Malaysia Airlines porter 5 forces PDF

Preview

Summary

Download Malaysia Airlines porter 5 forces PDF

Description

UNIVERSITI TUNKU ABDUL RAHMAN FACULTY OF BUSINESS AND FINANCE ACADEMIC YEAR: 2020/2021 MAY 2020 TRIMESTER

UBMM3014 STRATEGIC MANAGEMENT & PROJECT

INDIVIDUAL PROJECT COVER SHEET Programme details Programme

: BACHELOR OF COMMERCE ACCOUNTING

Year and Trimester of study

: YEAR 4 SEM 1

Tutorial Group

: T2

Lecturer’s Name

: Dr. Cynthia Chan Ling Meng

Tutor’s Name

: Dr. Cynthia Chan Ling Meng

Assignment Details Company Name

: MALAYSIA AIRLINES BERHAD (MAB)

Due Date

: Week 10, 17th Aug 2020 (Monday), before 2.00 noon

Important Note

: Submission of assignment is the responsibility of the students.

Students’ Details No.

Name

Student ID No.

1. LOO PEI YI Report Overall Marks :

1605585 /40 Marks.

Programme BAC

UNIVERSITI TUNKU ABDUL RAHMAN FACULTY OF BUSINESS AND FINANCE ACADEMIC YEAR 2019/2020 MAY 2020 TRIMESTER UBMM3014 STRATEGIC MANAGEMENT & PROJECT MARKING SCHEME FOR CASE STUDY REPORT

Assessment

Marks Allocation

1 Introduction

10 marks

2 SWOT Analysis

25 marks

3 Industry Analysis

15 marks

4 Competitive Analysis

15 marks

5 Strategy Formulation

20 marks

6 Conclusion

5 marks

7

Citations, references, grammar and quality of case study report

10 marks

Total Marks

100 marks Convert to 40 marks (Total x 0.40)

Comment:

Signature of marker: Name of marker:

Date:

Marks Awarded

TABLE OF CONTENTS CONTENTS

PAGE NO

1

Introduction

1

2

SWOT Analysis

2-4

3

Industry Analysis

5-6

4

Competitive Analysis

7-9

5

Strategy Formulation

10-11

6

Conclusion

12

7

References

13-14

INTRODUCTION Strategic management formulates and implements strategies of an organization while also coordinates its employee to achieve organizational goals and objectives through existing business resources. The execution of strategic management includes identification of key threats from the external environment, analysis and evaluation of current strategies. Through strategic management, companies are able to gain competitive advantages over competitors as they encompass the ability to aware of the changes of the environmental factors that are beyond of the control of the company before vast response and adapt to them. One thing leads to another; sustainable growth can be achieved due to greater efficient organizational performance, greater market share and profitability thanks to strategic management. Malaysia Airlines Berhad (formerly known as Malaysia Airlines System) is the flag carrier of Malaysia and its offering the best way to fly to, from and around Malaysia. Malaysia Airlines Berhad (MAB) offers the best connectivity with seamless journeys to more than 1000 destinations across 150 plus countries and access to over 650 airport lounges worldwide from its home base, Kuala Lumpur International Airport. An increasing number of airlines in Malaysia industry are competing for market share for both domestic routes and international routes. Air Asia is perceived as one of Malaysian Airlines' biggest rivals as mainly regards the price factor which Air Asia come alongside with the tagline “Now Everyone can fly”. In term of full services airlines, MAB is facing intense competition among Singapore Airlines, Jet Airways and Malindo Airlines (CAPA, 2019). The aviation industry is one of the worst affected sectors as precautions such as travel bans and stay home orders are imposed by many countries in order to contain the highly infectious COVID 19 pandemic (Yong, 2020). MAB is facing a landslide in flight demand as weak passenger demand across its network, particularly to and from China during February 2020. It is believed that it will take up 12 to 18 months for the aviation industry to recover as market research and trend analysis conducted by MAB showed that there is a significant reduction in passenger confidence when it comes to travelling in the remaining of 2020. Travellers are exceptionally cautious and hesitant to book their travel flights until at least by the end of 2020 due to mandatory quarantine and unavailability of Covid-19 vaccine (Yusof, 2020).

