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

1.6 NAME OF DIRECTOR

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• 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

Independent and Non-Executive Director

• Dato’ Mohamed Azman bin Yahya

Non-Independent and Non-Executive Director

• Datuk Amar Haji Abdul Aziz bin Haji Husain

Independent and Non-Executive Director

• Dato’ Sri Izzuddin bin Dali

Non-Independent and Non-Executive Director

• Dato’ Mohd. Annuar bin Zaini

Independent and Non-Executive Director

• Dato’ Zaharaah binti Shaari

Non-Independent and Non-Executive Direct

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2.0 FINANCIAL ANALYSIS

RATIO FORMULA 2005* 2005 2004 2003 2002

LIQUIDITY RATIOS
Current Ratio Current asset 3,464 4,528 4,224 3,263 2,309
Current liabilities 4,293 3,946 3,578 3,089 8,360
= 0.81 =1.15 =1.18 =1.06 =0.28
times times times times times
Quick Ratio Current asset – inventory 3,464 – 455 4,528 – 446 4,224 – 369 3,263 – 362 2,309 – 352
Current liabilities 4,293 3,946 3,578 3,089 8,360
= 0.70 times =1.03 times =1.08 times =0.94 times =0.23 times
LEVERAGE RATIOS
Debt-to-Total- Total debt 0X100 0X100 0X100 0X100 8968X100
Assets Ratio Total assets 6330 7276 6616 5718 14620
=0 =0 =0 =0 =61.34%
Debt-to Equity Total debt 0 0 0 0 8968
Total stockholders' equity 2023 3319 3024 2615 1215
=0 =0 =0 =0 =7.38
Long Term Long-term debt 0 0 0 0 4680
Debt-to-Equity Total stockholders' equity 2023 3319 3024 2615 1215
Ratio =0 =0 =0 =0 =3.85
ACTIVITY RATIOS
Inventory Sales 8851 10951 8588 8675 8378
Turnover Inventory of finished 455 446 369 362 352
goods =19.45 =24.55 =23.27 =23.96 =23.80
Fixed Assets Sales 8851 10951 8588 8675 8378
Turnover Net fixed assets 2224 2054 1662 1819 12044
=3.98 =5.33 =5.17 =4.77 =0.70
Total Assets Sales 8851 10951 8588 8675 8378
Turnover Total assets 6330 7276 6616 5718 14620
=1.40 =1.51 =1.30 =1.52 =0.57
Accounts Annual credit sales 8851 10951 8588 8675 8378
Receivable Accounts receivable 1830 1888 1664 1968 1540
Turnover =4.84 =5.80 =5.16 =4.41 =5.44

Average Accounts receivable 1830 1888 1664 1968 1540

Collection Total credit sales/365 8,851/365 10,951/365 8,588/365 8,675/365 8,378/365
Period days =76days =63days =71days =83days =67days

PROFITABILITY RATIOS
Gross profit Sales - cost of goods sold 8851 - 10951 - 8,588 - 8,675 - 8,378 -
Margin Sales 10,329X100 11,047X100 8,585X100 8,722X100 9,155X100
8851 10951 8588 8675 8378
=-16.70% =-0.88% =0.03% =-0.54% =-9.27%
Operating Profit Earnings before interest -1241X100 365 X100 351 X100 484 X100 -432 X100
Margin and taxes (EBIT) 8851 10951 8588 8675 8378
Sales =-14.02% =3.33% =4.09% =5.58% =-5.15%

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RATIO FORMULA 2005* 2005 2004 2003 2002

PROFITABILITY RATIOS
Net Profit Margin Net income -1265 X100 326 X100 461 X100 339 X100 -836 X100
Sales 8851 10951 8588 8675 8378
=14.29% =2.98% =5.37% =3.91% =-9.98%
Return on Total Net income -1265 X100 326 X100 461 X100 339 X100 -836 X100
Assets Total assets 6330 7276 6616 5718 14620
=-19.98% =4.48% =6.97% =5.93% =-5.72%
Return on Net income -1265 X100 326X100 461X100 339X100 -836X100
Stockholders’ Equity Total Stockholders' 2023 3319 3024 2615 1215
(ROE) Equity =-62.53% =9.82% =15.24% =12.96% =68.81%
Earnings Per Share Net income -1265 326 461 339 -836
(EPS) Number of shares of 1253 1253 1253 900 800
common stock =-1.009 =0.2602 =0.3679 =0.3767 =-1.045
outstanding
Price-Earnings Market price per share 2.84 3.8 5.5 3.32 3.72
Earnings per share -1.009 0.2602 0.3679 0.3767 -1.045
=-2.81 =14.60 =14.95 =8.81 =-3.56
Growth Ending value - 2.84 - 3.80 3.80 - 5.50 5.50 -3.32 3.32 -3.72 3.72 - 3.42
Beginning value 3.8 5.5 3.32 3.72 3.42
Beginning value =-0.25 =-0.31 =0.66 =-0.11 =0.09

