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INTRODUCTION 1.1 Background of Malaysia Airlines System (MAS) Malaysia Airlines System (MAS) was opened in 1947 doors with just one twin engine Air Consul that sat only five. However, it has become an awardwinning airline with a fleet of more than 100 aircraft, spreading its wings across six continents and servicing more than 100 different destinations. Malaysia Airlines System Berhad is a corporation that provides a transport service that ranks among the best in terms of safety, comfort and punctuality, distinguished and loved for its personal touch and warmth. Furthermore, MAS also 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. Beside that, Malaysia Airlines System’s fully computerized cargo center with a storage area spanning 166,000 square feet and an annual cargo capacity of 300,000 tones is one of the most efficient operating in the region. As a testament to our commitment towards crew excellence, staff members from 22 other airlines form the student body of Malaysia Airlines Academy. The quality of this institution continues to serve as a benchmark for the industry, a level of quality that all other airlines aspire to. 1.2 Objectives 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 is facing financial problems currently and many solutions had been taken to solve this problem. Is it this problems can be solved? Or 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”?


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Is it through the price, promotion or distribution? At the end of this assignment, all the questions will be answered.


Marketing Strategies (4Ps) Malaysia Airlines System (MAS) fly to over one hundred destinations across six continents which discover our excellent award-winning services and warm hospitality. They fly over not only in Malaysia but also foreign that includes North America, South America, Europe, Africa, Middle East/Asia, Austria/ New Zealand and so on. Furthermore, MAS provides various services to their customers which are including helicopter service, limousine service, chauffeured parking service or even special needs and so on. MAS will ensure that their customers will get the best when they are using their services. However, some of the services are only available in certain country. For example, The Complementary Helicopter Service is only available in United Kingdom and France. Additionally, MAS are using packages and promotion to attract public using their services. MAS unique packages are designed to suit their traveling style. Whether it’s a trip that gives the freedom to plan their own fun or one with a well-planned itinerary, just browse through packages that had provided by MAS and they will find the one that is just perfect for them. Besides, to price flexibility, each fare segment has its own set of rules and regulations covering aspects like ticketing deadlines, refunds, cancellations, no-shows, advance purchase eligibilities and fare restrictions. Service Malaysia Airlines’ world-class service is found in the air and also on the ground. From the state-of-the-art training facility of Malaysia Airlines Academy to Ground Operations and Engineering Services, MAS


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commitment to excellence is clearly evident in every aspect of their services. The services that provided by MAS are including: 1. Engineering Malaysia Airlines' Engineering and Maintenance Division officially started operations in 1972. The Engineering and Maintenance Division was able to carry out work for all European countries associated with EASA and with American registered aircrafts with the worldwide recognition of competency and quality standard. MAS’ engineering expertise and experience has enabled it to perform specific maintenance checks/services and provide a complete range of maintenance services tailored to meet the requirements of various aircraft types. Furthermore, Malaysia Airlines' commitment to the pursuit of excellence extends beyond the meticulous aspects of passenger and cargo service. Our well equipped Engineering Complex, which is manned by fully trained and highly skilled personnel, manifests Malaysia Airlines' desire to excel in its operations. 2. Ground Handling Ground handling is one of the key competencies in Malaysia Airlines’Ground Operations. For many years, through excellent teamwork, we have been providing safe, reliable, efficient and costeffective ground handling services (passenger and baggage, engineering, ramp, flight operations, aircraft interior cleaning, security and cargo handling) at Kuala Lumpur International Airport (KLIA) and other domestic stations in Peninsula and Sabah & Sarawak. 3. MASkargo Additionally, MAS also provides MASkargo service for their customers which were established since 1972 to handle the delivery of cargo around 3

