Q1.

Analyze the current situation facing MAS and Air Asia using the internal and external strategic environmental analysis model. Discuss what aspects and why did their collaboration take place. The goal of an organisation is to reach and achieve optimal purpose. They want to make the most out of their atmospheres and existing environments in order to their accomplishment. External factors are the one that affect an organization indirectly, such as: Political Social-cultural Technological Economical Legal External factor are the opportunities and threat to the company according to SWOT Analysis. There also Internal factors which need to be considered, that is which involves directly to an organization such as: Customers Competitors Suppliers Public Employees Shareholders and etc. Internal factors The strengths and weaknesses to the organization. This business strategy theory is very useful to help aviation researchers to make sense the current competitive pressure under which airlines all around the world seem to be. Business Strategy is a formulation of how the business unit intends to compete in its given business sector.

Let us look the comparison between Mas and Air Asia in terms of their Internal and External Factors.

Malaysia Airlines (MAS)

The Malaysian Airlines are tightly regulated by the government of Malaysia. Mas have won more than 100 awards in the past decade including the Best Airline To Asia and Worlds Best Cabin Crew. It is also remain as one of the only six carrier globally to be accredited as a five-star airline. This clearly shows that MAS is recognized world -wide and the brand name is recognizable. This shows that, there are customers wanted MASs services and customers preferences on this airline.

Air Asia
Air Asia is a Low Cost Carrier (LCC). Air Asia operates domestic and international flights and is Asias largest low fare, no frills airlines. As a pioneered in low cost air transportation in Asia, Air Asia has several subsidiaries and associate company to support its operation. Air Asia operates over 200 flights a day over 75 domestic and international routes. Received many award such as the Best Asian Low- Cost Carrier 2011, World Best Low Cost Airline, ATW Value Airline of The Year 2012 and many more.

MAS reflect competencies and capabilities of their core business which differentiate the company with other company based on value, price and services. Air Asia believes in Leanest Cost Structure, Maximise Shareholders' Value, Safety, Passion for Guests' Satisfaction, Transparency in decision-making and information sharing. When we study the two airlines we can define the SWOT Analysis. MASs strength can be Air Asias Weaknesses or vice versa. Promotion or Brand Awareness MAS had put their full effort on their branding and publicity and it have revolved primarily around flight crew, different with most other airlines which tend to emphasize aircraft and an extensive route network. MAS have their own branding strategy which involves its flight attendants to promote its airline. It is to emphasize the hospitality of its cabin crew instead of the airlines extensive network and its premium cabin and economy class cabin products. MAS runs an incentive training program for all cabin and its flight crew to ensure the customers are obtain the best service. Air Asia was able to penetrate and stimulate potential market by maximizing media exposure and brand awareness promotion without high marketing expenses. Its introduction promotion fare attracted huge publicity and travellers who used to pay higher prices. Besides that, Air

Asia was major sponsorship for Manchester United, which involves global sponsorship and advertising. Cost Management For MAS, other than employee turnover, the cost incurred was quite high such as an increase in fuel prices, increased in maintenance and repair cost, recruitment cost, low yield per available seat kilometre (ASK) poor yield management, inefficient route network and high operating cost. This is also due to difference in traffic mix for e.g. low in business travels to other location or from Malaysia to other location. Overall, its due to pricing and revenue management, sales and distribution, brand presence in foreign countries and relationship. MAS need to expand its business extensively throughout the country. They have to diversify their new routes and operate new destinations to be recognized. The cost factor was taken into consideration particularly fuel have increased. The price of fuel has increased rapidly by over 168%. The increase in fuel alone has added nearly USD64 billion to the industry cost structure. Air Asia has managed to achieve lower prices to attain high passenger loads, market share and profitability by eliminating provision of costly inflight services, flying a standard fleet, selling tickets to passengers directly and minimizing labour and overhead costs. Its successful negotiations for its low aircraft rates, low long-term maintenance contracts rates and low airport fees, enable Air Asia to provide the lowest fares. As a result, Air Asia was able to reduce its overhead and investments in equipment. Changes in customer preference Customers control the purchasing power due to needs and desire. This is because of demographic factors, psychographic and geographical factors. MAS introduced a new concept of flying. This is to enables customers to have a change in life while flying with MAS. For example, introducing varieties of meals from continental to western; depending on the preferences of individual. They offer a range of 37 menus over 8 week of rotation to ensure that frequent travellers will be able enjoy variety of meals. Special request on meals for children and vegetarians are also available in MAS. Air Asia did not control the purchasing power due to the desire of its customers. It has to maintain its Low Cost concept so we as the customers have to pay for all the meals and itinerary sold by Air Asia. This is one of Air Asias weaknesses. Air Asia receives a lot of complaints from customers on their services. For eg. Complaints on flights delay being charged for a lot things and could not get refund for cancellation. Good customer service is essential especially when competition is getting intense.