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

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

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3.0 INDUSTRY PROFILE

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.

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3.3 Power of the Supplier

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.

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3.6 Prospects

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.

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4.0 STRATEGY ANALYSIS

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

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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.
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

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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
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.

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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
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

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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
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

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

able to survive in the new world.

• 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

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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
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

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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
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.

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• MAS Expects Revenue Growth from Charter Flight Services

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

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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
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

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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
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.

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4.2 IFAS ANALYSIS

Internal Factor Analysis Summary Table

Internal Factors Weight Rating Weighted Comments

Score
1 2 3 4 5
Strengths:
• World class image 0.15 5 0.75 Provide best service
• Experienced operation
management 0.05 4 0.20 Staff are trained well
• Good facilities 0.05 4 0.20 Airport and International
• Government subsidize arrival, service
(GLC’s)
• Assets 0.20 3 0.60 Support by Government
0.05 4 0.20

Weaknesses:
• Cultural differences 0.05 1 0.05 Different class and
different taste
• Resources 0.10 2 0.20 Unprofitable resources
• Global positioning 0.10 2 0.20
• Financial management 0.15 2 0.30
• R & D process 0.05 1 0.05
• Administrative
0.05 2 0.10
management
1.00 0.00 2.85

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4.3 EFAS ANALYSIS

Eternal Factors Weight Rating Weighted Comments

Score
1 2 3 4 5
Opportunities:
• Fly low cost commercial
flight 0.10 3.0 0.300 Opportunity in low cost
commercial flight
• Partnership 0.15 4.5 0.675 Co-sharing with Air Asia
• Market expansion 0.05 4.0 0.200 Buying airbus
• Government 0.05 3.0 0.150 GLC
• MAS cargo management 0.05 2.0 0.100
0.10 1.5 0.150 Technology improvement
• Internet availability

Threats:
• Other Asian Airlines 0.15 5.0 0.750 Air Asia
• Government regulations 0.10 4.0 0.400 Interior by government
• Increasing of oil price 0.05 4.5 0.225 Fuel
• Increasing burden of debt 0.15 2.0 0.300 Facilities and
accommodation
• Terrorism 0.05 1.2 0.060 11th September-effect
Islamic country

1.00 0.00 3.310

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4.4 TOWS ANALYSIS

Strengths (s) Weaknesses (W)

S1 World class image W1 Cultural differences
Internal S2 Experienced operation W2 Resources
Factors management W3 Focus global market
S3 Good facilities only
External S4 Government subsidize W4 Financial management
Factors (GLC’s) W5 R & D process
W6 Administrative
management

Opportunities (O) SO strategies WO strategies

O1 Fly low cost • Market development • Joint venture
commercial flight (O1,O2,O3,S1) (W1,W3,O2,O3)
O2 Partnership • Strategic alliances • R & D strategy
O3 Market expansion (O4,O5,S3,S4) (W2,W5,W6,O5,O6)
O4 Government
O5 Mas cargo Management
O6 Internet availability
Threats (T) ST strategies WT strategies
T1 Other Asian Airlines • Joint venture • Financial strategies
T2 Government regulations (S1,S2,T1,T2) (W2,W4,T3,T4)
T3 Increasing of fuel prices • Speed based strategy • Low cost strategies
T4 Increasing burden of (S3,S4,T2,T5) (W4,W5,T3,T4)
debt
T5 Terrorism

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4.4.1 SO STRATEGIES

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.

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4.4.3 ST STRATEGIES

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.

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5.0 RECOMMENDATION

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

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

control to build the excellent management system.

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

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

company can ensure spare parts are always availability.

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

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

the marketing strategy such as sharing the promotions strategy.

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.

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6.0 CONCLUSION

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.

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BIBLIOGRAPHY

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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