1

SWOT ANALYSIS Strengths MAB has strong brand recognition since 1947. Throughout its journey, MAB had its up and downs however it holds a protracted record of service and best practices excellence. According to its website, MAB has won numerous awards from the aviation industry, being crowned 'The World's 5-Star Airline' by Skytrax for multiple times and it also got ranked at 3rd place for World’s Most Improved Airlines by Skytrax in 2019 (Malaysian Airlines, 2020). Moreover, as a member of OneWorld, MAS has successfully managed to diversify and extend its business in six different continents such as the Middle East, Europe, Orient/ North America, New Zealand and Australia. Moreover, MAB has optimize its fleet which replaced the A380’swith Airbus A350. The new airbus will drive down complexity in maintenance, engineering and flight operations. The aircraft also help to deliver tremendous performance on premium longhaul routes (Malaysian Airlines, 2015). Last but not least, MAB also emphasizes punctuality and on-time performance (OTP)to benchmark against its competitors. On 17 February 2016, the airline hit a record 95% punctuality across all flights with 100% on domestic operations (Malaysian Airlines, 2016). Weaknesses From the evaluation of MAB, it has failed to cope with its problems related to personnel issues. After the structuring and rebranding of MAB, the first appointed CEO is Christoph Mueller, however, Christoph resigned from the post in less than a year. Subsequently, Peter Bellew has taken over the post from Christoph yet he also resigned after a year later. After the resignation of Peter, Izham Ismail is appointed as CEO until current date (Jumrah, 2020). Besides, according to Kang (2019), the board committee of MAB had many of the same members for several years despite losses. These phenomena have landed the MAB failed in achieving high operation performance over the years due to poor management and decisions making. Other weakness is pricing strategies implemented by MAB. With fares slashed and more routes than ever before made available, MAB is weaker when alliances with other low costs airlines such as Air Asia and Malindo Air in domestic routes. Other than that, international flights such as Thai Airways and Singapore Airlines also offer excellent service quality and often lower fares than Malaysia Airlines.

2

Opportunities The trend now with customer’s preferences in low cost fares and better in-flight services. In MAB is taking advantage of this situation by introducing its own low cost subsidiary called Firefly which was able to break in the market and introducing its own brand of marketing and low cost packages to compete head on with Air Asia. Today the Malaysian people are aware of Firefly airline, which should develop its capabilities to compete with Air Asia’s price strategy. According to the latest edition of IATA’s 20-Year Air Passenger Forecast, air travel within Asia is expected growing dramatically (IATA, 2016). MAB has grabbed the opportunity of the dramatic growth in air travel to, from, and within Asia by launching the joint business partnership with Japan Airlines. This further enhances convenience between Japan and Malaysia and allows customers to benefit from more flight choices such as will offer four weekly services between Kuala Lumpur - Tokyo Narita. Threats Since flight restrictions were imposed across most countries to curb the Covid-19 pandemic, MAB’s financials have deteriorated up to 94%, Malaysia Airlines are now at the risk of going bankrupt (Chong, 2020). Other than that, volatility in foreign exchange and jet fuel prices fluctuation has put Malaysia Airlines in a critical situation. Based on Khazanah’s assumption under the five-year recovery plan was that the local currency would range from 3.90 to 3.95 (Kang, 2019). However, ringgit was traded at 4.1780 against the US dollar as at 21 Aug 2020 (Bank Negara Malaysia, 2020). This has resulted in higher cost put pressure on the profit margins. A particular fact to point out is during the year 2014 when the 12-point MAS Recovery Plan (MRP) was conceived, fuel price was rated at US$75.68 per barrel. Last year, a rise in the International Air Transport Association jet fuel price occurred at 3.5% and US$80.30 per barrel (Kang, 2019).