Relationship with Stake holders MAS have taken proactive approach in engaging its stakeholders (government, partners, suppliers) through a new External Relations Department to help meet its various interests. As a result, MAS has entered various new code-sharing partnership agreements. MAS have also established Suppliers Forum for suppliers relationship management. Air Asias excellent negotiation and lobbying skills with governments, airport authorities, international partners and suppliers have been critical success factors to the company especially in supporting its business development and planning strategies. Launch of Firefly In year 2007, Malaysian Airlines(MAS) secured regulatory approval to launch Firefly, Malaysias first community airline. Firefly is new low-cost community airline which currently offers 14 weekly flights to Kota Bahru, Kuantan, Kuala Terengganu and Langkawi and seven weekly flights to Phuket and Koh Samui from Penang. It is expected to become profitable to tap into a potential customer base of 100 million in the Indonesia-MalaysiaThailand Growth Triangle. This will also connect 3 most popular tourist destinations that are Penang, Koh Samui and Phuket. Launch of Air AsiaX, Asia Xpress, Tune Hotel and Tune Money Air Asia launches associate companies such as Air Asia X, Fly Asia Xpress, Tune Hotels and Tune Money. Air AsiaX offers long haul services from KL to Australia and China using Air bus A330. Tune Money is Asias first no-frills online financial service which comprises life, home and motor vehicle insurance as well as prepaid card. Weaknesses Reasons of airline Failure: This is applicable to both airline which is MAS and Air Asia Incorrect segmentation : Trying to penetrate into the wrong market (domestic or international) Incorrect Pricing- The price can be too expensive to provide the customer value or too cheap to sustain the cost of production and market activities. Incorrect Communication Mix-failure to crate the required level of awareness, interest and action. Lack of Research and Development No proper study on the needs of customers, economic and political review and proper channel of distribution. The Product Itself- The product does not provide benefit that is not valued by customers.

Threat- Terrorism Terrorism will diminish tourism and confidence in the airlines. It might happen in many ways of terrorism either in certain countries or it might happen in the plane itself. For example, as we know MAS or Air Asia flies to more than 80 countries, if there is terrorism happened in any country that MAS or Air Asia flies, this will affect the other destination as well. As a result, MAS and Air Asia has to stop their flights for a certain period of time. This will decrease the confidence level of customers over the airlines as well as it affects the revenue. This is not predictable event. This is applicable for all airline MAS or Air Asia. The Collaboration The collaboration between MAS and Air AsiaX took place to save MAS financial deficiency because it eventually leads to execution of the raising competitors to Air Asia. The deteriorating operating performance reflects the drastic increase in operating costs, led chiefly by fuel, which surged 41% in the period, and a weaker cargo performance, which pushed the airline deeply into the red. MAS operating margin for the quarter was -12.0%. CIMB and Air AsiaX will be the major advisor of all the MASs daily activities and the share swap is to establish a framework to explore the possibilities of mutual co-operation.

