Engineering

Management
JOSPER ANAK EDDIE(30543)
MICHEAL CLINSMAN ANAK ANDY(30984)
MOHAMMAD ALIFF BIN ABD RAHMAN (31093)
MUHAMMAD HANIF BIN SANI(31393)
MUHAMMAD HARMAINEY BIN JASNIH(27126)

INTRODUCTION

General Background

The aviation industry in Malaysia is dominated by three airlines which are

Malaysia Airlines, Air Asia, and Malindo Air.
1.

Malaysia Airlines has been classified as a full service airline.

2.

Air Asia has been classified as a low cost airline.

3.

Malindo Air is a joint venture between National Aerospace and Defence Industries
of Malaysia and Lion Air of Indonesia.

Brief History of Malaysia Airlines

Malaysian Airline System (MAS; Malay: Sistem Penerbangan Malaysia; branded as

Malaysia Airlines) is a major airline operating flights from Kuala Lumpur
International Airport and from secondary hubs in Kota Kinabalu and Kuching to
destinations throughout Asia as well as a handful of destinations in Europe and
Oceania.

Malaysia Airlines is the flag carrier of Malaysia and a member of the Oneworld
airline alliance.

The company's headquarters are located on the grounds of Sultan Abdul Aziz Shah
Airport in Subang, Selangor, Greater Kuala Lumpur.

In August 2014, the Malaysian government's sovereign wealth fund Khazanah

Nasional, which then owned 69.37% of the airline announced its intention to
purchase remaining ownership from minority shareholders and de-list the airline
from Malaysia's stock exchange, thereby renationalising the airline

Problem Statement

Low cost carriers have reshaped the competitive environment within

liberalised markets and have made significant impacts in the worlds domestic
passenger markets.

Malaysia Airlines (MAS) is not in a good position to yield a profit even before
the loss of MH370 in March and the loss of MH17 in July 2014.

It faces intense competition from an arising low cost airlines from its home
market such as Air Asia.

Recent opening of KLIA2 dedicated to centralise low cost carrier terminal

throughout world which connected by the fast train allowing easy, efficient
and affordable transportation to new KLIA2.

So, how Malaysia Airlines is going to survive?

Objectives

To examine the differences in the satisfaction of brand dimensions between

Malaysia Airlines and low cost airline and identify the gap between
expectations in terms of:
1.

Affordability, Logistic and Management

2.

Quality and efficiency

3.

Safety and service

DISCUSSION

Leadership Inconsistency

According to US expert, Malaysian officials and the CEO of the Malaysia

Airline have thus far been poor communicators; at worst, they are
incompetent at best.

1. Poor communicator

2. Lack of coordination during the calamity of twin tragedies

3. Status as Government-Linked Corporations

The proposed solution

1. Challenge

2. Recognition

3. Support

4. Replacing the current CEO

5. Privatization

Bloated Workforce

The airline has approximately 20, 000 full-time employees on its books
(International Business Review, 2014).

1. MAS has been accused of being overstaffed.

2. Its rival, Airasia has only 7,000 employees in total.

To reduce the labour surplus

1. Implement a hiring freeze.

2. End outsourcing contracts

3. Begin a mandatory furlough system.

4. Offer early retirement or buyout plans for workers with seniority.

5. Reduce workers hours or pay across the board.

6. Layoff excess employees.

QUALITY

Customers perception of service quality and the effect of customer

satisfaction levels on their future behaviour.

Various strategies for achieving customer satisfaction and customer loyalty.

A high level of service quality by airline companies became a marketing

requisite.

Offer various incentives, such as the frequent flyer programs, in an effort to

build and maintain the loyalty of customers.

Airline companies also attempted to differentiate their services.

When all airline companies have comparable fares and matching frequent
flyer programs, the company with better perceived service will draw
passengers from other carriers.

Conceptual models in service quality enable management to identify quality problems and thus
help in planning for the launch of a quality improvement program, thereby improving the
efficiency, profitability and overall performance .

There are two main aspects that describe and affect both service quality; the actual

1.

expected service.

2.

perceived service.

Figure 1: Perceived service quality model. (Fitzsimmons 2001).

Service quality that proposed three levels:

1.

Customers overall perceptions of service quality.

2.

Primary dimensions.

3.

Sub-dimensions.

FUELLING CONCERN
Fuel
It

cost is an unavoidable expense for any airline, and in MASs case.

accounts for just for just below 40% of expenditure.

From

2012 to 2013, the amount that MAS spent on jet fuel rose by more than
MAS spent on jet fuel rose by more than RM542m(US$167.64m) an increase of 9%.
It

also had to take into consideration a 15% increase in the number of flight, as
well as a weaker ringgit against the US dollar, which resulted in the company
having to pay more for fuel.

Figure X: Malaysia Airlines Stock Price & Jet Fuel Price

Source: based on MAS annual report 2008

Figure X: Expenditure Composition

Source: based on MAS annual report 2012/2013

Group Aircraft Fuel Efficicency

Source : based on MAS annual report 2012/2013

AIRLINES STRATEGY WHEN FACE FLUCTUATION IN OIL PRICE

HEDGE
For

instance, they can buy crude oil or jet fuel contracts, and obtain a gain
with price rising, and this gain will compensate the higher cost of jet fuel.
Or

they can hedge by buying a call option that gives them the right to buy jet
fuel at a certain price. They can also use collar hedges, a combination of rights
to buy and sell at set prices (call and put options). Collars provide
protection from a decline in prices but less upside if prices rise.
Airlines

also use swaps, contracts that require them to buy oil or fuel on a
certain date at a set price.

Increase fuel efficiency

Certainly the airlines industry is one the most efficient of all energy sectors
in the economy. Aircraft produced today are about 70% more fuel efficient than
those of forty years ago. The industry has been able to increase its fuel
efficiency by 1% a year for the last three decades, which translates to a saving of
about 80,000 gallons of fuel for every plane every year.

A further 20% improvement in fuel efficiency is projected by 2015 and a 40

to 50% improvement by the middle of the century. Such progress has been
achieved through a combination of technology, improved air traffic control and
better practices.

3. Long Haul to Short Haul

Figure X: Route Revenue

Conclusion

The suggested solution can be carried out save Malaysia Airlines

Malaysia Airlines affected with the double tragedy; MH 370, MH 17

Top management needs to act fast to save the company from bankrupcy

But the problem has begin before the tragedy

MAS is nations unofficial ambassador to the world, bringing the image of Malaysia

The company need to cope with the changes

Economic , technologies

THANK YOU !