Why Collabration Take Place Between Mas and Airasia

MALAYSIA AIRLINES SYSTEM AND AIRASIA AIRLINES COLLABORATION TAKES PLACE. TABLE OF CONTENTS QUESTIONS 1:Analyze the current situation facing MAS and AIRASIA using the internal and external strategic environmental analysis model. Discuss what aspects and why did their collaboration take place? INTRODUCTION Various industries, specifically in airline business are attempting to improve their services to draw new passengers and travellers and to retain old passengers and travellers, and this objective is part of their business as well as their marketing model. In order to adjust with the stiff competition in the airlines business, airlines industries tend to come up with various businesses models and model to be competitive. Additionally, because of increasing competition among substitute industries, firms like AIRASIA, AIRASIA X and MAS. Airlines adopt strategic model to marketing and expend their market reach as well give better and satisfying service delivery to their target market. To sustain the market position as well as advantage business market model to management and marketing are being developed and utilized. MAS, AirAsia share swap not a win-win deal From its inception, it has not been plain sailing for the planned share swap between two of the country's most bitter airline rivals Malaysia Airlines (MAS) and AirAsia given the many issues involved. "The collaboration between MAS, AirAsia and AirAsia X was flawed from day one because it cannot bring in a rival. From the start, the share swap had been marked by controversy, suspicion and infighting so much so that it distracts from the real issues in MAS. External and Internal MAS Analysis 1.0 External (using PEEST analysis) Malaysia Airlines System is one of the Government Linked Companies in Malaysia. 1.01 Economic MAS were hit by the high fuel price in the year 2008 which fuel price had increase to USD$182per barrel. MAS were slammed by economic crisis and downturn which pressured the yield and profit margin. The worlds economy today is also being treated by uncertainty and volatilities which can affect share price and trust from the shareholders. 1.02 Social As a developing country, Malaysia has increase the number of professionals who earn more and travel much more frequently overseas. MAS has respond by offering business class ticket that offer the stars services. Wold recently has been shocked by INFLUENZA (H1N1) global pandemic and increasing rate of terrorist attack, People start reconsidering their travel plan and this affecting the airlines industry. 1.03 Political Before DatoSeri Idris Jala became the CEO of MAS. MAS was having worst financial crisis in 50 years history. He was appointed by the government to take over MAS even though he has no experience in airlines industry. On one condition he wants 50% freedom from government before undertaking the leadership. He was able to cut off unprofitable routes and this proved to be beneficial to MAS in regaining its position in the industry. Some government policy and initiatives also benefited MAS. In 2008 Ministry of Tourism has been focusing on development of hospitality and tourism industry in Malaysia its give 50% rebate on landing charges for airlines under STIMULUS PLAN. Another step was to make KLIA a regional air hub and launching of ERL system to connect Kuala Lumpur city with the airport (KLIA) in Sepang. The impact of government policy and initiatives had both indirectly and directly provide positive impact to MAS in some way or another. 1.04 Technological Technology is helping MAS to reduce coast and the most importantly it also adds value to the customers. MAS were replacing KOMMAS Reservation System with the new SITA RES System. New system customers are assured that their booking and e-ticket information will always be available at check-in. 1.05 Ecological

