AIR WAR IN MALAYSIA:

Presented by:
Azlina Mohd Yusof (810277)
Khairil Liza Mohd Salleh (810286)
Marziana Maaris (810290)
Muhammad Hisham b. Salleh (810294)

10 November 2013

OUTLINE
1
3

Introduction

Mas Airline System (MAS)

Air Asia

Key Success Factors

5
3

Conclusion

INTRODUCTION

The future of the air transport industry is promising. Over

1.8 billion passengers travelled in 2004, with international
passenger and cargo expected to grow at an annual rate of
6% until 2008. But the road ahead is challenging as air
transport experiences its most difficult period. Following on
losses exceeding USD30 bilion since Sept 11, soaring fuel
prices will drive industry losses of at least another USD6
billion in 2005. For 2006, we expect to add another USD4.3
billion of red ink. With continuous cost reduction and
efficiency gains, we may see USD6 billion profit in 2007.

INDUSTRY BACKGROUND
Airline Market Phases

Airline Industry rapidly approaching highly unprofitable Phase 4

INDUSTRY BACKGROUND

The five main forces at work in the industry

There has been a slowing of global Revenue Passenger
Kilometre (RPK) growth;
An increase in pricing transparency is leading to
commoditization;
Factor costs particularly fuel have increased;
Low cost competition is on the rise;
The frequency and impact from global demand shocks is
increasing

AIRLINE BUSINESS MODEL

Note*: CCF Comprehensive Collaboration Framework between Malaysia

Airlines, Air Asia and Air Asia X as announced on 9 th August 2011

Low Cost, Short

haul
Strategy: The low

full service, longhaul

Strategy: Business

INDUSTRY ANALYSIS
The airline industry value chain - Inbound logistics (Yield & Pricing
Management, Fuel Management, Flight Scheduling), Operations
(ticketing, baggage handling, cargo management), Outbound logistics
(airport
communication,
flight
connection,
critical
incidents
management), Marketing and Sales (advertising, promotions frequent
flyers), and Service (CRM, Lost Baggage service, car rental & hotel
reservation) create values that exceeds the cost of providing the
services,
thus
a profit
margin
the
demand
forgenerating
airline services
will
continue to grow strongly over the
next two decades
a clear differentiation of product / services - an integral part in the
marketing strategy
economic downturn, peoples spending power has been eroded which
cause them to seek alternatives to reduce their cost of travelling
The impact of crisis such as September attack (2001) and SARS outbreak
(2003) was able to hit the airline industry badly and as such they continue
to pose serious threat to airlines.

Industry Benchmarking

AIRLINE BUSINESS
COMPANY
STRATEGY
BACKGROUND

Sources:
http://en.wikipedia.org/wiki/Malays

AIRLINE BUSINESS
VISION & MISSION
STRATEGY
Build on our recognised
personalised and sincere
Malaysian Hospitality'
service

To be the
Preferred
Premier
Carrier
Our Journey
towards
making this
Vision a
reality

Innovate to make travel

and doing business with
us hassle-free

CUSTOM
ER

Anticipate, consistently
deliver and exceed
customer expectations
Put our People first and
be the Employer of Choice
Sustainable value creation
for our shareholders

AIRLINE BUSINESS
PEST Analysis
STRATEGY
Political

Economics

1997 - Malaysia
signed an open-skies
agreement with the
United States.

Geographically
issues
Large population
Economics crisis

PEST
Social-Cultural
More people were
willing to compromise
on food and other
services in exchange
for lower ticket prices.

Technology
Technology
advancement (eg
online ticket)

AIRLINE BUSINESS
PORTERs Five Forces
STRATEGY
Analysis

No switching
cost
Availability of
information

Barrier in
obtaining the
license
No economies
of scale

Buyers
Power

Suppliers
Power

Industry
competitors
Potential
Entrants

Customer switch to
reasonable fares of
travelling mode.
The need for travel is
reduced with the technology
advancement.

