MALAYSIA AIRLINES (MAS)

PRESENTED BYLuluk Nor Khotima Bt Nursam

Ashvenee Devi SelvarajuNoor Armi Addila Bt Noor Ariff

Nur Azlinda Bt A.AzamanNorliza Bt P P Mohamed

INTEGRATED CASE STUDY (PAS 3183) 

AGENDA

• INTRODUCTION

• MANAGEMENT CONSTRAINT

• COMPETITION

• UNPROFITABLE ROUTES

• INCREASED IN FUEL PRICE

• MAINTENANCE COST

• RECOMMENDATION

INTRODUCTION• 1994- Privatized 32% controlling

stake to Tajuddin Ramli through

Naluri Berhad

• 1998- Asian Financial Crisis MAS

faced substantial losses

• 2005- MAS reported loss RM1.3b

• 1 Dec 2005- Idris Jala became CEO

of MAS

• 27 Feb 2006 - BTP 1 was announced

1. MANAGEMENT CONSTRAINT

Constrained freely

changing destination,

routes and pricing

Government intervention

Action taken by

management

Constrained Freely Changing Destination, Routes And Pricing

• MAS suffered high losses due to poor

management & fuel price increases.

• MAS operations were identified as the

causes of the RM1.3 billion loss are:

– Escalating fuel prices

– Increased maintenance and repair costs

– Staff costs

– Low yield per available seat kilometre

Government Intervention

• Transformation Programme:

- Widespread Asset Unbundling

(WAU)

RM7bil in debt were shifted to

Penerbangan Malaysia Berhad (PMB)

- Government Linked Corporation

(GLC)

BTP is also part of the GLC which aims

to make all GLCs more successful.

Action Taken By The Management

• Increased domestic price

• Major cost reductions were

made

• Improve MAS network

• New low cost community

airline

• Malaysia’s first commuter

airline was launched

2. COMPETITION

LOCAL AND INTERNATIONAL COMPETITORS

LOCAL INTERNATIONAL

• EUROPEAN• AUSTRALIAN• UNITED STATES

COMPETITIVE RIVALRY

NEWENTRY

POWER OF SUPPLIER

POWER OF BUYER

SUBSTITUTE

THREAT OF NEW ENTRY :• Need huge investment to

setup this business. • Less threat 5 – 10 years

before.• Now bank increase the

possibilities through offering long term loans with low interest.

COMPETITIVE RIVALRY :• Many airlines with same

routes.• Most of MAS competitors offer

lower fare to customers.• International airlines

somehow have access to many routes that MAS do not have

• In term of safety

SUPPLIERS POWER :• Less opportunity for bargaining

because not many suppliers.

THREAT OF SUBSTITUTE :• For international do not ha ve

problems because the only way to travel fast is using airline.

• For domestic have to compete with other cheaper substitute.

BARGAINING POWER OF CUSTOMER :• High bargaining power as customers

can easily shift to AirAsia which is cheaper.

• However, if they prefer a high and good quality services, only MAS can provide it.

COMPETITIVE ADVANTAGEWHAT?Business should concentrate their efforts on things they do well

WHY?To stay in business and become success

HOW?From one or combination of these factors ; price, service, quality, location, or customer base.

1. Find out factors that important to the customers • Good quality of services – best Cabin Crew Award #1• Low fare rate• Safety

2. MAS competencies and things that they do well ?3. Identify whether MAS can develop what important to

customers as their competitive advantages?• Low fare : reduce costs

FOLLOW COMPETITORS STEPS

WHY ?“if you can’t beat them, join them”

HOW ?1. Alliance - ONEWORLD 2. E-ticketing3. Promotion packages in off-season –

MATTA FAIR

BENEFITS?4. More routes and benefits5. Cut-costs6. Increase sale in off-season

3. 60% Unprofitable of MAS Routes

• Pricing properly to maximize yield (profits)

• Yield = Revenue per Revenue Passenger Kilometer (RRPK)

• MAS made the past ‘strategic mistake’ of not joining a global airline

alliance.