3

Use Resource-Based View (RBV) to identify the company’s strategic advantages. As a part of tangible resources, MAB operates with Airbus and Boeing to drive down complexity in maintenance, engineering and flight operations. According to its website, MAB currently possesses a total number of 81 active aircraft in its fleet which enables the airline flies 40,000 guests daily. Besides, Airbus A380-800 acquired by MAB has the maximum capacity of 494 passengers with a maximum cruising speed of 1,102 km/h. Meanwhile, Air Asia can load the maximum of 377 passengers each route with Airbus A330 (AirAsia, 2019). As a result, MAB gains the advantage of cost-saving by using Airbus A380 on long-haul routes as it can carry a maximum capacity of 494 passengers each route yet shorter the shorter travelling time. On top of that, many skilled employees including engineers, pilots and cabin crews have perceived MAB as a talent factory due to its consistency in working on closing the skills gap via the Malaysia Airlines Academy by offering a centre of aviation skills for Malaysia. Through the academy, MAB is promising the aviation industry leaders from future generations that are groomed entirely from within. This is further proven by the fact that the successful recruitment of 20 management trainees by MAB. These trainees are assigned and rotated across various divisions in Malaysia Airlines to ensure exposure across all functions of the organisation and to inspire passion for the industry (Malaysian Airlines, 2016). Both high quality and qualified staffs acquired by MAB has enabled it to perform services proficiently. MAB has consistently established high standards of service across its business segments since it operates. MAB has been leveraging its strong brand image to win the loyalty of consumers to grow its market share as compared to low-cost carriers. MAB has exploited its resources and capabilities, which is reflected in its restructuring plan since 2015. In January 2017, the now ex-MAB CEO Peter Bellew proudly announced that the passenger load factor rose from 68% to 82% in 2016 (Ho, 2017).

4

INDUSTRY ANALYSIS BARGAINING POWER OF BUYERS As in Malaysia, types of traveller can be classified into budget traveller, business traveller and casual traveller. Since the low-cost carrier (LCC) is booming over the past 10 years, MAB had lost its attractiveness towards budgeted buyers as the price offered by MAB is relatively high especially compared to AirAsia. Thus, MAB has launched its subsidiaries Firefly to provide convenient and low cost travels in order to compete with LCC. In order to retain the existing customer and attract new customers from other full services carrier such as Singapore Airlines, MAB has redesigned its Golden Lounge to deliver world-class facilities and amenities, and a sumptuous local cuisine for its travellers. Although the travellers have the ability to switch to an alternative easily, yet MAB has shown tremendous performance in providing quality service to attain its customer.

BARGAINING POWER OF SUPPLIERS In terms of jet fuel price, the bargaining power of suppliers is relatively low as only a few organization and the price of fuel is set by the government. In aircraft manufacturer industry, there are two main companies competing with each other which are Boeing and Airbus. MAB holds 48 units of Boeing aircraft while it only holds 33 units of Airbus aircraft. In light of this, we can conclude that MAB staffs are more familiar and experienced with Boeing aircrafts. Thus, the bargaining power of suppliers is relatively high, as MAB would implicate intensive cost of switching aircraft manufacturer as a result most of the aircraft operates by MAB is Boeing.

THREATS OF NEW ENTRANTS Generally, airline industry operates with a high barrier to entry and exit as it requires high capital investment to operate efficiently so that customer loyalty can be achieved. Meanwhile, airlines will most likely face a severe financial crisis upon its decision to exit from the market. Moreover, the LCC still required intensive initial capital and skilled labour to operate. Thus, barriers to entry and exit are high. If the of new entrants is high such as the new competitor, Malindo Airlines, a hybrid-full service carrier, In the event of a disruption, through the right

5

channels and spot-on timing, tailored and relevant offers could be promoted by MAB to customers. Customer retention can be achieved through such personalised and proactive care to frequent travellers as they feel recognized and valued.

THREAT OF SUBSTITUTES Airlines industry falls under the category of the transportation sector, thus transportation such as railway, ferries and also commercial cars would replace the airlines. In term of intercity connection, the threat of substitute is relatively high especially the high-speed rail network could easily replace the airlines as the price offered is relatively lower than airplanes. However, due to time and accessibility constraint, airlines are still the choice for the business traveller and pleasure traveller. Besides, in term of international routes, airlines have very tiny opportunity replaced by those substitutes as travelling between countries such as Malaysia to London could only be connected by air. Concerning this, substitutes have low power in influencing the airline industry due to complements has yet to be tapped fully.

THREATS OF RIVALRY AMONG EXISTING FIRMS In terms of the level of competitiveness, within the airline industry, the rivalry tends to be higher due to its high fixed cost. The rationale behind the high fixed cost is specifically for the safety measures of their customers due to the tight schedule regardless of the number of passengers. As a result, in order to sustain within the industry, airlines are slashing prices through discounts and other volume-boosting techniques. In light of this, LCC is booming recently.

