Executive Summary

Project 1Problem Based Learning

PMN 3023 Strategic Management

1.0 EXECUTIVE SUMMARY

The global airline industry is in a state of turmoil and it is increasingly clear that

the survivor and most certainly the winner will have to make radical changes to adapt to

the new environment. (MAS) reported a loss of over RM1.3 billion. This announcement

came at the same time as some of regional competitors reported strong profits. This result

is unacceptable. A real business turnaround is an imperative for MAS. The new

environment will continue to hit MAS hard. The projections for MAS for 2006 look

dismal. In fact, on its current business assumptions, course and speed, MAS will likely

fail, running out of cash in April 2006, and reporting a RM1.7 billion loss for 2006. The

management team, and staff, however, believes strongly in ability to transform the

business and, indeed, to go beyond expectations. MAS have done much to improve its

performance over the last 5 years and indeed last year. MAS have much to be proud of,

and this work will form the foundation of our success. With hard work, radical changes

and some tough decisions, MAS can certainly be a survivor and a winner. Since early

December 2005, the management team has dedicated itself to the development of a plan

that builds off the actions taken by the Board in 2005 to begin the turnaround. This

turnaround plan will not only reverse the loss and return MAS to profitability, but also

transform the company into a strong and vibrant institution one that is capable of

withstanding external shocks and aggressively tackling new opportunities. Business

Turnaround Plan has been developed using the GLC Transformation Manual as a guide.

It takes into account the recommendations in the manual and adapts these for

implementation in MAS in the context of the business turnaround. The plan, outlined in

this document, has five central thrusts, each symbolized by a tail of the venerable MAS

symbol. This plan will enable MAS to realize a net income of RM500 million in 2008 an

all-time high profit for MAS and to be well positioned to improve its net income even

further. In this report, certain parts have been included as briefly about Malaysian

Airlines Systems (MAS). The main part discussed are the short history about the firm

(MAS), the industrial overviews by Porter’s five forces model to analyze the competition,

the SWOT analysis to identify specific competences. In short history, background of the

company, vision, mission and future managing service quality is discussed. It is the

mission of Malaysia Airlines System Berhad, as a corporation, to provide a transport

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service that ranks among the best in terms of safety, comfort and punctuality,

distinguished and loved for its personal touch and warmth. We aim to set new world

standards continually with our enhanced in-flight services, reliable ground support and

excellent infrastructure and to respond to consumer demand for worldwide coverage.

While in the industrial overview the Porter’s five forces are about the threat of new

entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute

products and services and the intensity of rivalry among competitors in MAS. Besides

that, in SWOT analysis we have included the strengths weaknesses, opportunities, and

the threats of MAS. Two tables of strategic audit have been also added to explain the

internal factors analysis and the external factors analysis. Lastly, we have given some

suggestion and concluded the report.

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2.0 SHORT HISTORY OF MAS

Over the past 50 years, Malaysia Airlines has grown to become Southeast Asia's

largest airline, and one of the world's premier international carriers. Flying the most

technologically advanced jetliners in the sky, our vast global network serves over 110

cities across 6 continents.

Malaysia Airlines' humble origins began in the golden age of travel. A joint

initiative of the Ocean Steamship Company of Liverpool, the Straits Steamship Company

of Singapore and Imperial Airways led to a proposal to the government of the Colonial

Straits Settlement to run an air service between Penang and Singapore. The result was the

incorporation of Malayan Airways Limited (MAL) on 1937.

Then, British Overseas Airways Corporation (BOAC - now British Airways), a

technology pioneer and a majority shareholder of MAL, provided technical services such

as repairs, spares and training, even initiating training for local crew members in

the United Kingdom. The presence of BOAC also facilitated MAL's entry as a member of

IATA.

In 1966, following Singapore's independence, the Governments of Malaysia and

Singapore became the majority shareholders in the national carrier. Within 20 years,

MAL had grown from a single aircraft operator into a company with 2,400 employees

and a fleet operator using the latest Comet IV jet aircraft, six F27s, eight DCs and two

Twin Pioneers. In 1967, a new branding exercise saw MAL changing its name to

Malaysia-Singapore Airlines (MSA). That proved to be a watershed year apart

from expanding its international routes to Manila, Perth, Sydney and Taipei, MSA also

took delivery of three pioneering Boeing 707s and two F27s to service these new routes

and finally set up its new corporate headquarters in Robinson Road, Singapore. In the

1980s, Malaysian Airline System became the first major government agency to be

privatized. In 1985, Malaysian Airline System entered the corporate sector by offering 70

million shares for sale.

Today, Malaysia Airlines has clearly established itself as a carrier of international

standing and it is still going strong in its journey to ever greater excellence. Through its

‘Moving Forward’ initiative, it is now embarking on ‘A Drive for Change’.

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Malaysia Airlines’ vision is to become “An Airline of Excellence”, offering the

very best to its passengers in terms of safety, comfort, service and punctuality. This

vision was amplified by our chairman in the company’s 20th anniversary

commemorations in October 1992.

The mission has been stated in three main thrusts as to make Malaysia Airlines

one of the leading standard bearers for the airline industry in terms of safety, efficiency

and quality of service, to develop Kuala Lumpur as the preferred gateway into Malaysia

and the South-East Asia region and to make Kuala Lumpur a major cargo transhipment

area for the Asia-Pacific rim.

In a future issue of Managing Service Quality we shall complete this look at

Malaysia Airlines’ quest towards becoming “An Airline of Excellence” by reviewing

some of the means for measuring and monitoring service quality within the organization,

and then conclude with a view of where the company is now in relation to that goal and

what remains to be done.