Q2. How would you assess the current status of MAS and Air Asia in terms of the degree to which their internal resources and capabilities provide the basis for competitive advantage? Discuss your view to what extend do you or not believe the share swap deal between the two airlines was a positive steps. Internal factor involve (5M's) of an organization which is as follows: Management Manpower Machine Material Money. Management MAS have strong and well- planned organizational structure. Its talented management team always plays the most important role in planning and controlling every single action in their service system to perform the best brand experience. MASs management team always have their own strategies to make sure that they are able to take this challenge as their opportunity to enhance their reputation and quality of the service. MAS are also engaged in Maintenance and Cargo services. It has operations in six continents and covers over 100 different locations. It shows that Malaysia Airlines is a service company that has strong policy in the business industry. Air Asia implemented flexible work rules, restructuring administration functions which allowed employees to perform multiple roles within a simple and flat organizational structure. Air Asias case, a flatter hierarchy improved (speed up) communication, resulting in an effective and focused workforce. Air Asias policy focus on maximizing efficiency and productivity, while keeping staff costs at levels consistent with low cost carrier industry standard. Although salaries offered to employees are below the rival, all employees were offered a wide range of incentives. This motivates the employees. Price MAS are better known as one of service companies that providing airline service to its customers. MASs customers are international flight customers so when compared with other airlines company the cost offered are much more expensive. As a 5 stars airline company the cost needed for the maintenance and convenience are quite high and this will affect the real cost that will be purchased by the customers. MAS business strategy shows that their target market is customers with high income. Research shows that the cost of living in Malaysia is not really high compare to other country like Hong Kong.
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Only a small group of people in Malaysia can effort to fly using MAS because of the high ticket price. Air Asia managed to be more effective in implementing as budget airlines even though many other airlines try to imitate Air Asia, but it is difficult to compete. Air Asia managed to achieve cost per average per kilometre of 2.13 U.S cents, the lowest for any airlines in the world. This sustainable (cost) competitive advantage for Air Asia as it is rare and difficult to imitate. Technology MAS is still practising the old fashion method of selling tickets at the MAS tickets counters at the airport or using agencies. This will incur additional cost for distribution. MAS should practices to use Internet Booking Engines (E-Commerce) and automation in selling tickets online that will be one of the opportunities for MAS Air Asia is the first airline in South Asia to utilize e-ticketing. They saved on the cost of issuing physical tickets and eliminated the need for the large and expensive reservation systems, and agent commission. To purchase an Air Asia tickets, customers may also get it at selected post office and designated bank teller machine (ATM)

Competitive Advantage For MAS and AirAsia

Rivalry Highly Competitive industries generally earn low returns because the cost of competition is high. MAS used Long Haul Carrier meanwhile Air Asia is using Low Cost Carrier. Air Asia was one of the major competitive to MAS because of their low fare price on ticketing. Most of MASs customers have switched from them to Air Asia making MAS to loss. Year 2011 MAS have loss a net of RM1.2 billion in the first quarter. More than 40% are losses on routes and 10-15% above corresponding revenue. It is difficult to take over Air Asia because even though there are other Low Cost Carrier operating but the pricing cannot compete with Air Asia.

Power of Supplier The airline supply business is mainly dominated by Boeing and Airbus. There is not much competition among suppliers. MAS uses the Boeing and Airbus as their flights meanwhile Air Asia only uses Airbus to maintain its low cost. Power of Buyers The bargaining power of buyers in the airline industry is quite low. Definitely there is high cost incurred when switching airplanes. But we must look at the ability to compete on the services offered. MAS have already classified as Worlds Five-Star Valued Carrier and maintain its five-star product and services. MAS now have to win back its customers to fly with them by catering the customers needs that is price and advance technology. MAS have to come out with new types of promotions and marketing method to get hold of their customers. MAS is now implementing several Horizon Solution like Implementing SITA ticketing Re-engineering fares strategy Implementing revenue integrity

Air Asia is not compatible in the factor of price but their services are quite poor. Customers dissatisfaction is in term of meal provision, often delays in flights and etc. Lack of spare aircrafts is the causes of flights delays. Air Asia has to maintain their low price and cannot invest on luxury aircrafts. Availability of Substitutes For Asian countries there is air travel industry is not a threat compare to foreign countries whereby their substitutes is the train. For Malaysia, air travel is still the preference for extensive travels. We may consider time, money, personal preferences and convenience in this matter. MAS may reach on time or faster than AIR Asia; Air Asia is cheaper compare to MAS; customers may like MAS because of comfort ability compare to Air Asia and dont mind to pay more. Air Asia is more convenience in purchasing tickets than MAS. Threat of New Entrant They are always a chance for new entrant to penetrate the airline industry. If the borrowing is cheap then the chances of more airliners entering the industry is higher. The more new airline enters the market, the more saturated it become to everyone. Brand name recognition plays a vital role and frequent fliers also play a role in the airline industry. An Airline with strong brand name and incentives can often lure a customer even if their prices are higher. MAS have strong brand recognition because luxury carrier and it is well known internationally. Air Asia is recognized worldwide because of its Low Cost Carrier. This shows that the brand awareness between these two airlines is not a major challenge.