MAS launching the Fuel Emission and Conservation Programme which follows the standard with regard of reducing noise emission from burning fuel. MAS also apply environmental system and have been awarded the ISO14001 certificate, also volunteer in Carbon Offset and Forest Conservation Programme. It was taken popular action of being socially responsible entity within industry. 2.00 Internal Analysis (using SWOT analysis) 2.1.0 Strength 2.1.1 Government Support The failure of MAS gives bad perception towards the Malaysian government. The government is giving attention and support to MAS as one of the Government Linked Companies (GLC). MAS have the advantage of government support in order to protect it from financial distress or any other difficulties. 2.1.2 Powerful Strategy * In recent years MAS has transformed into one of the worlds most respected airlines. In 2006, the Business Turnaround Plan (BTP 1) was introduced to regain its profitability in 2007 and onwards, as a strategy to bring itself out of the financial crisis it had faced 2 years ago * In February 2008, the second (BTP 2) were launching in conquering the industry wide challenges and transforming itself over the next 5 year to emerge as the World Five Star Value Carrier and as a leading player in the global aviation industry. 2.1.3 Strong Brand / Recognition * The national carrier is one of only 6 airlines worldwide to be accredited Airlines & quot. 5-Star Airline & quote, status by Skytrax for 4 years in a row from 2006-2009 * Its highly commendable cabin has won & quote, Worlds Best Cabin Crew & quote, award in 2009 the record as the only cabin crew in any airlines to have won this recognition 6 times since the award was introduced in 2001 * MAS have been awarded Malaysia Top 30 Most Valuable Brand in 2008. MAS also been accredited by the International Air Transport Association with IOSA (IATA OPERATIONAL SAFETY AUDIT) for its operational safety practise. 2.1.4 Good Customer Service Capabilities * MAS have always placed top priority on providing service excellence and warmth. * Launched in 2007 (MH & Quote) Malaysia Hospitality serves as focal point to ensure that MAS service deliveries are aligned to its customers expectations and continuously deliver what customers value. 2.1.5 Network Improvement * MAS believe that their hub-and-spoke strategy is a way to maintain the profitability * 2008 MAS signed a code share agreement with Etihad Airway and expending their partnerships with Air Mauritius, Singapore Airlines and Silk Airlines. * 2009 signed a code share agreement and frequent flier partnership with Jet Airways to enable them to enhance passenger traffic between Malaysia and India. * Up to date MAS has served over 100destinations worldwide. MAS have developed a network plan in order to match its fleets replacements in order to minimize the num of aircraft types so as to achieve cost efficiency in the operation. 2.1.6 Strong Financial Condition * MAS have made significant improvements in the way they manage the cost over the last three years. * 2006 managed to cut the operating expenses by more RM 600 million in spite of higher fuel costs. * 2007 reduced operational expenses by more than RM 700 million. * 2008 despite a highly challenging operating environment with the increase in fuel prices and global economic slowdown, MAS recorded a profit of RM 244 million, sustaining 10 consecutive quarters profits 2.2.0 Weaknesses 2.2.1 Poor Management * Asian Financial Crises in 2007 the airline suffered losses of as much as RM 260 million after earning a record-breaking of RM 319 million profits in the financial year of 1996/1997. * For 5consecutive years since 1997, MAS have suffered losses due to inefficient and incompetence of management. * Poor revenue and pricing management as well as late expansion decisions, poor sales and distribution strategy, bad brand presence foreign markets and poor alliance base lead to the negative return of the business. * MAS faced its worst financial crises ever with losses of RM 1.26 billion recorded for 9 month financial year of 2005.