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the world via Malaysia Airlines' global network of routes. Now, MASkargo has the capacity to serve cargo needs up to a million tones at their new facility at KLIA. The services that provided by MASkargo are including express handling, charter service, animal hotel, groung handling services and so on. 4. Malaysia Airlines Academy Malaysia Airlines Academy (MAA) is MAS’s state-of-the-art training facility where all their award-winning services begin. Besides, MAA provides training for many other organizations and individuals in the field of airline operations and other related service sectors. Moreover, MAA also have modern facilities that are ideal for conducting courses, meetings, seminars and conferences. Conveniently located in Kelana Jaya, opposite Kelab Golf Negara Subang,it is easily accessible from the Federal and PLUS Highways and Taman Bahagia LRT station.In addition, MAS also provides other services for their customers that includes helicopter service, limousine service, chauffeured parking service or even special needs and so on. Promotion Malaysia Airlines System Bhd. (MAS) clearly has its strength as a “5 star” airline with a highly reputable brand backed by a highly service oriented staff. More importantly, MAS specialize in making long distance travel not just comfortable, but luxurious. This expertise has been rewarded with international awards for best signature dish, best airline lounge, best business class, and overall best airline. The heart of their service, their cabin staff, was even named "World’s Best" for three consecutive years. Most recently, travelers awarded Malaysia Airlines the "5-Star World Airline Ranking" in the 2006 Skytrax Passenger Survey. Only four carriers in the world received this coveted designation, awarded by some of the most


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demanding travelers in the sky. In February 2006, Malaysia Airlines, became the official airline for the MATTA-MITM Fair 2006, was offering promotional holiday packages and international travel airfares at the Putra World Trade Centre (PWTC), Kuala Lumpur. Discount ranging from 10% to 50% for international travel was offered. Malaysia Airlines’ involvement at the MATTA-MITM Fair 2006 is a showcase of their long-term relationship with MATTA towards promoting domestic travel industry as well as improving airline loads during lean periods. Their participation at this annual event is also in line with their Business Turnaround Plan to increase revenue on their existing routes and to deliver the national airline’s brand experience to their customers and business partners. At the same time, Malaysia Airlines has increased its bandwidth to cater for the increasing number of web-surfers, customers using Mastercard and Visa credit cards could now pay their tickets by calling and booking through the call centre, for journeys commencing from Malaysia. Customers choosing this payment option could also enjoy the added convenience of getting their tickets anytime before the departure date from any Malaysia Airlines' ticket office in Malaysia. MAS also came out with 25 reasons why customers are to buy its services, which providing varies of packages and promotions to attract potential customer. Pricing Malaysia Airlines today implemented a new “micro-segmentised” fare system for its rationalised domestic network covering 23 routes, in line with the ‘Flying to Win Customers’ thrust of MAS Business Turnaround Plan, will see the introduction of 2 business class and 5 economy class segments one-way fares offered through both Malaysia Airlines offices (Call Centre and ticketing) and travel agents. These fares and other two-tier economy class segment one-way fares are also offered online. In addition to price flexibility, each fare segment has its own set of rules and regulations


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covering aspects like ticketing deadlines, refunds, cancellations, no-shows, advance purchase eligibilities and fare restrictions. The revised fares thus allow travellers the freedom to combine different one-way fares to plan their air travel for both outbound and inbound flights, whilst enjoying a truly Malaysian hospitality at every point of engagement with the national carrier. With this new fare structure, customers can actually get to enjoy airfares lesser than rates charged previously. According to Mr. Idris Jala, Managing Director/CEO of Malaysia Airlines, although the full fares for the economy and business class travel have been raised to a weighted average of 15% and 30% respectively from the previous levels, MAS customers will continue to enjoy one of the lowest domestic airfares in the world. Research shows that Malaysia comes second to Thailand in terms of average domestic fares. It costs RM 0.63 per mile in Thailand and RM 0.71 in Malaysia while it is the highest in Japan at RM 43.41 per mile. Stressing that the new fuel surcharge only covers half of the fuel cost, it was important for the national carriers to raise its fares now since the last domestic fare hike was done 14 years ago. In addition, inflation and cost of living had gone up over the years. When Malaysia Airline reviewed domestic fares, it took into consideration that the traveling public want more affordable choices. They went through cost-cutting measures that positively affect both their Business Turnaround Plan and their fares. In particular, MAS remain committed to the government’s national integration initiatives and are now offering trans-Malaysian fares that start from levels lower than the rates prevailing before 21 August 2006 Malaysia Airlines will continue to offer existing discounts on the normal economy class fares for senior citizens, members of parliament, blind and disabled, students, media, security forces, corporate travel and family travel. Apart from these discounts, Malaysia Airlines has ceased offering its previous


