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INTEGRATED CASE STUDY (PAS 3183)MALAYSIA AIRLINES (MAS) PRESENTED BY Luluk Nor Khotima Bt Nursam Ashvenee Devi Selvaraju Noor Armi Addila Bt Noor Ariff Nur Azlinda Bt A.Azaman Norliza Bt P P Mohamed
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 ChangingDestination, 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. COMPETITIONLOCAL AND INTERNATIONAL COMPETITORS LOCAL INTERNATIONAL • EUROPEAN • AUSTRALIAN • UNITED STATES
THREAT OF NEW ENTRY : COMPETITIVE RIVALRY :• Need huge investment to • Many airlines with same setup this business. routes. N• Less threat 5 – 10 years E • Most of MAS competitors offer before. W lower fare to customers.• Now bank increase the E • International airlines N possibilities through T somehow have access to many offering long term loans R routes that MAS do not have with low interest. Y • In term of safety POWER OF COMPETITIVE POWER OF SUPPLIER RIVALRY BUYERSUPPLIERS POWER :• Less opportunity for bargaining because not many suppliers. BARGAINING POWER OF CUSTOMER : • High bargaining power as customersTHREAT OF SUBSTITUTE : can easily shift to AirAsia which is• For international do not ha ve cheaper. problems because the only way to • However, if they prefer a high and travel fast is using airline. good quality services, only MAS can• For domestic have to compete provide it. with other cheaper substitute.
COMPETITIVE ADVANTAGE WHAT? 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-ticketing 3. Promotion packages in off-season – MATTA FAIR BENEFITS? 1. More routes and benefits 2. Cut-costs 3. 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 Routes 1. 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 costs3. 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 corruption5. 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 barrel July 2008 US$ 52.78 per barrel February 2009
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 Mitigate losses Reduce More volatile Advantages profitable Cost most consistent & manageable
5. MAINTENANCE COST Maintenance Cost RM’0001600000 20%1400000 70%1200000 8.5% 3.5%1000000 50% 800000 600000 400000 200000 0 YEAR 2003 2004 2005 2006 2007 2008 Sell the old aircraft Managing the maintenance cost Profit centre
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 Malaysia E&M AerospaceProject Delta Breakthrough Engineering Programme (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
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)