MAS and Air Asia collaboration which was announced on 9 August will affect the customers the most. The Malaysian Government believes that when this collaboration took place will lead MAS to improve in the revenue and customers support and Air Asia will be paid for by Malaysians in the form of higher tickets prices, poorer service , less flights and less job prospect. Earlier MAS was having the opportunities to fly to more destinations at affordable prices and MAS itself have introduce a new airline that is community carrier firefly. Those turboprop planes introduced more destinations with reasonable price. This benefited the customers more with alternative for MAS Airlines which is a five-star carrier. Upon this there will be new recruits for flight crew, cabin crew, support personnel and many other staff when new flights are introduced. Beside that millions of new passengers flying around may also contributed to economic growth across the country as well consumed their goods and services of MAS.

Q3. Relate and discuss which of Porters competitive strategies best matches the grand and sub strategies originally used by MAS and Air Asia. What type of strategies should they be reviewing for the use in the short, mid and long term plan. Grand Strategy is a strategic planning or long range planning. This process primarily analytical not action oriented. This process involves examining external and internal environmental factors, evaluation and selection of the best alternative strategy appropriate to the analysis. Malaysia Airline industry is in oligopoly market structure where it consist of one full service carrier (FSC) MAS and Firefly. MAS industry is tightly regulated by the government and was dominated by the state controlled. Before the governments domestic liberalization exercise opened up the market to allow Air Asia to join the industry. Following Porters generic competitive strategy MAS and Air Asia operates on different business models. As a full service carrier, MAS follows a differentiation strategy and charge a fare premium. Air Asia uses a cost leadership strategy. Due to the different strategic positioning Air Asia and MAS differ in their customer value propositions as well as target market segments.

Product Features of Air Asia and MAS

Brand Air Asia One brand- low fare. MAS- Brand extension : fare + service. Fares Air Asia -Simplified fare structure (60%-70% cheaper than MASs fare) MAS- Complex structure+ yield management Product Seating Air Asia One Product - low fare , small pitch, free seating MAS- Multiple integrated product Generous pitch, seat assignment. Class Segmentation Air Asia-One Class (high density) MAS- Two Class (dilution of seating capacity)

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Check In Air Asia Ticketless MAS- Ticketless, IATA ticket contract Airport Air Asia -Secondary (mostly ) MAS- Primary Distribution Air Asia- Online and direct booking MAS- Online, direct and travel agent. Connections Air Asia- Point to point. MAS- Interlining, code share, global alliances Customer Service Air Asia Generally under performs. MAS- Full service, offer reliability. Inflight Air Asia Pay to amenities. MAS- Complimentary extras. Aircrafts utilizations Air Asia- Very high MAS Medium to high: union contracts. Turnaround time Air Asia 25 minutes. MAS- Low Turnaround: congestion /labour.

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Aircraft Air Asia- Single type: commonality MAS- Multiple type; scheduling complexities. Ancillary revenue Air Asia Advertising, on-board sale. MAS- Focus on the primary product. Operational activities Air Asia- Core(flying), extending to tour operations, financial service , cargo. MAS- Extension: e.g. maintenance , cargo.

MAS has become even more competitive with the rapid increase of the low cost carrier (LCC) segment, continued growth of the Middle Eastern full service carriers and revival in the fortunes of Asian full service carriers such as Garuda, Japan Airlines (JAL) and Thai Airways. Meanwhile, Malaysia Airlines (MAS) has not focused adequately on the finest segment of the market, and their product quality has fallen. The marketing efforts have been mostly focused on sales promotions rather than brand-building. But intensifying sales efforts could only generate low yields insufficient to cover an increasingly uncompetitive cost structure. Fortunately, MAS is still flying high in service standards, due to the valiant efforts of their MAS team. The demand outlook for Asian aviation is still strong. Across Asia, there is huge growth in disposable income, ramped-up access to credit cards and the Internet and increased crossborder trade. Southeast Asia, in particular, with its combined population of over 500 million, myriad islands and under- developed road and rail infrastructure, is well-placed for aviation growth. ASEAN passenger demand to be double by 2020. This is rightfully an exciting market for all participants in the aviation industry. This strong demand outlook is however clouded by both possible near-term shocks and certain long- term trends. Unreasonable enthusiasm in aircraft orders by Asian airlines is creating a situation of capacity over-supply and excessive price competition. MAS expected the current Southeast Asian regional fleet to triple in the next decade.

