BMS7304

MANAGEMENT OF STRATEGY

NURUL YASTAINN BINTI ANDUL AZIZ

1122702644

ASSIGNMENT 1
MALAYSIA AIRLINES (MAS)
TABLE OF CONTENT

NO TITLE PAGE

1 INTRODUCTION OF COMPANY 3

2 INTRODUCTION OF ISSUE 4

3 ANALYSIS (SWOT) 5-8

4 RECOMMENDATION 9-10

5 CONCLUSION 11

6 REFERENCE 12

7 ATTACHMENT 13

1.0 INTRODUCTION OF COMPANY

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 Malaysia Airlines had its humble beginning in the golden age of travel. A joint
initiative of the Ocean Steamship Company of Liverpool, the Straits Steamship 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 12 October 1937. On 2 April 1947, MAL took to the
skies with its first commercial flight as the national airline. Fuelled by a young and dynamic
team of visionaries, the domestic carrier turned into an international airline in less than a
decade.

With the formation of Malaysia in 1963, the airline changed its name to Malaysian
Airlines Limited and soon after, Borneo Airways was incorporated into MAL. Within 20
years, MAL grew from a single aircraft operator into a company with 2,400 employees and a
fleet operator using the then latest Comet IV jet aircraft, 6 F27s, 8 DCs and 2 Pioneers. In
1965,with the separation of Singapore from Malaysia, MAL became a bi-national airline and
was renamed Malaysia-Singapore Airlines (MSA).

A new logo was introduced and the airline grew exponentially with new services to
Perth, Taipei, Rome and London. However, in 1973, the partners went separate ways;
Malaysia introduced Malaysian Airline Limited, which was subsequently renamed Malaysian
Airline System, or simply known as Malaysia Airlines. Today, Malaysia Airlines flies nearly
50,000 passengers daily to some 100 destinations worldwide. The airline holds a lengthy
record of service and best practices excellence, having received more than 100 awards in the
last 10 years. The most notable ones include being the first airline with the "World's Best
Cabin Crew" by Skytrax UK consecutively from 2001 until2004, "5-star Airline" in 2005 and
2006, as well as No.1 for "Economy Class Onboard Excellence2006" - also by Skytrax UK.

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2.0 INTRODUCTION OF ISSUE

The year 2005 Malaysia Airlines faced one of its most challenging times. Operating
against a challenging global economic climate, increasing competition and rising operational
costs, Malaysia Airlines was forced to broadly restructure operations (Malaysiaairlines.com
2011). On 27 February 2006, newly appointed Managing Director or CEO Dato‟ Sri Idris
Jalal, along with a new management team announced a Business Turnaround Plan (BTP).
Since then a number of actions and changes were done to restructure the business. The
company had achieved a significant cost reduction of RM 665 million in financial year of
2006 and more than 700 million in 2007.

However, basically MAS‟s difficulties can be considered into three key issues which
are Financial problems, Operational problems and Management problems. In 1995, MAS‟s
management had launched a strategic initiative to aggressively scale up its operations and
international network. As such, MAS has placed an order of 25 new Boeings aircraft which
are to be delivered in five years‟ time. 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.
Due to the above scenario, MAS was reported to incur 5 consecutive losses for the past 5
years. In 2001, MAS‟ after tax loss was reported to be RM1.3 billion.

There have another problem occurred in poor customer service and management
system which put this airlines in great losses. Many of customers complain about their e-
ticketing service which is not handling by the management very strictly. The reason is,
customer database is not monitoring effectively by the management though there have a
massive investment in Information System. Organization in decision making delays the
solution which they need to be delivered as soon as possible to the customer. However, this
problems are not stop here, in further management are not concerning regarding about
customers complain and neither given any prompt ticket refund nor resolving e-ticketing
problems. Nevertheless, Malaysian airline struggling with several problems and getting bad
feedback from the customers not only for poor management but also external interaction of
government and political issues and so on.
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3.0 ANALYSIS (SWOT)

3.1 STRENGTHS

Government Support
MAS as a carrier of national airline plays an important role in representing Malaysia’s
reputation. In fact, government has their responsibilities to protect MAS from financial
distress and get rid of any difficulties. According to restructure plan in Malaysia Airlines,
there will be a total nearly $2 billion bailout from the government (Thomas Fuller & Nicola
Clark, 2014). As shown, Malaysia Airlines get strongly supported from the government.