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fares and all other discounts. However, during the implementation of the ‘micro-segmentised’ fare system effective today, Malaysia Airlines will continue to honour all transactions paid at the previous fares. To ensure transparency of transactions, all fares offered effective immediately will be reflected on the tickets or transaction slips for customers, in line with the airline’s recent cut over to nett fares display on tickets. Place For the destinations, MAS fly to over one hundred destinations across six continents and look forward to flying with their customers. They fly over not only in Malaysia but also foreign countries that includes North America, South America, Europe, Africa, Middle East/Asia, Austria/ New Zealand and so on. Malaysia Airlines also known as one of Asia's Premier Airlines that offers company an intensive network to more than 100 destinations across 6 continents around the globe. Additionally, the Malaysia Airlines Corporate Nett Fares Programme which is very competitive and attractive designed for all corporations that travel extensively on Malaysia Airlines international sectors.


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COUSE OF FINANCIAL PROBLEMS In October 2005 until December 2005, Malaysia Airlines was reported a final quarter loss of RM616.4 million and a net loss of RM1.3 billion financial period in April 2005 until December 2005. Actually, the MAS lose occurs since 1998 and looses are straight away until now. This loses was happened because of the poor planning and wrong decisions by the management. The loss was occurring because the cost increases by 28.8 or RM2.3 billion. The factors that the financial problems was happened are: 2.1 Fuel cost The most substantial factor for Malaysia Airlines debt was from fuel costs. The fuel is the important factors for the any transportation industry to operate the business. The fuel cost by MAS was increase by 40.4% in this years compare the same period in 2004. The total cost increase by RM977.8 million due the higher fuel and the other RM157.6 million due additional consumption. In the third quarter, fuel costs amounted to RM1.26 billion compared to the RM1.01 billion in the corresponding period in 2004; resulting in 24.6% increase or RM249.3 million. The fuel prices are increase from US$37.72 per barrel in May 2004 to US$71.50 as at 22 April 2005. For several months Malaysia Airlines has been absorbing the rising fuel costs while successfully initiating several measures to increase cost efficiency. 2.2 Operate on unprofitable route The better management planning for the any company are very important to make the company always efficiency. By the poor planning Malaysia Airlines was operated around 60% or 68 of international routes are unprofitable and only 48 of international routes are listed being profitable. Beside that, on domestic front MAS also loss 114 out of 118 routes. One of the factors is MAS must compete with Air Asia because Air Asia offer a lower cost compare to MAS. MAS lack the core profit engine that can help 8

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to fuel experimentation and expansion into new frontiers. The 19 routes are critical because they generate an average of 15,000 passengers annually connecting to its international network. The unprofitable routes also include certain destination in China. The routes are direct flight between Kota Kinabalu and Shanghai and Kuala Lumpur between Chengdu. Beside that, MAS also have unprofite problem for routes London – Pulau Pinang – Kuala Lumpur, London – Langkawi – Kuala Lumpur, Sydney – Kuching – Kuala Lumpur, Kuala Lumpur – Kuching – Pert and Frankfurt – Kuala Lumpur –Kuching. The low loads of two destinations because of the proper marketing activities by MAS. 2.3 Staff cost Malaysia Airlines have employs around 23 000. Staff costs for the financial year was RM1.2 billion, an increase of 20.6% compared to RM1 billion in 2004. Final quarters staff costs increased by 12.3%, compared to the same period last year. The increase for the financial year under review was attributable to the implementation of upward staff salary and allowance revisions. 2.4 Aircraft maintenance and overhaul The maintenance and overhaul cost include the cost of labor and replacement parts. For aircraft and engine maintenance and overhaul expense incurred to meet contractual return conditions, expenses are accrued on the basis of hours flown in accordance with the contractual terms. The third largest cost item was aircraft maintenance & overhaul amounting to RM635 million which translates to a 23.1% increase compared to the year earlier. Third quarter maintenance & overhaul totaled to RM202.9 million, up 9.2% compared to the corresponding quarter. This increase, for the year, was due to some credits received from suppliers for year 2004, which lowered 2004 costs, and required redelivery maintenance checks in 2005.