In conclusion, the profit in this industry is high because for most people flying in necessary. It is not a trend which makes this industry profitable for the long term. Airlines that are more profitable are in a better position because it provides a very unique service to its customers. It transports people with a high level of convenience and efficiency that cannot not be provided by any other industry or substitute.

6

COMPETITIVE ANALYSIS MAB and its two major competitors, Air Asia and Singapore Airlines are offering comparative products and services in the airline industry. However, the pricing, pattern and services offered are differentiated in significant extent. Air Asia Berhad is the largest rivals of MAB as Air Asia has known as Malaysian largest low- cost airline. Air Asia provides domestic and international flights to more than 165 destinations spanning 25 countries around the world. Air Asia has been ranked the world’s best low-cost carrier for 11 years consistently by Skytrax. Singapore Airlines (SIA) is the flag carrier airline of Singapore. It has been ranked as the world’s best airline for four times and Travel & Leisure’s best airline ranking for over 20 years. SIA flies to 137 destinations in 32 countries and also operated two of the longest nonstop flight in the world, Singapore to Los Angeles and Newark. In term of product and pricing, MAB provides different in- flight entertainment based on the class to its customers and fares are generally higher compared to low cost carriers. MAB differentiate itself from budgeted carrier by providing premium services. However, Air Asia targeted lower- middle and middle- class section of society. AirAsia kept the rates of tickets at the minimum level and offered better services. Thus, MAB has gain comparative advantage as compared to Air Asia in term of services provided. On the other hand, in term of product pricing, MAS has comparative disadvantages compared to Air Asia. SIA is the leader in the airline industry as it has adopted premium pricing policy as it targets customers who prefer reliability, comfort and luxury experience. Due to negative brand image and loss of face suffered by the airline from the missing of MH370 aircraft during 2014, MAB has loss it comparative advantages compared to its competitors.

Financial Ratio 1. Liquidity Ratio Current ratio= Malaysia

Current Asset Current Liabilities

Airline

Berhad

Air Asia Berhad (RM’000)

Singapore Airlines ($million)

RM2,923,185

$ 7,310.7

(RM’000) RM5,825,952 RM7,279,098

= 0.8

RM2,572,255

= 1.136

$ 9,067.9

= 0.806

AirAsia has the highest ratio of 1.136 and MAB has the worst ability to pay its current liability 7

with RM0.8 for every ringgit of current liability. Singapore Airline has $0.806 to settle every dollar of its short-term obligation.

2. Asset management/ Efficiency ratios Inventory turnover= Malaysia

Cost of goods sold Inventory

Airline

Berhad

Air Asia Berhad (RM’000)

Singapore Airlines ($ million)

RM4,430,177

$ 14,984.6

(RM’000) RM15,683,736 RM253,765

= 61.80

= 150.07

RM29,520

= 61.66

$ 243

Air Asia has the highest ratio of 150 times and this shows that the product sold by Air Asia meet customers demand and constantly replace inventory to fulfill the demand. Singapore Airlines has the lowest ratio of 61.66 times and this clarify it require longer time to sell off their product. This might due to the prices offered to extremely costly thus, only wealthy individual would purchase the flight tickets from SIA. Receivable turnover=

Sales Account receivable

Malaysia Airline Berhad Air Asia Berhad (RM’000)

Singapore

(RM’000)

million)

RM14,548,164 RM1,596,152

RM5,111,822

= 9.11

RM731,506

= 6.988

$ 15,243.9 $1,604.7

Airlines

($

= 9.5

The highest is Singapore Airline at 9.5 times compared to Air Asia. Air Asia has the lowest turnover due to poor collecting processes and bad credit policy. 3. Leverage ratio Debt to equity ratio= Malaysia

Total liabilities

Airline

Total equity

Berhad

Air Asia Berhad (RM’000)

Singapore Airlines ($ million)

(RM’000) RM17,803,022 RM4,052,131

= 4.393

RM12,855,162 RM5,000,932

= 2.57

$ 9,067.9 $ 13,574.6

= 0.668

The lowest is Singapore Airlines at 0.668 while MAB and Air Asia recorded 4.393 and 2.57 respectively. This indicates that Singapore Airlines is a low geared company which has high

8
...