Project 1

Problem Based Learning

PMN 3023 Strategic Management
1.0 EXECUTIVE SUMMARY

The global airline industry is in a state of turmoil and it is increasingly clear that
the survivor and most certainly the winner will have to make radical changes to adapt to
the new environment. (MAS) reported a loss of over RM1.3 billion. This announcement
came at the same time as some of regional competitors reported strong profits. This result
is unacceptable. A real business turnaround is an imperative for MAS. The new
environment will continue to hit MAS hard. The projections for MAS for 2006 look
dismal. In fact, on its current business assumptions, course and speed, MAS will likely
fail, running out of cash in April 2006, and reporting a RM1.7 billion loss for 2006. The
management team, and staff, however, believes strongly in ability to transform the
business and, indeed, to go beyond expectations. MAS have done much to improve its
performance over the last 5 years and indeed last year. MAS have much to be proud of,
and this work will form the foundation of our success. With hard work, radical changes
and some tough decisions, MAS can certainly be a survivor and a winner. Since early
December 2005, the management team has dedicated itself to the development of a plan
that builds off the actions taken by the Board in 2005 to begin the turnaround. This
turnaround plan will not only reverse the loss and return MAS to profitability, but also
transform the company into a strong and vibrant institution one that is capable of
withstanding external shocks and aggressively tackling new opportunities. Business
Turnaround Plan has been developed using the GLC Transformation Manual as a guide.
It takes into account the recommendations in the manual and adapts these for
implementation in MAS in the context of the business turnaround. The plan, outlined in
this document, has five central thrusts, each symbolized by a tail of the venerable MAS
symbol. This plan will enable MAS to realize a net income of RM500 million in 2008 an
all-time high profit for MAS and to be well positioned to improve its net income even
further. In this report, certain parts have been included as briefly about Malaysian
Airlines Systems (MAS). The main part discussed are the short history about the firm
(MAS), the industrial overviews by Porter’s five forces model to analyze the competition,
the SWOT analysis to identify specific competences. In short history, background of the
company, vision, mission and future managing service quality is discussed. It is the
mission of Malaysia Airlines System Berhad, as a corporation, to provide a transport

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service that ranks among the best in terms of safety, comfort and punctuality,
distinguished and loved for its personal touch and warmth. We 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.
While in the industrial overview the Porter’s five forces are about the threat of new
entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute
products and services and the intensity of rivalry among competitors in MAS. Besides
that, in SWOT analysis we have included the strengths weaknesses, opportunities, and
the threats of MAS. Two tables of strategic audit have been also added to explain the
internal factors analysis and the external factors analysis. Lastly, we have given some
suggestion and concluded the report.

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2.0 SHORT HISTORY OF MAS

Over the past 50 years, Malaysia Airlines has grown to become Southeast Asia's
largest airline, and one of the world's premier international carriers. Flying the most
technologically advanced jetliners in the sky, our vast global network serves over 110
cities across 6 continents.
Malaysia Airlines' humble origins began in the golden age of travel. A joint
initiative of the Ocean Steamship Company of Liverpool, the Straits Steamship Company
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 1937.
Then, British Overseas Airways Corporation (BOAC - now British Airways), a
technology pioneer and a majority shareholder of MAL, provided technical services such
as repairs, spares and training, even initiating training for local crew members in
the United Kingdom. The presence of BOAC also facilitated MAL's entry as a member of
IATA.
In 1966, following Singapore's independence, the Governments of Malaysia and
Singapore became the majority shareholders in the national carrier. Within 20 years,
MAL had grown from a single aircraft operator into a company with 2,400 employees
and a fleet operator using the latest Comet IV jet aircraft, six F27s, eight DCs and two
Twin Pioneers. In 1967, a new branding exercise saw MAL changing its name to
Malaysia-Singapore Airlines (MSA). That proved to be a watershed year apart
from expanding its international routes to Manila, Perth, Sydney and Taipei, MSA also
took delivery of three pioneering Boeing 707s and two F27s to service these new routes
and finally set up its new corporate headquarters in Robinson Road, Singapore. In the
1980s, Malaysian Airline System became the first major government agency to be
privatized. In 1985, Malaysian Airline System entered the corporate sector by offering 70
million shares for sale.
Today, Malaysia Airlines has clearly established itself as a carrier of international
standing and it is still going strong in its journey to ever greater excellence. Through its
‘Moving Forward’ initiative, it is now embarking on ‘A Drive for Change’.