• 66 of the airlines' international routes are unprofitable while 48 are

profitable.

• Example – Kuala Lumpur-Manchester – routes to be dysfunctional –

140% capacity-full to break even.

The Main Causes of Unprofitable Routes1. There has been a slowing of global

Revenue Passenger Kilometer (RPK) growth• relatively large ratios between RPK growth and GDP

growth.

2. Factor costs—particularly fuel—have increased• increase in fuel prices alone.

3. Low cost competition is on the rise• Competitors hoping to stimulate demand by dumping

large numbers of very low price seats in core markets

4. The frequency and impact from global demand shocks is increasing• many of their customers do not need to travel. • with the current transparency and immediacy of

global media - end up with increasingly volatile demand.

EVALUATION1. Launched the Route Profitability Project.

efforts around eight route-cluster ‘labs’

2. Implemented a Revenue Enhancement Project

(REP).

various surcharges and administrative

fees in line with the rest of the market

have been introduced to align revenue

with costs

3. Launched 'Travel Fair 2006‘.

rewarded our customers by selling 5

million seats at up to 70% discount

EVALUATION ( CON’T )4. Terminated any unprofitable routes

freeze recruitment except for front-line

staff, and crack down on corruption

5. Joining global airline alliance adopt regional alliances

‘hub and spokes’ strategy - allows

partner airlines’ networks to ‘feed’

passengers to MAS regional hubs

saving MAS from spreading itself too

thin flying all over the place

4. INCREASE FUEL PRICE

• Global economic crisis (2008 – 2009)

• Price is in US dollar – cause the price

of fuel affected

US$ 166.48 per barrelJuly 2008

US$ 52.78 per barrelFebruary 2009

Price of Jet Fuel & Crude Oil

EVALUATION• Price hedging strategies

– Foreseeable for the following month, heating oil futures should be the chosen hedging instrument

– Greater supply than demand, the oil prices will decrease

• Fuel surcharges to the customer– Ex : SIA and SilkAir, fuel surcharge increase

between US$3 and US$25 per seat, depending on the distance and class of travel.

• Buy a new aircraft– That are superjumbo airplane has more seats

and fuel savers (A320neo)

ADVANTAGES

Advantages

Mitigate losses

More profitable

Cost most consistent & manageable

Reduce volatile

5. MAINTENANCE COST

Sell the old aircraft Managing the maintenance cost

Profit centre

2003 2004 2005 2006 2007 20080

200000400000600000800000

1000000120000014000001600000

Maintenance Cost

50%

8.5% 3.5%70%

20%

RM’000

YEAR

Sell The Old Aircraft• The average age of the aircraft is

between 10 and 12 years.

• Older aircraft require more maintenance

and there has been a 10% increase in the

number of annual heavy maintenance

since 2004.

• An organize structure of selling the

aircraft

• Buy new aircraft

• Considering leasing

Managing Maintenance Cost

• Well documented the maintenance

cost

• Properly classified the maintenance

cost and modification cost

• Maintenance cost based on the

accumulated flight hour and aircraft

life cycle

• Reducing the cost while maintaining

the same quality

Profit Centre

Project Delta

E&M Breakthrough Programme

Malaysia Aerospace

Engineering (MAE)

• Optimize the used of fixed assets

• Optimize maintenance schedules by

maximising maintenance during off

peak season

• Improve inventory management

through Integrated Material

Management

• Joint venture with other international

airport

• Revised third party maintenance

marketing plan

RECOMMENDATION

• Reduce government intervention• Internet based service (e-ticketing)• Terminate unprofitable routes &

joint Alliances One World member• Properly analyze fuel price before

make hedging agreement• Selling old aircraft & focus Malaysia

Aerospace Engineering (MAE)

Q&A

THANK

YOU