily; when barriers to leaving the market are high; when fixed costs are high; when the product is perishable; when consumer demand is growing slowly or declines such that rivals have excess capacity and/or inventory; when the products being sold are commodities (not easily differentiated such as gasoline); when rival firms are diverse in strategies, origins, and culture; and when mergers and acquisitions are common in the industry. Other than that, both MAS and Air Asia has the latest technology and provide the customer with the latest aircraft such as Boeing 777 and Airbus A380 targeted to deliver completely in this short coming time. This will attract people to fly with MAS and Air Asia while enjoying the Malaysian Hospitality provided by MAS and also foreign travellers can taste the delicious Malaysian food such as satay, nasi lemak and others. Above and beyond, we can also consider the industry as attractive when the Government and the public are interested in taking part of the issues arise regarding the industry at present besides the political interests. Furthermore, the aviation industry in Malaysia has also won and accredited with international recognition and awards such as; World Travel Awards (WTA) 2011, Advertiser of the Year by Google Southeast Asia, Staff Service Excellence for Asia Award 2010, World's Best Economy Class Award 2010 by Skytrax, 2009 Asia Pacific Frost & Sullivan Airframe MRO Centre of the Year by Frost & Sullivan, Best Asian Low-Cost Carrier by TTG Travel Awards 2011 and

many more. These awards prove that Malaysian aviation industry is competitive enough to compete with other international aviation industry throughout the globe. Question 2.a Define and give an example for each of the two (2) diversification strategies that can be suggested to Air Asia for them to enhance their performance. Fundamentally, diversification strategy is defined by Strategies for Diversification Harvard Business Review Volume 35 Issue 5 as a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry that the business is already in. At the corporate level, it is generally very interesting entering a promising business outside of the scope of the existing business unit. For Air Asia particularly, I would personally suggest them to involve into music production. As everyone knows it, Tan Sri Anthony Francis Fernandes, CEO of Air Asia started his career from Virgin Records that is a music production company in the United States. Due to his vast experience in the music industry, he would possibly attract different customers from different market segment domestically and internationally. As the music industry is growing even bigger these days, it is an opportunity for Air Asia to crave their name in the industry. By having their own record label, they can get talented musicians to go under their label and make their name for themselves. Next, I would happy to suggest that Air Asia to pursue their academy as in education. They can diversify their education into an Air Asia way. The Air Asias Type Rating Training Organization (TRTO) located at the AirAsia Academy, Kuala Lumpur International Airport (KLIA) is to provide pilot training for all of Air Asias current and future pilots however they can also use their experience in managing the airline by introducing Air Asia Management School. This will increase the professionalism of their own student to be absorb into their company later on.

Question 2.b List and explain some guidelines as to when related diversification would be a particularly appropriate good strategy to be pursued by Air Asia. From th Six guidelines for when related diversification may be an effective strategy are as Follows: When an organization competes in a no-growth or a slow-growth industry. When adding new, but related, products would significantly enhance the sales of current products. When new, but related, products could be offered at highly competitive prices. When new, but related, products have seasonal sales levels that counterbalance an organizations existing peaks and valleys. When an organizations products are currently in the declining stage of the products life cycle. When an organization has a strong management team.