3.0 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 known. 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

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operations and marketing functions over the next 3-5 years?' This will be done using

marketing tools and models such as perceptual maps, SWOT analysis. Being successful is

about more than 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 be spent.

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.

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.

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

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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.

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.

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 3 main areas where MAS can improve to enhance its situation, these have come

to light due to the SWOT and five force analyses of MAS, These areas are the

management, the financial situation and operational issues. These operational activities

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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.

4.0 SWOT ANALYSIS

4.1 STRENGTHS

4.1.1 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.

4.1.2 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

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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 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. And 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.

4.1.3 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.

4.1.4 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

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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 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.

4.1.5 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. We have some of

the lowest labors costs in the region. The fact that we have low labors costs, a function of

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a comparatively low cost of living in Malaysia, is perhaps the most important 'building

block' and something that we must strive to maintain. 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.

4.2 WEAKNESSES

4.2.1 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 in 1997, 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.

4.2.2 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.

4.2.3 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 MAS factor costs rise, MAS will

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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.

4.2.4 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, higher costs have not

been offset by stronger yields or loads. 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

.

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

able to survive in the new world.

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4.2.6 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. 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 annum.

4.2.7 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.

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.

4.3 OPPORTUNITIES

4.3.1 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 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.

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4.3.2 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 leverage 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.

4.3.3 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 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

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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.

4.3.4 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.

4.3.5 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.

4.3.6 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.

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4.4 THREATS

4.4.1 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 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

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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.

4.4.2 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 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 Government and the

commercial objectives of MAS are catered for. To this end, the interests of MAS and the

Government will be guided by the principles laid out in the GLC Transformation Manual

issued by the Putrajaya Committee for GLC High Performance.

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4.4.3 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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5.0 THE STRATEGIC AUDIT:

5.1 Internal Factor Analysis Summary Table

Internal Factors Weight Rating Weighted Score

Comments

1 2 3 4 5Strengths:

World class image Experienced operation

management Good facilities Government subsidize

(GLC’s) Assets

0.15

0.050.05

0.200.05

5

44

34

0.75

0.200.20

0.600.20

Provide best service

Staff are trained wellAirport and International arrival, service

Support by Government

Weaknesses: Cultural differences

Resources Global positioning Financial management R & D process Administrative

management

0.05

0.100.100.150.05

0.05

1.00

1

2221

2

0.00

0.05

0.200.200.300.05

0.10

2.85

Different class and different tasteUnprofitable resources

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5.2 External Factor Analysis Table

Eternal Factors Weight Rating Weighted Score

Comments

1 2 3 4 5Opportunities:

Fly low cost commercial flight

Partnership Market expansion Government MAS cargo management Internet availability

0.10

0.150.050.050.050.10

3.0

4.54.03.02.01.5

0.300

0.6750.2000.1500.1000.150

Opportunity in low cost commercial flightCo-sharing with Air AsiaBuying airbusGLC

Technology improvement

Threats: Other Asian Airlines Government regulations Increasing of oil price Increasing burden of debt

Terrorism

0.150.100.050.15

0.05

1.00

5.04.04.52.0

1.2

0.00

0.7500.4000.2250.300

0.060

3.310

Air AsiaInterior by governmentFuelFacilities and accommodation11th September-effect Islamic country

6.0 SUGGESTION

Survival for MAS is dependent on stopping the hemorrhaging of money, reducing

debt, encouraging more people to travel and becoming a truly global airline carrier,

concentrating on the opportunities that they have given themselves, while also

concentrating on the other operations that they have. There are many ways for us to

analyze the markets and factors that MAS should be concentrating on, these include the

five forces model. The 5 forces approach can be used in initial diagnosis and as an aid to

strategy development. The five forces are; threat of new entrants, power of the customer,

power of the supplier, substitutes and competitive rivalry, these will give us an insight

into the strategy that needs to be devised to enhance MAS. Besides that, MAS have to do

19



a lot more Research and Development to improve and give a better quality to travelers

and others.

7.0 CONCLUSION

Having looked at the evidence it seems clear that MAS, has been suffering from

an economic downfall, with the value of the RM fluctuating against the dollar and bad

business decisions still costing the organization money. The management team at MAS is

large and MAS has been rapidly expanding into new business ventures within the travel

business, so at least they are sticking to what they know. To still be operating in the next

5 years, MAS is going to need to change what is currently happening and play catch up

with their rivals. Fortunately air travel in Asia is expected to increase when the downturn

is over, but that still leaves the European and American markets. By creating strategic

alliances with other firms such as KLM, MAS has a chance of getting an increase in

travel to European and America. While all these changes take place it is important that

MAS respects the culture and structure that have been built up over the history of MAS

and to try and not change these aspects of the company too fast. Once re-structured the

poorly performing operations can be sold off and MAS can concentrate on the

operational activities that prove profitable. It is then up to MAS to market these properly

and let their customers know what is available to them and at what price. The major

changes include restructuring the organization and implementing a low cost no frill air

line that will allow MAS to service local customers wishing to fly within Asia. Brand

name is all important so through all the changes it is important that any subsidiary created

or new organization that is created is left with the MAS brand. This will aid customers in

recognizing the quality and service that they come to expect from MAS and customers

can associate marketing and promotions with MAS when they see them. All of these

aspects are helping MAS fulfill its vision "To be the largest, most successful and most

respected airline in the world."

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Executive Summary

Documents

mas hard

firm mas

threats of mas

venerable mas symbol

malaysian airlines systems

business turnaround

strategic management

new opportunities