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Malaysia Airlines’ vision is to become “An Airline of Excellence”, offering the

very best to its passengers in terms of safety, comfort, service and punctuality. This
vision was amplified by our chairman in the company’s 20th anniversary
commemorations in October 1992.
The mission has been stated in three main thrusts as to make Malaysia Airlines
one of the leading standard bearers for the airline industry in terms of safety, efficiency
and quality of service, to develop Kuala Lumpur as the preferred gateway into Malaysia
and the South-East Asia region and to make Kuala Lumpur a major cargo transhipment
area for the Asia-Pacific rim.
In a future issue of Managing Service Quality we shall complete this look at
Malaysia Airlines’ quest towards becoming “An Airline of Excellence” by reviewing
some of the means for measuring and monitoring service quality within the organization,
and then conclude with a view of where the company is now in relation to that goal and
what remains to be done.

3.0 INDUSTRY OVERVIEW

Malaysia Airline Systems (MAS) like many other airlines is suffering financially,
this is due in part to world events that have occurred recently and market conditions in
Asia, although these market conditions have also been experienced on a worldwide scale.
People have been reluctant to fly after the events of September 11 2001, the wars in
Afghanistan and Iraq, and the outbreaks of the Severe Acute Respiratory Syndrome or
SARS as it is more commonly known. There has also been the problem of more
companies entering the airline market sector especially the low cost operators such as
BMI Baby or Easy Jet. If MAS is to survive the next 3 to 5 years they are going to have
to compete against powerful carriers like BA and Qantas, low cost carriers, and strategic
alliances such as One world and Star Alliance. To win back and retain customers MAS is
going to have to implement a marketing plan and a strategic business plan, which is going
to have to incorporate the current positioning and branding of MAS and how they want to
be perceived in the future. This essay will attempt to answer the question 'If MAS is to
survive and thrive in the future how would you combine the resources and skills of the

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operations and marketing functions over the next 3-5 years?' This will be done using
marketing tools and models such as perceptual maps, SWOT analysis. Being successful is
about more than surviving and if MAS is to realize their vision "To be the largest, most
successful and most respected airline in the world" they are going to have to realize that
money will need to be spent.
Malaysian Airlines is the pride of a nation, they carry the Malaysian flag and their
success is important to the country. This means that they can and have been aided by the
government.
MAS have also invested a lot of money on IT, which has left them in a strong position to
leverage this IT to the benefit of their customers and performance. MAS are an award
winning company, having diversified into many areas of travel, even during the difficult
era for the airline industry.

3.1 Threat of New Entrants

On the international stage there may not be a threat of new entrants to the market,
because of the current attractiveness of the market sector, although this can also meant
that there will be new competitors created by the merger of two or more airlines. If two of
the big airlines had a good match in their value chain, they could create a dominant world
leader in the marketplace.
In the local market there have been new entries recently and there is no reason
why this trend will not continue. Low cost operators have increased in number recently
and could be a threat to any entries hoping to move into this market. The low cost, no frill
operators seem to be making an impact into the market, as Ryan Air, who recently
purchased one of its rivals Buzz and has announced record profits.

3.2 Power of the Customer

The airline industry is full of operators that fly to many locations form many other
locations, therefore it is possible for a customer wanting to travel to be able to select from
a whole range of companies. No one company has a monopoly on flights to a country.
This means that the customer will have a lot of power and be able to select when they

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want to fly at the price that they are willing to pay. The power did belong to the airlines
in the late 1990's with business airfares rising 74% in the 4 years up to 2000.

3.3 Power of the Supplier

Boeing dominates the supplier market of aircraft, although there is competition
from Airbus and other smaller companies. Boeing has supplied MAS for a very long time
and it is for this reason that the supplier has a lot of power in this market, as all the staffs
at MAS are trained to use the Boeing systems.

3.4 Substitutes
Substitutes are not possible for long cross continental flights, as nothing can offer
the comfort, ease of travel and speed that air travel offers. For short distance trips, people
are able to use coach, train, car or buses, these forms of travel are also more
environmentally friendly and there is a possibility that they may be pushed by
governments trying to be seen as environmentally responsible.

3.5 Competitive Rivalry

The other big competitor in the Asian flight market is Singapore Airways and any
promotions or discounts that they run will have an effect on taking at MAS. On a global
scale all the big airlines in Europe and America, especially the ones that have merged in
recent times because of world events are competitors.