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MASs grand strategy is to become the preferred premium carrier, well-positioned for the coming consolidation of the Asian aviation marketplace. While Malaysia may be relatively small in the Asian arena, but they harness the countries geo-economic centricity in ASEAN, emphasise the natural cost-competitiveness as a hub and utilise alliances and partnerships to significantly punch above the weight. Using a combination of tie-ups, they will achieve virtual scale, expand the network, coordinate their commercial functions and synchronise operations with similarly-minded airline partners. MAS will also exploit Malaysias competitive cost position to lower their costs. This will create the broadest selection of network options for their customers and deliver an industryleading cost position. MAS will follow a two-step approach in achieving this vision in short-term. In the long term, are relentlessly focused on 4 initiatives to achieve a recovery to profitability for the 2013-2015 financial years. MAS will then focus on a set of game changers that will help them to build a robust and sustainable business for the future. MAS will make these decisions in the best interests of their employees, shareholders, customers, business partners and Malaysians at large, and they count on the support of all stakeholders in this process. 1. Smaller yet profitable network. Going forward, MASs network shall include routes where the premium travellers will want to go, and where MAS can win in terms of competitive position and home advantage. MAS is shrinking to grow, and get back on firm financial stability, MAS shall expand their network to cover the worlds major economic regions and hubs. 2. Win back customers. MAS intend to take delivery of 23 aircraft in 2012, each with hightech passenger services. Besides introducing these products, they also planning in strengthen their sales and marketing functions. Their strategy is to win back the hard earned loyalthy of customers. 3. Persistent cost focus Upon usage of new aircraft, MAS objective is to realise the savings from the improved efficiency. Lower fuel bills and maintenance expenses to be reduced in early stage itself. MAS is planned to focus on keeping overhead and optional expenditure to minimum. MAS believed they will achieve saving in procurement through the collaboration with AIR Asia , Air AsiaX to full compliance with global anti-trust legislation.

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4. Keeping it simple Instead of running a complex business MAS plan to ensure proper focus on the core business that is flying the customers

Air Asias Grand Strategy will be as follows:

1. Safety Comply with the highest International Aviation Safety Standards and practices Keep operations simple and transparent Ensure the security of our People

2. Leanest Cost Structure Efficient and simple point to point operations Attracting and retaining hardworking and smart people Passion for continuous cost reduction

3. Passion for Guests' Satisfaction Maintain simplicity in every application Practice the unique and friendly AirAsia experience at every opportunity Recognise the linkage between guests' satisfaction and long-term success

4. Maximise Shareholders' Value Resilient profit growth through our lower cost base Expansion of the AirAsia network in a prudent and disciplined manner Invest and enhance the AirAsia brand to increase investors' returns

5. Transparency Transparency in decision-making and information sharing Optimum disclosure - higher than industry norms Timeliness in disclosing information 6. Human Capital Development Invest in both hard and soft skills Recognise all our People as contributors to our success Reward excellence and individual contributions Maintaining one brand across the Group

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7. Cost-efficiency, low complexity and profitability are always the foundations of building a strong business. While a strong foundation does not guarantee a solid house, it is the only basis upon which to build. The company must continue to be dedicated to cost-efficiency and expansion. It is a message that is well understood by each AirAsia employee and it is their tradition. 8. To the consumer, a strong AirAsia brand is a sign of dependability and leadership, giving added confidence and assurance. AirAsia will not just be number one in size; it will be number one in the minds of consumers. This is the passion of AirAsia and the company will never lose sight and passion of being the best.
Strategy