* Weakness in airlines operation was identified as the causes of the RM 1.3 billion lost. These included escalating fuel prices, increased maintenance and repair costs, staff costs, low yield per available seat kilometre, poor yield management, inefficient route network, increased handling, landing fees and overhaul charges. 2.3.0 Opportunities 2.3.1 Product Line Expansion * FireFly was launched in March 2007 as Malaysias first community airline. Operates 9 domestic and 5 regional destinations from 2 bases namely Penang International Airport and the Sultan Abdul Aziz Shah Airport. * MASWings was launched in October 2007 serves as the rural areas in Sabah and Serawak by providing affordable fares and convenient flight schedules. * All Inclusive Low Fares and Everyday Low Fares promotion was launched in October 2008 when they significantly reduced fuel surcharge by 50 to 73 % for domestic travel. * 2004 MAS announce the upgrading of its website to incorporate an online booking facility. Their internet sales recorded an unprecedented growth of 173% to RM 475 million compared to year 2007. 2.4.0 Threats 2.4.1 Competitors and overcapacity * Air Asia, the Malaysias first no frill budget airlines and Asias largest low-cost carriers is playing its vital role as MAS competitor. * Latest trend in the airlines industry is the emergency of many new airline providers globally which leads to overcapacity. Eventually, this situation would lead to lower price and will reduce the profit margin 2.4.2 Economic condition and rising cost * Economic crisis would be another threat to the company, MAS, especially the fuel prices fluctuations, with high fuel prices in 2008. * The situation is expected to slow down the economic growth and slimming profit margin caused by overcapacity is further overwhelmed by the operating cost in terms of labour, fuel and airport charges. 2.4.3 Global Pandemic of Airborne Diseases * The recent pandemic of Influenza (H1N1) virus has significantly affected the whole aviation industry, number of passenger dropped within the period when the flight was at its peak and therefore affects the company revenue. * H1N1 pandemic is just one of the example of global health issue besides other illness such SARS outbreak in 2003. External and Internal Air Asia Analysis 3.0 External (using PEEST) 3.0.1 Political Globalization saw a trend of increased privatization and deregulation of government across the world, which resulted in the ongoing consolidation of the airline industry. As government were important drivers of airline success in Asia, most airlines in East and Southeast Asian countries had full or substantial state ownership, management and control often subsidized and protected by the government from competition with the pursuit of non-business goals, profits were often sacrificed for the sake of national objectives. 3.0.2 Economic Economic downturns (e.g.global financial crisis) would result in the industry, it can prove to be an opportunity for AirAsia. For example, as a result of the global economic downturn (i.e. worldwide stock market plunge), aircraft Lessing costs were reduced by about 40%, creating an environment with lesser competition and enabled AirAsia to lease their aircraft at a cheaper rate (leading to cheaper ticket prices for customers). 3.0.3 Social In recent years, rapid economic growth resulted in a burgeoning middle class within Asias large population. Together with increased in trade, tourism within and into Asia, demand for air travel increased. More people were willing to compromise on food and other services in exchange for lower prices. The attractiveness of budget airlines is primarily their low ticket prices, which can be as low as 10-20% of those charged by full-service airlines. This presents AirAsia with opportunities to differentiate itself from competitors by adding customer services or operation as full service airline with low fare, giving it a competitive advantage (i.e. provision of in flight food and drinks, on line sales of hotel, car and holiday reservations as well as travel insurance)

and corporate travel services, with its own branded credit card, further increasing brand awareness and value for customers. 3.0.4 Technological By using information technology, Airasia was able to the first airline in Southeast Asia utilize e ticketing and bypass traditional travel agents. This enabled the airline to save on the cost of issuing physical ticket (i.e. estimated at USS10 per ticket) and eliminated the the need for large and expensive booking and reservation systems and agents commissions. 3.1.0 Internal Analysis (Using SWOT) 3.1.1Strengths 3.1.2 Strong Management Team * AirAsia has a very strong links with governments and airline industry leaders. This is partly contributed by the diverse background of the executive management teams which consists of industry experts and extop government official. 3.1.3 Strategy Formulation and Execution. * The management team is also very good in strategy that have formulated at the beginnings was clever blend of proven strategies by other low cost airlines. 1. Ryanairs operational strategy (no frills, landing in secondary airport). 2. Southwests people strategy (employee comes first). 3. Easyjets branding strategy (linking with other service providers). 