Strong Brand Recognitions

Along the years MAS been operating, they won numerous awards in the airline industry. The
recognitions received by MAS successfully attracted lots of loyal passengers. In 2012, the
company's punctuality rate was 87.22%, which developed the reputation of reliable airline
(Bernama, 2018).

MAS has a well-recognized brand image in both domestic and international markets. As a
well-known brand, Malaysia Airlines has always been the choice of public especially their
exclusive business class always preferred by many businessmen and government executives
who travel around the world. The 5-star status at the Skytrax World Airline Award 2012
received by MAS put them on the elite status.

International route
Malaysia as a tourism country, the national airline company always concern by travellers all
around the world. In 2013, Malaysia Airlines officially became a member of One world
Global Airline Alliance, which getting benefits from more connectivity and new routes
(Mutzabaugh, 2013).The alliance currently covers approximately 950 destinations in 150
countries, making it possible to provide a broader global network for MAS passengers (JTF,
2018).

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3.2 WEAKNESSES

Poor Management
In recent years, MAS fall into financial crisis with low efficiency in yield management,
continuous management replacement, and poor cost control. Poor revenue management and
expansion decisions lead to negative returns to the business. In fact, these negative issues
brought negative impacts to Malaysia Airlines. As solution, government tried to fund but the
decision interfered by management team in MAS because it will affect the freedom during
business management (Mouawad, 2014).

Poor Financial Performance

MAS fall in poor financial performance throughout the years and it lower the confidence of
investors into this business. MAS did not make any profit since 2010 before the tragedy in
2014. In addition, MAS had lower control over the domestic market and their market growth
rate constantly weak (CAPA, 2013). The company's net profit margin was only 2.3%, which
below the airline industry average of 4.9%.

3.3 OPPORTUNITIES

Strategic Location
Malaysia’s location is strategic where the point that connects with many countries in between
such as China, India, Australia and many others. In 2016, the Asia Pacific region maintained
its position as the leading region for air travel, accounting for 35% of the global market share
(WIT, 2016). Demand for air travel in the Asia Pacific region is rising due to increased
economic activity in emerging Asian countries such as China and India. Thus, the revenues
earn by MAS from the Asian region will increase.

Tourism Industry
The low exchange rate of the Malaysian Ringgit is one of the reason why tourists from all
over the world love to shop and travel in Malaysia. The large amount of profit generated by
the tourism industry enabled the government to focus on the development of the tourism
industry actively and give full support. Therefore, MAS receive government support in
variety ways because the government always ready to support and subsidize MAS in order to
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earn profit continuously. One of the step is to make Kuala Lumpur International Airport a
regional air hub.

Low cost opportunity

In Malaysia, the most recognized low fare airline is AirAsia. To compete with domestic and
regional low-cost carriers, MAS has its own low-cost community airline, Firefly. It is also the
only airline which connecting three popular destinations - Penang, Koh Samui and Phuket.
This allows MAS to reduce its domestic flight class and more focus on other profitable
overseas destinations to further expand its customer base (The Star, 2012).

3.4 THREATS

Increasing jet fuel prices

With the global raising in jet fuel prices, it had a huge impact on all airlines. The reason is
that one of the most expensive cost involved in the airline business is the cost of fuel (The
Star, 2018). When it is aggravated, it also means that the profit was reducing, and these
companies will come under pressure. High operating costs and rising landing fees have
affected the financial position of MAS Airlines.

Intense competition
MAS will compete with domestic and international companies because MAS is not the sole
carrier operating in the Asian region. In addition, Malaysia Airlines' fares seem to be high
compared to other airlines.

Due to the high fares on domestic routes, the major domestic market segments are taken over
by Asian airlines. Compared with Malaysia Airlines, customers more willing to take AirAsia
as it is relatively cheap and reasonably price. In terms of international competition, the group
faced fierce competition from both established airlines and new start-up operations.