3.6 Prospects
MAS has signed many code share agreements, with companies such as MEA, that
have created many more routes for MAS to fly, the routes that prove profitable should be
kept going whereas it may prove wise to cut the routes that prove to be making a loss.
There are 3 main areas where MAS can improve to enhance its situation, these have come
to light due to the SWOT and five force analyses of MAS, These areas are the
management, the financial situation and operational issues. These operational activities

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include the integration of other related business into the MAS group, these have proved a
problem because of the rapid expansion and the downturn in the financial markets. MAS
will need a marketing plan, as part of a strategic business plan and to implement this plan,
as the management system has been called into question it may be wise to re-evaluate the
team and replace them with others that are more energetic and innovative. The
management team should have implemented changes earlier when they noticed things
were going wrong instead of allowing them to propagate and cause the current situation.

4.0 SWOT ANALYSIS

4.1 STRENGTHS

4.1.1 MAS Has World Class Image

Malaysian Airlines is the pride of a nation, they carry the Malaysian flag and their
success is important to the country. This means that they can and have been aided by the
government. Malaysian Airline System Bhd's (MAS) current on-time performance of
87% is amongst the highest globally, measured against a delay of 15 minutes and above.
"Barring any wars, large-scale terrorism or disease outbreaks, the market prospects for
MAS are better with steady regional deregulation, growth of tourism and rising
disposable incomes. The full benefits of the hassle-free process from point to point,
however, can only be realized if both Changi and KL International Airport maintain
similar facilities and procedures. It will defeat the purpose if the passenger has to
confront kinks at one end. MAS have received 'Top Airline-Service Staff Service' in their
World First Class Survey by a UK based in- flight Research Services in year 1999.

4.1.2 MAS Have Good Facilities

MAS have also invested a lot of money on IT, which has left them in a strong
position to leverage this IT to the benefit of their customers and performance. MAS are
an award winning company, having diversified into many areas of travel, even during the
difficult era for the airline industry. MAS provide comfortable seats, safeties, and food

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and beverage supplies. The next best thing is for the airlines and the airport authorities to
work on making the transfer less cumbersome. Malaysian organized an extremely plush
hotel, transport and lunch for absolutely no charge for all of us flying on to other
destinations. In any case, the budget carriers carrying passengers who connect to other
airlines are already facing this challenge. MAS, the Malaysian flag carrier bills itself as
the "Golden Airline" and in many ways it is justified in doing so. The food and drinks
were great. The service was great. And the best part about it was that each chair had a
liquid crystal display television. The TV had 6 movies, a music channel, and a video
game console. In 2000, MAS was awarded the Five Star Diamond award by the
American Academy of Hospitality Sciences.

4.1.3 MAS Have Experienced Top Management

Successful alliances require a great deal of commitment by personnel and
management and potentially significant amounts of capital and other resources. Such
resources may be difficult to continually contribute and may adversely divert
management’s attention from their primary responsibilities. MAS have been also rated as
'Number One Airline' for cabin staff operations by Australian travel magazine, 'Luxury
Travel’ Notched top placing for best cabin staff service in first class in the 2000 World
First Class Survey conducted by In-flight Research Services (IRS) of United Kingdom.
MAS have also received 'Best Cabin Staff 2002' award in an international airline survey
conducted by Skytrax Research of London, UK. In what may seem a contradiction the
management team at MAS received an award from the Asian Institute of Management
and the World Executive Digest, for its excellence in general management and success in
positioning itself in the airline industry.

4.1.4 MAS Is Subsidies by Government

MAS have been always stable even with financial. This is because MAS is
subsidies by government. Even if there is a problem arises in MAS, government will
always protect it. MAS may be concerned about connections between their shuttle
services and long-haul flights, but transiting across terminals is not uncommon at most

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major international airports. Alliances can sometimes make one partner particularly
dependent on another partner. This can be damaging in the event the other partner’s
performance on behalf of the alliance deteriorates or in the event the other partner’s
business suffers adverse developments. Malaysia Airlines aims to improve services on
key routes to provide at least daily frequencies, subject to availability of traffic rights and
slots. The airline is currently working closely with the Ministry of Transport to secure
these rights. Malaysia Airlines is also in advanced alliance discussions with KLM. This
will allow Malaysia Airlines to build on KLM’s extensive network and enhance its reach
into Europe.