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Widespread Assets Unbundling (WAU) charges & leases For 2005, WAU and lease charges were RM372.2 million, reflecting a 78.4% increase against similar charges in 2004. The final quarter increase for these charges was 113.7% higher than the same quarter of 2004, totaling RM154.9 million due to revised lease rental rates and higher London Inter Bank Offer Rate (LIBOR) in 2005 compared to 2004.This factors also give many impact to the MAS financial problem.


Handling and landing fees Handling and landing fees rose 19.9% or RM202.4 million from 2004 to RM1.2 billion. Total handling & landing fees for the final quarter amounted to RM444.9 million, an increase of 25.8% or RM91.2 million. This increase was due to increase in number of stations and flights as well as under provisions from the financial year 2004.


Renovation of aircraft cabins The renovation of aircraft cabin are RM700 million. MAS spending cover upgraded cabin facilities, especially for first and Business Class. Layered over the upgrade programme is a significant expansion of flight destinations and frequencies, with early priority being given to the China and India markets. The renovation are include new cabin design with fully flats beds in First Class and a flat bed at a slight angle for business Class in both the 747 and 777. Beside that, the renovation also include in entertainment such a more channel and programmes in all classes and bigger wide TV.


Order for six Airbus A380 planes MAS was order six Airbus A380 to improve their capability services. The problem is, MAS buy the airbus The costs for each A380 are RM1.2 billion. The capacities for each airbus are 150,000 kg and can flying about 10,410


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kilometers. For the each design the airbus can carry 555-840 passengers. The motif to buy this airbus is to increase the performance in the future. MAS target that would snatch the title of biggest passenger plane from rival Boeing's 747. With Malaysia Airlines' selection, Airbus has now 103 orders and commitments from 10 customers for the A380 programme. Built to the latest and most stringent certification requirements, the 555-seater A380 embodies the most advanced technologies, providing 15 to 20 per cent lower operating costs than the largest aircraft flying today and 10 to 15 per cent more range. Beside that, passengers also can get others benefits as a spacious cabin and wider seats, including those in economy class while airlines will reap the benefits stemming from Airbus' unique operational commonality inherent in its fly-by-wire family of aircraft, as well as from lower operating costs.


Sponsorship programme MAS spent a huge amount on the sponsorship programme. The sponsorship programme is including local singer and an entourage of musicians and dancers to perform at the Royal Albert Hall in London. The concert was ongoing on 1 April 2005. This concert is not unprofitable. The fully capacity is 5222 seats but the tickets were sole about 2500 audience. Those who came were mostly Malays and about 10% were Europeans.


Buy a drawing Malaysia Airlines was buy a three drawing and the cost are RM1.55 billion for decoration in President of MAS offices. The reason for buying this drawing is to keep their corporate image. The other reason is, President of MAS said that the drawing for investment because the drawing have a high quality.


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SOLUTION As a solution to overcome the loss and debt facing by Malaysia Airline System, the company had came out with a business turn around plan. The business turnaround plan has been carefully sequenced over the next three years to deliver cash, profitability and growth-in that order of intensity and focus. The Business turnaround roadmap comprises the following elements:

Cash-Flow Survival Actions include a rigorous and disciplined cash management programme to stop and reduce the cash-burn rate of the company, both in terms of operating cost and also capital expenditure. It also seeks avenues to secure immediate short-term cash injection and financing, including sale of assets. Malaysia Airlines is currently in discussion with the Government on the modality of such financial support.