3.1.4 Brand Name * AirAsias is well established in Asia Pacific and top management also capitalised on promotions through news by being very media friendly and freely sharing the latest information. It have successfully elevated the brand to become a regional brand beyond just Malaysia, the links with Manchester United and AT&T Williams Formula One team have further boosted their image to a greater extend beyond just the this region. 3.1.5 Low Cost Leader in Asia * AirAsia has successfully created a low-cost airline mentality with help of AirAsia Academy. Workforce is very flexible and high committed and very critical in making AirAsia the lowest cost airline in Asia 3.1.6 Excellent Utilization of IT * Directly contributed to their promotional activities, brand building exercise and keep the cost low by enabling direct purchase of tickets by consumer thus saving on airline agent fees. 4.0.0 Weakness 4.0.1 Own Maintenance, Repair and Overhaul (MRO) * It is a competitive disadvantage not to have its own MRO facility. 4.0.2 Lot Complaints from Customers * Complaints are around flight delays, being charged for lot of things and not able to change flight or get a refund if customers could not make it. * Good customer service and management is critical especially when competition is getting intense. 5.0.0 Opportunities 5.0.1Increasing Oil Price * The increasing oil at the first glance may appear like a threat for AirAsia, but being a low cost leader, AirAsia an upper hand because its cost will be still lowest among all the regional airlines. 5.0.2 Asian Open Skies * Allows unlimited flights among ASIANs regional air carriers. * First mover advantage as well as its strengths in management, strategy formulation, strategy execution, strong brand and low cost culture among its workforce. * This agreement can be seen as more of an opportunity. 5.0.3 Partner with other low cost airlines as Virgin. * There are also some opportunity into their existing strengths or competitive advantages such as brand name, landing rights and time slots. 5.0.4 Population of Asian middle class * This creates a larger market and a huge opportunity for all low cost airlines in this region including AirAsia. 6.0.0 Threats 6.0.1 Rates

* Certain rates like airport departure, security charges and landing charges are beyond the control of airline operators. * Threat to all airlines especially low cost airlines which try to keep their cost as low as possible. 6.0.2 Profits * AirAsias profit margin is about 30% and this has already attracted many competitors. * Full service airlines have or planning to create a low cost subsidiary to compete directly with AirAsia. * Users perception that budget airlines may compromise safety to keep costs low. Surprising things happened The situation where a party was held by AirAsia after the share swap was signed, which could be seen to signify victory for the budget airline that has been a fierce competitor, and at the other end it can see the departure of the other airline's (MAS) boss. "Suddenly, the national carrier, which was once the market leader, finds itself playing second fiddle to AirAsia and everything that was introduced seemed to be in favour of AirAsia," "It is therefore unsurprising that the current MAS management faces an uphill struggle convincing its staff that the share swap and collaboration are a good thing when they see their former rivals AirAsia and AirAsia X taking over several routes previously served by MAS and seeing their own airline shrinking its network, with news of impending layoffs/deployments," Collabration take place Last August, MAS' major shareholder Khazanah Nasional Bhd agreed to swap shares with AirAsia's major shareholder, Tune Air Sdn Bhd, which saw Khazanah getting a 10% stake in AirAsia and Tune Air a 20.5% stake in MAS. Khazanah also agreed to acquire a 10% stake in AirAsia X, AirAsia's long-haul budget affiliate. A collaborative agreement was also signed that aims to realise savings and increase revenue in the areas of aircraft purchasing, engineering, ground support services, cargo services, catering and training among the three airlines. Today, some aviation experts and analysts believe that the deal was nothing more than an exercise that wowed. "The plan has been, since the first days of the share swap, to sell off the crown jewels including its selfsupporting engineering and air cargo units. It is the only way to save the organisation, but it's questionable if there will be a freestanding MAS in the end. And if they can only sell things that are solid moneymakers, what are they left with after its restructuring is complete?" an analyst asked. A stripped-down MAS will also face pressures from many different sources. What's the way forward? One way is to redo everything. Hire professionals from a neutral third party who have proven success in running an airline. "And the person can be a foreigner. Why not? One good example is Carlos Ghosn, who became CEO of Japan's Nissan Motor Co Ltd and successfully turned around the loss-making firm," said the airline executive. The 46-year-old Brazilian had also previously worked in turnaround situations at Renault in France and at Michelin's US operations. Still, it may be too late to scrap the share swap. "There is already too much integration between MAS and AirAsia. For example, there are former AirAsia personnel who now hold key positions in MAS," said the airline expert. Thus, merging the two airlines may be the only way forward or MAS will keep losing money. This means one full-service airline and one low-cost airline under one company, much like MAS and Firefly.