Fuel cost increase

Monopoly by 2
major aircrafts
manufacturer

Local competitors (Air

Asia, Firefly)
International
Competitors
(SIA,GARUDA, THAI
Airways)
Other low cost airlines
(TIGER, Impulse,
JetStar etc)

The substitute

AIRLINE BUSINESS
S W O T Analysis
STRATEGY

SWOT MATRIX MAS

Strength (S)

Weakness (W)

1. Innovative business strategy plan

strong commitment by stakeholders
to support BTP
2. Globally serving customers over 100
destinations worldwide
3. Capability to serve 40,000
passengers daily
4. International recognition of quality
service (World Best Airline Crew
2008)

1. High maintenance cost for

old aircraft
2. Low margin
3. Under-utilization of fleet
management

Opportunity (O)

SO Strategies

WO Strategies

1. Continuously demand growth

(more customers travel via air
and many bankrupt airlines)
2. Academic and training expansion
3. Aircraft maintenance and service
expansion

1. Continuous Malaysian hospitality (S1,

S2, S3, O1, O2) Strategic CRM
2. Revival information system to
facilitate sales and marketing (S1, S2,
S3, S4, O1) Strategic CRM
3. Restructure marketing and
communication (S1, S2, S3, S4, O1)
Strategic CRM
4. Upgrade knowledge centre into
technical service provider (S1, S4,
O2) Monitoring Cost

1. Maximization load factor by

closely monitor seat ticket
sales (W2, O1) Strategic
CRM
2. Systematically plan the flight
schedule to ensure fuel cost
efficiency (W1, W3, O1, O3)
Monitoring Cost

Threats (T)

ST Strategies

WT Strategies

1. Fluctuation of fuel cost

2. Foreign currency fluctuation
3. Strong competition from low cost

1. Increase load factor using carrot and

stick approach (e.g. offer discounted
seat to attract customer visit its

1. Establish risk management

division to specialist hedge
cost (W2, T1, T2)

AIRLINE BUSINESS
Financial Analysis
STRATEGY

BALANCED SCORECARD MAS

AIRLINE BUSINESS
Key Issues & Challenges
STRATEGY
3
Financial Issues

1995 - No hedging
method
was
used
upon purchased 25
new Boeings in USD.
1997 - Increased of
interest rate

A net loss of RM900

million and its total
debt was amounting
up to RM9.2 billion.

Operational Issues

Venture
into
new
destinations
(which
most of them were
not viable such as
Denmark,
Finland,
and South Africa).
Focused merely on
selling their products
to fill the quotas and
not to improve the
profit yield.

Management Issues
ThemeGallery is a
Design Digital
Content
Lack of
management
& Contents
mall
developed by
competency,
e.g. MAS
Guild
Design Inc.
catering
and
MAS

Cargo were operating

at loss.
Conflict of directors
interests - transferring
money
for
the
directors personal use.
The
previous
management failed to
lead MAS efficiently
and makes a viable

AIRLINE BUSINESS
STRATEGY
Route network that
spans through more
than 20 countries
Low-cost aviation
through innovative
solutions, efficient
processes and a
passionate approach to
business
Now Everyone Can Fly
(competitive edge in
terms of creating
awareness of the brand
and budget airline
industry as a whole)

AIRLINE BUSINESS
VISION, MISSION & VALUES
STRATEGY
to be the largest low cost airline in Asia and serving the 3 billion people who
are underserved with poor connectivity and high fares

AIRLINE BUSINESS
PEST Analysis
STRATEGY

AIRLINE BUSINESS
PORTERs Five Forces
STRATEGY
Analysis

Moderately Low
by sea and land
travel . Air travel is
much efficient &
convenient.
technology has
significant impacts
on business
travellers

Low - The barrier of

entry in terms of
capital requirement
(fuel expenditure,
maintenance cost
and cost of aircraft
purchase) to set up
an airline business
is relatively
substantial

Moderately High
intense competition with
other LCCs e.g. Malindo,
Tiger Airways
High - buyers have
the power to force
down prices and
demand for higher
quality or services

High - due to
limited
number of
suppliers for
low cost
carrier i.e.
American
Boeing and
European

AIRLINE BUSINESS
S W O T Analysis
STRATEGY

SWOT MATRIX AIR ASIA

Strength (S)

Weakness (W)

1. Low cost operation

2. Simple proven model
3. Single fleet of aircraft
4. Multi-currency online sales
5. Partnership with alliances
6. Quick turnaround time
7. Worlds best low cost airlines
2012 & 2013 by Skytrax

1. Secondary airports locations

2. No customer services management
system
3. Limited aircraft
4. Website downtime and error
5. Flight delays

Opportunity (O)

SO Strategies

WO Strategies

1. Adding more routes in North

Asia
2. Partnership with travel agents
for ground
3. 200 new units of A320 neo
aircraft in 2016 to 2026
4. MAS cutting flights to certain
destinations

1. Establishing new hubs in North

Asia (S4, O1, O4) Strategic
Value Chain Management
2. Soft bundling tour packages (S4,
S5, W2) Improve Product &
Services
3. New LCCT in 2013 (S1, S2, O1,
O4) Strategic Value Chain
Management