2) Profit Turnaround Actions comprise revenue management and cost reduction initiatives. All routes have been fully analysed into individual Profit and Loss Statements, better pricing and revenue management techniques and improved sales channels will be introduced to increase yield and revenue, commensurate with its 5 star service quality and taking account of competition for each route. This has to be done very carefully. This is used as the pathfinder for other routes elsewhere. Various cost reduction programmes are being pursued in the area of fuels efficiency, procurement savings and so forth. 3) The Human Resource and People Actions are aimed at unleashing the talents of everyone in Malaysia Airlines to achieve the business turnaround Plan through leadership, accountability and teamwork. 3.1 Malaysia Airlines System plans five central thrusts: 3.1.1 Flying to win customers Malaysia Airlines System will reconfigure its network and product portfolio to ensure that it has the tools and capabilities to be a toptier player.


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3.1.2 Mastering operational excellence Malaysia Airlines System will build a unique operating capability. This capability will be reflected not only improved operational reliability, but also in higher productivity. 3.1.3 Financing and aligning the business on P&L Malaysia Airlines System will relentlessly increase profits with the support of a world-class finance function that ensures true financial accountability, transparency and performance orientation.

Unleashing talents and capabilities Malaysia Airlines System is committed to its people it has the passion and talent to achieve the goals.


Winning coalitions Malaysia Airlines System needs the resolute support of the Government, its employees, managers, customers, suppliers, agents and investors. It is only with the support of these stakeholders that MAS can have the mandate it needs to make the changes that will ensure long-term success.


Malaysia Airlines System take what steps had been taken via business turnaround Plan: 3.2.1) Withdraw from routes Malaysia Airline System will withdraw from the vast majority of its extensive domestic routes and hand over operations to low-cost player AirAsia as part of its ongoing effort to become profitable. Malaysia Airlines System has improving their customer value proposition from a scheduling point of view. The light scheduling is a critical criteria in the decision making process on customers’ choice of airline. 3.2.2) Internal cost cutting: Manpower downsizing 13

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Malaysia Airlines System turnaround plan included a change from its present "over-staffed and low productivity" situation to a company with "leaner workforce and high productivity." In the future, Malaysia Airlines System will definitely be running with fewer employees per unit of capacity. The company has two reasons about the manpower right sizing exercise: First reason, Malaysia Airlines System has their target of reducing their workforce by 3,000 to 5,000 employees. In addition, they also have 1,171 employees who will retire this year and the next 2 years, and 2,761 staff whose short-term contracts will expire as early as 3 months and between 1 to 5 years. Taking all the above into consideration, Malaysia Airlines System are confident of achieving their manpower right-sizing targets through the MSS, natural attrition and contract expiry. Secondly reason, Malaysia Airlines System have objective is to achieve about RM300 million per annum. If there are more high salaried employees who they will release via the MSS, with 3,000 employees, Malaysia Airlines System will achieve their manpower savings objective. However, if there are more low salaried employees who Malaysia Airlines System will release via the MSS, the cost savings objective will be achieved by releasing 5,000 staff. Based on the profile of the applicants, Malaysia Airlines System are looking at achieving their objective in August this year by releasing around 3,000 employees in the higher salary bracket. Going forward, with a high number of employees retiring and those whose contracts will expire this year and in the next 2 years, Malaysia Airlines System should be able to reduce their manpower by 30 per cent as part of their Business Turnaround Plan. 3.3.3) Fares increased