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How LCC offer such low fares? The key to delivering low fares is to consistently keeping cost low. Attaining low cost requires high efficiency in every part of the business and maintaining simplicity. Therefore every system process must incorporate the best industry practices. The key components of the LCC business model are the following; 1. High aircraft utilization Aircraft is kept flying as much as possible, the first flight starts as early in the morning commercially possible and the final flight typically ends at midnight. A fast turnaround is critical to ensure time spent of the ground is minimal an airline makes money when the aircraft is flying, not when the aircraft is parked. AirAsias turnaround time is 25 minutes; compare that against 1 hour for a FSC. On average, AirAsias utilization per aircraft is 12 block hours per day, a FSC might do about 8 block hours per day. 2. No frills The underlying business for a LCC is to get a person from point A to point B. Everything else is considered to be luxury item or frill, of which can be acquired for a small fee. Among many of the frills that AirAsia has do away are; No free food & beverages. Why give away something that you dont appreciate? Passengers are most welcome to purchase food & drinks at an affordable price from the cabin crew. Free seating. There is no assigned seating. Passengers receive a generic boarding pass and they will have to take any of the available seats. Ticketless airlines. Less hassle for the customer, who doesn't have to worry about collecting tickets before traveling, and cost-effective for the airlines (paper, printing, distributing). No refund. Airlines waste a lot of money when passengers do not show up for a flight due to refunds and rescheduling. Whether a passenger shows up or not, the cost of flight to the airline is the same. LCC are unforgiving to no show passengers and do not offer refunds for missed flights. No loyalty programme. We believe our customers are loyal to our low fares, so who needs frequent flyer miles programme then. 3. Streamline Operations Making the process as simple as possible is the key of a successful LCC. Single type of aircraft. Pilots, flight attendants, mechanics and operations personnel are specialized in a single type of aircraft, which means, among others, that there is no need for
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costly re-training of staff, for maintaining a stock with parts for different types of aircraft, for knowledge and skills in order to operate and maintain different types of aircraft with their own characteristics, or for new work requirements. Single class seating. There is only one class seating, i.e first class, and passengers are free to sit where they choose. Should you want to have the privilege to choose your seats, you can by purchasing Xpress boarding. Standard Operating Procedures. SOPs are important to ensure same level of competence among all the staff. This way we can ensure the homogeneity of service throughout the company. 4. Basic Amenities Secondary airports. Low cost carriers mostly fly to and from airports that are not necessarily the busiest, for example, London - Stanstead rather than London - Heathrow. These are often referred to as secondary airports. Operating from so called secondary airports is cheaper than from the bigger major airports and they are also a lot less congested and turnaround times for aircraft are a lot shorter. For instance, to minimize fees AirAsia fly into Clark Airbase which is 70km away from Manila as appose to flying into Manila Ninoy Aquino airport. Business Lounges. Forget about it. 5. Point to point network Point to point network. LCC shuns the hub-and-spoke system and embraces the simple point-to-point network. Almost all AirAsia flights are short-haul (3 hour flight or less). No arrangements have been made with other airline companies on connecting flights, on possibilities of flight transfers, nor on having the luggage labeled and passed through from one flight to another. 6. Lean Distribution System Distribution costs are something that FSC most often ignore. Very often, FSC relies on travel agents and from their posh sales office. Furthermore, FSC always blows the budget by complicating their distribution channels by integrating their systems with multiple Global Distribution Systems. LCC will keep their distribution channel as simple as possible and will cover the whole spectrum of the clientele profile. For example, AirAsia can cater to the most sophisticated European traveller via internet and credit card sales. And at the same time, AirAsia has an established system to sell our tickets to the most remote and technology deprived locations, such as in Myanmar.

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Internet Sales. The bulk of sales (65%) are done via the airlines website, whereby the fares are paid using a credit card. This is the most cost effective distribution channel. Sales office. AirAsia only has a few sales offices. We only establish a call centre if we are confident the sales derived from the centre will be worth it. Furthermore, we are not fixated with having our sales office in the posh side of town. Travel agents. LCC avoids reliance for sales via travel agent as much as possible. This means that the airlines do not pay any commission to a travel agent, which would otherwise have been reflected in the fares. Also, as they do not use travel agents, they do not use, nor participate in the world wide reservation systems and thus save costs, which again are reflected in their pricing. Call centres. Ticket sales can be done via telephonically; this is a simple and cost effective method. (Sujatha.V April, 2012) [online]:Available www.airasia.com www.malaysiaairlines.com/splash/index.html www.en.wikipedia.org/wiki/Strategic management.com www.aerlinesmagazine.com www.centreforaviation.com www.airasiamastieup.com

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