Unfortunate tragedy
For the impact of the MH370 and MH17 tragedies, Malaysia Airlines suffered an incalculable
loss in 2014. The main reason for the loss was that the public’s negative perception of its
brand name which related to the suspicious safety in the tragedy. The negative news caused
the stock market and exchange rate to fall. Despite the risk management strategy, MAS
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remains exposed to foreign exchange risk, which may lead to a decline in revenue growth and
put pressure on the group's profit margins (NEWS, 2014).

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4.0 RECOMMENDATION

As earlier mention, problem-solving frequently contains of decision-making, and

decision-making is specifically vital role for management and leadership. There are
procedures and methods to recover decision-making and the quality of pronouncements.
After reviewing the overall problems of Malaysia airline management can be take further
decision through STEP analysis to overcome from their existing problems. Sociocultural
Malaysia is self-possessed of three main races where Islam is the official religion. Its
fruitfulness in cultural variety and could be used as the attracting factor for the tourists to
travel to Malaysia, and indirectly helped MAS to progress its operation to contain more
foreign destinations.

Economic The Asian economic crisis in the late 90s which has affected the South East
Asian region was also a causative factor that caused MAS to suffer 5 consecutive losses.
These circumstances got degenerates as the Malaysian Ringgit currency was undervalued,
which in turn led to high interest on foreign trade. Investments made by MAS to expand its
business by purchasing more aircraft were highly affected by this. The devaluation of RM
had also led to low spending power, which caused lesser people to travel by air. The tragedy
of September 11 has also contributed to the reported losses by MAS. Since then, the world
economy was on its downturn and the world masses were getting phobia to travel by air.
MAS have to bear the losses as its main operation is based on the international network.
Politics and Legal Due to the actual bad economic recession, Malaysian Government through
Bank Negara had to reread the foreign and monetary policies.

As such, Ringgit Malaysia (RM) was attached to RM 3.80 to 1 US dollar. The

Government had to impose stricter and tighter policies for Malaysian to travel abroad to
avoid currency outflow, which indirectly caused low rates of travellers for MAS. The
situation worsens, when the regional economic recession was coupled with the instability in
the political arena in Malaysia in 1998. As a result, the investors lost their confidence, being
more cautious and prefer the attitude of look and see and some of them have ceased their
operations in Malaysia, resulting in more layoffs. Technology MAS has also invested in IT
and telecommunications advancement to increase the efficiency of its operation. More people
can have access to the MAS services just through the Internet where people can book and buy
their ticket online.

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 Besides that, more promotions and advertisements can be done through the Internet,
which can attract more and more people to travel with MAS. The growing demand in cargo
services has resulted in more airlines opting to convert their passenger aircraft into cargo
aircraft. This new trend provides an alternative for MAS to reduce some money on
purchasing new cargo aircraft and perhaps enter into other possible profitable operations.

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5.0 CONCLUSION

Malaysian airline still holding their reputation in aviation industry. Hence, there have
several factors which they need to be overcome to reduce their further loss in nearest future.
However, management should take decision to improve their internal factors through
implement logical decision approach rather than magical approach. The companies like
aviation industry, by made a decision management require thinking analytically to resolve
their problem. However, management need to reflect some decisions and challenges which
are difficult because probably they don’t have the necessary knowledge or experience, in
which case they need first to decide if the decision which made by them or challenge is
actually suitable and necessary for at this stage. There have few decisions which have to be
made whether managements are ready or not, others might not be as pressing as they
imagine. Moreover, it also wouldn’t be considerable to change-based decision if having
considered the implications carefully to decide that it is not the best thing to do. Management
should take decision in right way as in right time so they can be avoiding their nearest
problem.

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6.0 REFERENCE

 Business Analysis: SWOT of Malaysia Airline MAS. (2018, Jan 01). Retrieved from
https://phdessay.com/business-analysis-swot-of-malaysia-airline-mas/

 "Resurfing from the Crisis: Malaysian Airlines Case Study" StudyMode.com. 04

2009. 2009. 04 2009 http://www.studymode.com/essays/Resurfing-From-The-Crisis-
Malaysian-Airlines-199767.html.

 Ahmed, P. K. (2011). Innovative management: Context, strategies, systems, and

processes. Upper Saddle River, NJ: Prentice Hall.

 Brown, W. B., & Moberg, D. J. (2004). Organization theory and management (8 th

ed.). New York, NY: Wiley.

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7.0 ATTACHMENT

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