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Malaysia Airlines System had raised its domestic fares by 15 per cent for its economy class and 25 per cent for its business class effective from Aug 15. Its international fares remain unchanged. Malaysia Airlines System would also increase the domestic fuel surcharge to RM20 from RM15 within Peninsular Malaysia and Sabah and Sarawak. However, between Peninsular Malaysia and Sabah and Sarawak, the fuel surcharge would be raised to RM51 from RM36. The new fuel surcharge only covers half of the fuel cost, it was important for the national carriers to raise its fares now since the last domestic fare hike was done 14 years ago. In addition, inflation and cost of living had gone up over the years. 3.3.4) Sale of assets Malaysia Airlines System has finalized its plan to sell its Kuala Lumpur property, Bangunan MAS, to Permodalan Nasional Berhad (PNB) for RM130 million. The Purchase Price of RM130 million was arrived on an “as is where is basis” following negotiations between the two parties on a willing-buyer willingseller basis. The property, a 35-storey office building with 5 levels of car park, fronting Jalan Sultan Ismail and Jalan Tengah with a net let table area of approximately 270,071 square metre (75,036 square feet). The approximate age of the Property is 21 years and was the former headquarters of MAS for its airline and ticketing business. The aggregate cost of investment by Malaysia Airlines System in the property is approximately RM91 million, an investment made from year 1983 onwards. The audited net book value of the Property as at 31 December 2005 was RM 81,157,859. Upon completion of the Proposed Sale, Malaysia Airlines System will realize a gain of approximately RM46 million (after tax and other incidental expenses), and this is expected to increase earnings Per Share by approximately 4sen for the financial year ending 31


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December 2006.Currently, the parent of national carrier Malaysia Airlines system has made no decision on the sale of aircraft proposed under a restructuring plan after reports said the carrier's management was pressuring for the disposal of 30 aircraft. It was reported that Malaysia Airlines System had already asked Penerbangan to sell about 30 aircraft as part of efforts to raise desperately-needed funds. The loss-making airline was looking to dispose of up to 13 Boeing 747-400 planes, several Boeing 737400s, Fokker and Twin-Otters.


Malaysia Airlines System Business in the future, how the solves their company crisis.


Malaysia Airlines System in the future, they will continue to have problem. So those, Malaysia Airlines system try to sell assets to raise cash for capital and they are even selling the headquarters along Jalan Sultan Ismail. However, the company have spend RM740 million to refurbish its first and business class. Malaysia Airlines System argument is that it needs to upgrade to get the premium-class passengers as it has been losing to Singapore Airlines (SIA). Besides that, the company depends entirely on Malaysia and has not had a captive Malaysia premium market all these years even during their time. The company depended on low yields and leisure travellers, not first or business class. Malaysia Airlines System should look at its real market, the leisure travellers, which are in the pricesensitive segment because the company wants raise yields in the face of competition and high oil prices. Therefore, Malaysia Airlines System has done reducing some services on the international sector but it has raise yields very carefully and they want look their competitors before raising fares.




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STRENGTH Brand recognition Malaysia Airlines’ brand equity continues to gain recognition. This is a major strength to MAS for compete in airlines system compare with other airlines. In 2005, SkyTrax, the preeminent airline quality monitor, awarded national airline a “five star” status, one of only four airlines in the world to be given this accolade. This is a testament to the strong brand equity they have built over the years, a result of their dedication towards providing the highest quality service possible. This recognition follows four consecutive years of Malaysia Airlines winning the “best cabin crew” award also from SkyTrax. Besides this, Malaysia Airlines was designated the “Best Airline to Asia” by TTG (2005) and the UK based travel periodical, Travel Weekly (2006). The recognition of Malaysia Airlines as the pre-eminent airline to Asia coupled with their strong base of loyal customers should combine to form the cornerstone on which the new management team can quickly return the company to profitability. MAS has a loyal and captive customer base MAS has a loyal and captive customer base, it’s become another strength to MAS for compete with other airlines such as Air Asia. As they interview with their customers, particularly Malaysians, they 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.