4.1.5 MAS Is a Five-Star Brand

MAS focus on service quality has earned the company the status of a top-tier
global brand. In 2004, SkyTrax, the preeminent airline quality monitor, awarded MAS
‘Five-Star’ status and MAS is one of only four airlines across the globe to have achieved
this rating. This recognition follows four consecutive years of winning the 'best cabin
crew' (also from SkyTrax). These SkyTrax awards are not anomalies. In 2005, TTG
designated MAS as the ‘Best Airline to Asia’, and in January 2006, Travel Weekly, a
UK-based travel periodical, awarded MAS the same status. Our employees continue to
deliver outstanding service and the world is watching. MAS have a loyal and captive
customer base. As we interview our customers, particularly Malaysians, we 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. We have very strong technical skills and
highly trained cabin crew MAS' maintenance staff, flight operations staff and ground
crew are world-class in their technical skills. Our strong safety record has much to do
with our 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. Our cabin crew are highly trained and committed to excellent service
and our five-star rating owes much to their grace and professionalism. We have some of
the lowest labors costs in the region. The fact that we have low labors costs, a function of

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a comparatively low cost of living in Malaysia, is perhaps the most important 'building
block' and something that we must strive to maintain. Malaysia does not have the large
base of business traffic enjoyed by our neighbors to the south and therefore it will be
difficult to match them on absolute revenue performance. To be competitive, we must
maintain a cost advantage.

4.2 WEAKNESSES
4.2.1 Economic Crisis
Financially speaking, pre 2003, MAS made a loss for 5 years running, although
before this MAS was known as a company that was happy to invest for the future. This
may have helped cause the current situation. One of the reasons for this was the purchase
of 25 Boeing planes to be delivered over 5 years 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.

4.2.2 MAS Pricing Power Significantly Lags the Industry

MAS substantially lag its peers on yield and this is MAS central issue. Some of
this gap is due to differences in traffic mix (less business traffic to and from Malaysia
than to and from Singapore), but much of it is due to weaknesses in pricing and revenue
management, sales and distribution, brand presence in foreign markets, and alliance base.

4.2.3 MAS’ Costs Have Risen Out Of Control

Despite a low starting point, MAS' costs have risen by over 20% in the last year
and show no signs of flattening. Furthermore, MAS productivity is at the low end of our
peer group. We need to have much higher productivity than the peers to be able to
survive and prosper in smaller revenue environment. As MAS factor costs rise, MAS will

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see a disproportionate increase in costs unless MAS can become much more efficient
with the resources. Of particular concern is our 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.

4.2.4 MAS Current, and Future, Fleet and Product are Poorly Matched
to MAS' Strategic Realities
The markets in and out of, and around, Malaysia are relatively small. However,
the MAS fleet is predominantly made up of some of the largest aircraft in their class,
putting it in the league of the leading international airlines. In addition, Mas produced one
of the world's most attractive products by upgrading cabins generous seat pitch in
economy and business, and a flat bed in first class. Unfortunately, higher costs have not
been offset by stronger yields or loads. Given the limited business traffic, are more
dependent on low yield connecting traffic, and as our aircraft have relatively few seats in
them, this drives up unit costs. A MAS 777-200 has only 247 seats in economy,
compared with 293 in Singapore Airlines
.
4.2.5 MAS Lack a Disciplined Performance Culture
Discussions with 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 through the right opportunities. We are also a
company with relatively little experience with accountability. Based on internal employee
survey last year, employees report little confidence in the management team and
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.

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4.2.6 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 our 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 are constrained
from freely changing destinations, routes and pricing within its domestic sector. And
even though there are no explicit constraints on the international routes, 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 annum.

4.2.7 Yields Are Lower Than Those of Their Competitors

While MAS has award-winning products and services, competitive cost base, and
only slightly below average load factors, yields are dramatically lower than competitors.
Even though we currently have a competitive cost structure, costs are rising and
productivity is low. Therefore, immediate problem is one of low cash and low yield and,
in the medium term, will face a cost challenge.

4.3 OPPORTUNITIES
4.3.1 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.

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4.3.2 Code Sharing Agreement

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 an 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.

4.3.3 Visit Malaysia Year 2007

Malaysia a tourism industry has great potential with the 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 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

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addition Malaysia is popular destination for visitors especially from Middle East. With
steady increase and improving of tourism site in Malaysia its benefits to MAS.

4.3.4 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.

4.3.5 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.

4.3.6 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 and has develop a comprehensive product catering to both schedule and
ad-hoc charter needs of customer around the Pacific Region.