1. Expanding fleet to increase

passenger flown (W3, O3)
2. Discontinue premium line support
and outsource call center
3. Establishing a tele-sales hotline
Improve Product & Services

Threats (T)

ST Strategies

WT Strategies

1. Increasing fuel prices

2. Terrorists attacks
3. Aviation rules and
Government policies
4. Firefly offering baggage
5. Firefly offering in-flight drinks
and snacks

1. Fuel conscious aircraft (S1, S3,

T1) Strategic Value Chain
Management
2. Allow seat allocation for groups
and early bird bookings
Improve Product & Services

1. Train ground crew for higher

airborne time (W5, T1) Improve
Product & Services
2. Free baggage allowance for flight
above 4 hours (W1, W5, T1, T2, T4)
Improve Product & Services
3. Remodel Navitaire with disaster

AIRLINE BUSINESS
Financial Analysis
STRATEGY
Profit After Tax
FYE2012 RM1.88 billion (238%
YoY)
Net Operating Profit
FYE2012 RM858.23 million
Revenues
FYE2012 RM5 billion (11% YoY)
Cash
FYE2012 RM2.23 billion

BALANCED SCORECARD AIRASIA

Strategy Map
PRODUCTIVITY
STRATEGY:
Improve cost
structure
Increase asset
utilisation
GROWTH STRATEGY:
Expand revenue
opportunities
Enhance customer
value
CUSTOMER
RETENTION AND
INCREASING MARKET
SHARE:
Attract and retain
more customers

Performance
Measure

Targets

Plane Lease
Cost

5% per year

Market value
Seat Revenue

50% per
year
45% per
year

Number of
repeat
customers.
Number of
new
customers

75%
annual
target
Increase
10%
annually

Initiatives

Reduce cash expenses

Eliminate defects
Improve yields
Manage capacity from existing assets
Make incremental investments to
eliminate bottlenecks

New sources of revenue streams (new

products, market and partners)
Improve profitability of existing
customers

Implement Customer Relationship

Management (CRM) system
Provide sustainable promotions to attract
new customers
Enhance the branding image of AirAsia
by leveraging on regional media and
foreign partnership

BALANCED SCORECARD AIRASIA

Strategy Map
CUSTOMER
SATISFACTION AND
PROFITABILITY

Performance
Measure

CUSTOMER
MANAGEMENT
PROCESSES:
This process expands and
deepens relationships with
targeted customers.

OPERATIONS
MANAGEMENT
PROCESSES:
Day-to-day processes
which companies
produce their existing
products / services and
deliver them to

Flights are on
time. (Ontime
performance)
Lowest prices

Reduction in
customer
complaints and
grievances

On-ground
time
On-time
departure

Targets

Initiatives

On-time arrival
rating: #1
Customer
ranking: #1

Implementation of customer
loyalty program and quality
management
Monitor the changes in consumer
trends to increase the ancillary
income

Minimise
customer
grievances by
25%
annually

To provide rapid responses to

dissatisfied customers and ensure
the operations are handled
effectively
Build strategic employee
competencies
Develop effective decision
support system
Develop effective CRM

30 minutes
90%

Cycle-time optimisation
Achieve HR process excellence
Maintain a reliable IT
infrastructure
Achieve financial process
excellence
Develop Innovative Marketing
Communication Program

BALANCED SCORECARD AIRASIA

Strategy Map
INNOVATION PROCESSES:
Developing new products,
processes and services to
enable the company to
penetrate new markets and
customer segments.

ORGANISATION CAPITAL:
The ability of the
organisation to mobilise
and sustain the process
of change required to
execute this strategy
HUMAN CAPITAL:
The availability of skills,
talent and know-how
required to support the
strategy

Performance
Measure
Growth of ancillary
products and
services

Strategic brand
awareness
Percentage of
ground crew
stockholders

Strategic job
readiness

Targets
Growth rate of
ancillary
products
and service
should increase
20% annually

100% within
the next 5
years
40% within
the next 5
years
Year 1: 65%
Year 3: 85%
Year 5: 100%

Initiatives
Drive organisational
performance
Propose and deliver
transformational applications
Develop Financial Information
for improved decision making
Develop Marketing Business
Intelligence
Communications Program
Employee stock ownership
Building the learning culture
Continue to promote the
customer focused culture
Foster creative thinking and
innovative solutions

Ground crew training

Develop strategic and
functional
finance, marketing, human
resource and information
technology competencies

AIRLINE BUSINESS
Key Issues & Challenges
STRATEGY

MARKET SHARE
DOMESTIC
Air Asia 51.5%
MAS 40%

INTERNATIONA
L
Air Asia
26.6%

BOSTON CONSULTING
GROUP
1.0 0.9 0.8 0.7 0.6
0.5 0.4 0.3
+200.2
+15
Industry
Growth +5