MAS have very strong technical skills and highly trained cabin crew


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MAS' maintenance staff, flight operations staff and ground crew are worldclass in their technical skills. They strong safety record has much to do with their 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. Their cabin crew are highly trained and committed to excellent service and our five-star rating owes much to their grace and professionalism. Government support The government’s decision to remove the floor price for Malaysian Airlines is a positive step for the market and the local aviation industry. For MAS to compete with Air Asia, fares have to be competitive in this dog-eat-dog industry. A low cost carrier must be prepared for competition. Allowing Air Asia to determine is fares and MAS to adhere to market fares would only result in the national carrier being on the receiving end. Air Asia is a lowcost carrier targeting a specific segment of the market while MAS, as a fullservice airline, is targeting a different segment. The government has made the correct decision. Putting a floor price on MAS would be seen to be favouring another airline. The government decision that MAS had been given permission to continue offering discounted fares on domestic routes, and Government had also decide that the national carrier should also fly the Johor Baru-Kuching, Kuala Lumpur-Tawau, and Kuala Lumpur-Sandakan routes which were deemed to have a high volume of business travelers. It became strength to MAS for increase their market in their future because customer can prefer use their service more than Air Asia. 4.2 WEEKNESSES Inefficient Cost Management The company financial condition is nit good because the cost management liquidity asset is very low. It is hard to manage the business operation


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when the liquidity level is low. Beside that the company is lack of efficient and effectiveness to control the cost operation due to its profitability of the business. It can looked that Malaysia airlines System was reported that have loss in cost management where cargo revenue decrease by RM 64.1m to RM 1.5billion and cost increased by 28.8%,primarily due to escalating fuel price. Other significant cost increase included staff cost, handling landing fees, and aircraft maintenance and overhaul charge. The most substantial factor for the losses of cost management was from fuel cost. Despite a low starting point, MAS' costs have risen by over 20% in the last year and show no signs of flattening. Furthermore, their productivity is at the low end of their peer group. They need to have much higher productivity than their peers to be able to survive and prosper in their smaller revenue environment. As their factor costs rise, will see a disproportionate increase in costs unless they can become much more efficient with their resources. Of particular concern is their 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. Without strong and decisive action, MAS' losses will continue to grow. Natural factor cost growth and new obligations such as new aircraft, facilities and product enhancement, combined with the effect of new regional capacity on revenue, will cause costs to continue to increase sharply while unit revenue continues to fall. Failure to manage the domestic route Failure of Malaysia airlines system to manage the domestic route until they domestic operation are losing money. Where MAS has reported losing in their operation in domestic flight about RM 281millionn. This is the weakness to this company until to force back down of most domestic route operation by MAS to Air Asia as their competitor, While before that the domestic route counterled by them. Although, when Air Asia come


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into the scene the national carried had monopolized the domestic sector. When Malaysia Airlines System failure to manage the domestic route the government will end the subsidies given to MAS and offer to Air Asia to share the route with MAS. Today Air Asia becomes affordable and reliable Airline, that is making a hit among Malaysians and now it has expanded its operation to cover Indonesia, Thailand and Singapore. The flight to certain locations can be as cheap as RM9.99 when customer book very much in advance Even if customer get these dirt cheap tickets , generally the price is much lesser than the national carrier MAS. It flies to major city and towns in Malaysia. Higher fixed asset The higher fixed asset means that MAS have a lot of building are not used. Beside that the cost operation of buildings must be paid. Example the headquarter building at Jalan Sultan Ismail that not used. So, why MAS buy the buildings if not to be used. It can increase the cost of operation. Beside that the company is lack of efficiency and effectiveness to control the operation fixed assets due it profitability of the business. Low efficient staff This problem becomes the weakness to MAS because they have a low efficient staff. It’s mean not many MAS staff was like low efficient in their task .The low efficient staff about the some staff MAS have a low performance in customer relationship management. Often have the customers complained that some MAS staff moral was low. This case occurs when some of staff treats the white man and first class passenger better than ordinary passenger. So MAS must consider about their staff attitude because people in close and direst contact with customer can damage the image of an airline. Its means one bad incident is enough for passenger to switch to another airline after that he is not likely to come back. Building good relationship must be practice for staff. It is important