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4.4 THREATS
4.4.1 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 "ticket less" traveling (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.
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

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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.

4.4.2 Social and Government Regulation

Most of the view show that social and government regulation 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 are constrained
from freely changing destinations, routes and pricing within its domestic sector. And
even though there are no explicit constraints on the international routes, 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.

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4.4.3 Right-Sizing the Staff Force

As a direct result of the domestic route rationalization, MAS will be right-sizing
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.

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5.0 THE STRATEGIC AUDIT:

5.1 Internal Factor Analysis Summary Table

Internal Factors Weight Rating Weighted Comments

Score
1 2 3 4 5
Strengths:
• World class image 0.15 5 0.75 Provide best service
• Experienced operation
management 0.05 4 0.20 Staff are trained well
• Good facilities 0.05 4 0.20 Airport and International
• Government subsidize arrival, service
(GLC’s)
• Assets 0.20 3 0.60 Support by Government
0.05 4 0.20

Weaknesses:
• Cultural differences 0.05 1 0.05 Different class and
different taste
• Resources 0.10 2 0.20 Unprofitable resources
• Global positioning 0.10 2 0.20
• Financial management 0.15 2 0.30
• R & D process 0.05 1 0.05
• Administrative
0.05 2 0.10
management
1.00 0.00 2.85

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5.2 External Factor Analysis Table

Eternal Factors Weight Rating Weighted Comments

Score
1 2 3 4 5
Opportunities:
• Fly low cost commercial
flight 0.10 3.0 0.300 Opportunity in low cost
commercial flight
• Partnership 0.15 4.5 0.675 Co-sharing with Air Asia
• Market expansion 0.05 4.0 0.200 Buying airbus
• Government 0.05 3.0 0.150 GLC
• MAS cargo management 0.05 2.0 0.100
0.10 1.5 0.150 Technology improvement
• Internet availability

Threats:
• Other Asian Airlines 0.15 5.0 0.750 Air Asia
• Government regulations 0.10 4.0 0.400 Interior by government
• Increasing of oil price 0.05 4.5 0.225 Fuel
• Increasing burden of debt 0.15 2.0 0.300 Facilities and
accommodation
• Terrorism 0.05 1.2 0.060 11th September-effect
Islamic country

1.00 0.00 3.310

6.0 SUGGESTION

Survival for MAS is dependent on stopping the hemorrhaging of money, reducing

debt, encouraging more people to travel and becoming a truly global airline carrier,
concentrating on the opportunities that they have given themselves, while also
concentrating on the other operations that they have. There are many ways for us to
analyze the markets and factors that MAS should be concentrating on, these include the
five forces model. The 5 forces approach can be used in initial diagnosis and as an aid to
strategy development. The five forces are; threat of new entrants, power of the customer,
power of the supplier, substitutes and competitive rivalry, these will give us an insight
into the strategy that needs to be devised to enhance MAS. Besides that, MAS have to do

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a lot more Research and Development to improve and give a better quality to travelers
and others.

7.0 CONCLUSION
Having looked at the evidence it seems clear that MAS, has been suffering from
an economic downfall, with the value of the RM fluctuating against the dollar and bad
business decisions still costing the organization money. The management team at MAS is
large and MAS has been rapidly expanding into new business ventures within the travel
business, so at least they are sticking to what they know. To still be operating in the next
5 years, MAS is going to need to change what is currently happening and play catch up
with their rivals. Fortunately air travel in Asia is expected to increase when the downturn
is over, but that still leaves the European and American markets. By creating strategic
alliances with other firms such as KLM, MAS has a chance of getting an increase in
travel to European and America. While all these changes take place it is important that
MAS respects the culture and structure that have been built up over the history of MAS
and to try and not change these aspects of the company too fast. Once re-structured the
poorly performing operations can be sold off and MAS can concentrate on the
operational activities that prove profitable. It is then up to MAS to market these properly
and let their customers know what is available to them and at what price. The major
changes include restructuring the organization and implementing a low cost no frill air
line that will allow MAS to service local customers wishing to fly within Asia. Brand
name is all important so through all the changes it is important that any subsidiary created
or new organization that is created is left with the MAS brand. This will aid customers in
recognizing the quality and service that they come to expect from MAS and customers
can associate marketing and promotions with MAS when they see them. All of these
aspects are helping MAS fulfill its vision "To be the largest, most successful and most
respected airline in the world."

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