0.1Backward,
0.0
forward or horizontal integration
172% Market penetration
Market development
Market penetration
Product development Market development
Product development
Divestiture

72%

Stars

0
-5
-15

Product development
Diversification
Retrenchment
Divestiture

Question Marks
Retrenchment
Divestiture
Liquidation

Cash Cows

-20

MAS
Best long run
opportunity for
growth and
profitability

Relative Market
Share Position

Market
development
Market
penetration

Dogs
AIRASIA
Backward &
forward
integration
Product
development

QSPM MAS
STRATEGIC
ALTERNATIVES
Strategic
Monitoring
CRM
Cost
KEY FACTORS
Opportunity (O)
1.Continuously demand growth (more customers travel via air and many
bankrupt airlines)
2.Academic and training expansion
3.Aircraft maintenance and service expansion
Threats (T)
1.Fluctuation of fuel cost
2.Foreign currency fluctuation
3.Strong competition from low cost carrier worldwide
TOTAL
Strength (S)
1.Innovative business strategy plan strong commitment by stakeholders to
support BTP
2.Globally serving customers over 100 destinations worldwide
3.Capability to serve 40,000 passengers daily
4.International recognition of quality service (World Best Airline Crew 2008)
Weakness (W)
1.High maintenance cost for old aircraft
2.Low margin

WEIGHT AS

TAS

AS

TAS

0.1

0.4

0.4

0.1
0.05

1
2

0.1
0.1

2
3

0.2
0.2

4
4
4

0.8
0.2
2.0

3
3
2

0.6
0.2
1.0

0.2
0.05
0.5
1

0.05
0.05
0.08
0.02

4
3
3
2

0.2
0.2
0.2
0.04

2
4

0.4
1.6

0.2
0.4

0.1
2
2 0.1
3 0.2
1 0.02

4
4

0.8
1.6

QSPM AIRASIA
KEY FACTORS

STRATEGIC ALTERNATIVES
Improve Product & Strategic Value Chain
Services
Mgmt
AS
TAS
AS
TAS

WEIGHT

Opportunity (O)
1.Adding more routes in North Asia
2.Partnership with travel agents for ground
3.200 new units of A320 neo aircraft in 2016 to 2026
4.MAS cutting flights to certain destinations

0.05
0.1
0.05
0.3

Threats (T)
1.Increasing fuel prices
2.Terrorists attacks
3.Aviation rules and Government policies
4.Firefly offering baggage
5.Firefly offering in-flight drinks and snacks

TOTAL
Strength (S)
1.Low cost operation
2.Simple proven model
3.Single fleet of aircraft
4.Multi-currency online sales
5.Partnership with alliances
6.Quick turnaround time
7.Worlds best low cost airlines 2012 & 2013 by Skytrax

TOTAL

0.1
0.2
0.1
0.3

1
2
2
3
3

0.2
0.4
0.1
0.1
0.1

2
2
3
2
2
2
1

0.2
0.2
0.6
0.1
0.1
0.2
0.025

2
2
3
4
4

0.1
0.1
0.1
0.6
0.8

0.2
0.2
0.05
0.025
0.025

2
2
2
3

0.1
0.2
0.1
0.9

2
4
2
3
3

0.4
0.8
0.1
0.1
0.1

4
2
4
2
2
4
1

0.4
0.2
0.8
0.1
0.1
0.4
0.0

3
1
3
4
4

0.08
0.03
0.08
0.60
0.80

0.1
0.1
0.2
0.025
0.025
0.1
0.025

Weakness (W)
1.Secondary airports locations
2.No customer services management system
3.Limited aircraft
4.Website downtime and error
5.Flight delays

2
2
2
1

0.025
0.025
0.025
0.15
0.2

4.5

3.80

KEY SUCCESS FACTORS

Profitable Ancillary
Businesses

Strategic Alliance &

Partnership
Joined oneworld ~
Global Airline Alliance

Ancillary business spin-off.

Branded Customer
Experience
2012 & 2013 Awards
won at Skytrax

KEY SUCCESS FACTORS

Air Asia has the following competitive advantages low cost
business model over the competitors in the airline industry, which
can be summarized in the following diagram

AIR FARES BATTLES

Endless air fares competition between Air
Asia and MAS where both strongly compete
to promote and sell their travelling deals

AIR FARES BATTLES

CONSEQUENCES TO CUSTOMERS

RECOMMENDATIONS

CONCLUSION

Thank You