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for airline like MAS that have a strong brand name to improve the service management. Domestic route rationalization Malaysia Airlines, as the national flag carrier, has a social responsibility to the Malaysian people which it has discharged over many decades. They provide service to all the major airports and secondary airstrips in Malaysia. Some of these locations with the secondary airstrips would not have been accessible by any other means of travel if not serviced by the national airline. As such, their domestic operations have not been operated with an exclusive commercial profit-making mentality. There was an important emphasis on their social responsibility to the people of Malaysia. Unfortunately, the running of the domestic business is a “zero sum game”. In order for the people of Malaysia to benefit to the extent they were served, Malaysia Airlines had to lose because of uneconomic routes and as a result of the subsidy to those who travel with it. To keep the fares affordable, the government has maintained the ticket price on some of these routes for the last 13 years without the airline having recourse to adjust prices in line with inflation and rising costs. These are the main reasons why, of the 118 domestic routes flown in 2005, only 4 were profitable. MAS lacks a disciplined performance culture This problem also became weaknesses to MAS because discipline performance culture very important in service system to attract more customer especially foreign customer. Discussions with their 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


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through the right opportunities. They are also a company with relatively little experience with accountability. Based on their internal employee survey last year, their employees report little confidence in the management team and their 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.


OPPORTUNITY 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.

Code sharing agreement


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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 a 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 Visit Malaysia Year 2007 Malaysia a tourism industry has great potential with the a 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


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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 it’s 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. 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


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and has develop a comprehensive product catering to both schedule and ad-hoc charter needs of customer around the Pacific Region. 4.4 THREAT Right-sizing the staff force As a direct result of the domestic route rationalization, MAS will be rightsizing 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 and, on behalf of the board, they would like to express the company’s gratitude and best wishes to them. 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 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 is constrained from freely changing destinations, routes and pricing within its domestic sector. And even though there are no explicit constraints on the international routes,


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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. 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 "ticketless" travelling (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.


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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 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.


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CONCLUTION 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: manpower 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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RECOMMENDATION 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. 1. Listening 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 also 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. 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 team work and the team leader will get to know their strengths and weaknesses well. By this concept, MAS will have good control to build the excellent management system. 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


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working of more of the organization than they would otherwise. It also promotes a corporate outlook among managers and minimizes interdepartment disputes. This practice also creates an appetite for change and innovation as people constantly bring fresh perspective and new ideas to their new position. 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 be made 24hours upon departure. Cancellation of tickets 24 hours before departure should be 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. 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 the principles just-in-time (JIT) system. By the implement the JIT system, the company can ensure spare parts are always availability.


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 to departure status customers receive a check-in request via SMS. They only need to reply with “y” for yes followed by the flight number which was given in the check-in request message. They will then get a confirmation-SMS with flight information. In contrast to status


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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.


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REFERENCES . ( May 2006). Malaysia Airlines slashes domestic route network. Airlines Business. Vol. 22 (5). . ( Feb 2006). MAS may sell assets to raise cash. Airline Business. Vol. 22 (2). . ( 23 May 2006). Up to 5,000 seen leaving: separation scheme to cost MAS RM850 mil. New Straits Times. Abdullah Mat Zaid. Journal of Malaysia Airlines’ Corporate Vision and Service Quality Strateg. Volume 4 Number 6 1994 pp. 11-15 B. K. Sidhu. (30 March 2006). System revamp to cost MAS RM400mil. New Straits Times. Cullen, J. B. and Parboteeah, K. P. (2005). Multinational Management: A Strategic Approach. 3rd edition. United States: Thomson South-Western. Daniel Chan. The story of Singapore Airlines and the Singapore. Girl Journal of Management Development Volume 19 Number 6 2000 pp. 456-472. Ionides, N. (April 2006). Malaysia turnaround bullet. Business Source Premier. Vol. 22 (4). Ionides, N. ( Jul 2006). MAS takes radical steps to downsizes. Airlines Business. Vol.22 (7).


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Mohamed Ali Mirghani. (1996). Aircraft maintenance budgetary and costing systems at the Saudi Arabian Airlines: Integration business approach. Journal of quality in maintenance. Vol. 2. (4). Ragnar Schierholz, et al. (2006). Journal of Mobile Systems for Customer Service Differentiation the Case of Lufthansa. Wheelen, T.L. and Hunger, J. D. (2004). Strategic Management and Business Policy. 9th edition. Singapore: Prentice Hall.


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