Marketing Strategy of Malaysian Airlines: Porters five forces model & PEST analysis

Question?? Write the business strategy of Malaysian Airlines?? Solution the Question frame is:: Introduction Malaysian Airlines is a government owned flag carrier of Malaysia. It operates from its home base, Kuala Lumpur International Airpor and with a secondary hub at Kuching. Other than the airline, the group also includes aircraft maintenance, repair and overhaul and aircraft handling( Wikipedia) The vision of the company is to become a preferred premium carrier, well positioned in the Asian aviation marketplace. Even though Malaysia is relatively smaller in Asian arena, the airline will try to harness the countrys geo economic centricity in ASEAN, and emphasise on their own natural way of cost competitiveness as a hub and try to enter into alliance and partnership to punch above the weight(Malaysia airlines). Current situation of Malaysian Airlines Malaysian Airlines are in a position of crisis. The company has incurred a net loss of RM 1.2 billion in the first three quarters of 2011 alone. Almost 40% of the total routes in which the airline operates is incurring losses. The position of the company is even more tenuous as compared to the crisis which the company faced in 2006. The market of aviation is becoming competitive with the entrance of the low cost carrier (LCC) in the market and the growth of the Middle Eastern full service carriers and even the revival in the fortunes of Asian full services such as Garuda, Japan Airlines and Thai Airways.

Malaysian Airlines had not focused on the premium segment of the market, even the quality of the product has fallen. The major marketing efforts of the company were focused on tactical sales promotion instead of brand building. Even with great efforts from the side of the sales team the profits generated is really low which is quite low to cover the increasing cost structure. Demand in the Asian aviation industry is quite strong. Throughout Asia there is a huge growth in the disposable income of the people, access to the credit card is increasing and a cross border trade is very popular, with well developed infrastructure and population of south east Asia alone is around 500 million there are huge growth potential for the aviation industry so in order to revive from its current status Malaysian Airlines has a great plan for success. Malaysian Airline recovery model from 2011 crisis: To achieve its vision of becoming a preferred premium carrier begins with some fundamental remodelling of the core business. It is based on sheer simplicity of focus and is very basic in nature.

The company will study the strategy utilised by other airlines to achieve success and adapt it effectively in a unique way. 1) Smaller yet profitable networks: The airlines would include only those routes where the premium travellers would like to go so that they can win competitive position and home advantage. The company is planning to shrink in order to grow and the moment they are able to achieve financial stability they will expand their network to cover worlds major economic regions and hubs. Malaysia Airlines (Kuala Lumpur) will drop the following seven routes in early 2012 from Kuala Lumpur according to its new business plan (Airlinegallery .com, 2011) Surabaya Dubai Karachi Dubai Johannesburg Cape Town Rome (February 2) (January (January Dubai Damman (January Buenos Aires 6) 10) 12) 13) 31) 1)

(January (January (February

2) Win back customers: The company plans to take delivery of 23 aircrafts in the year 2012, each having state of art passenger amenities. Anew sales and marketing plan will come enforce which will help the airlines to win back its hard earned loyal customers, especially the ones from Malaysia and convince them of the enhanced services provided by the airlines. 3) Relentless cost focus: As new aircraft would be purchased by the company it will fully utilised the advantage of its improved efficiency which would comprise of lower fuel bills and maintenance expense initially. The focus would be to keep the overhead and discretionary expense to the minimum. 4) Keep it simple: The business structure of the company has become very complex with a group of entities operating together- core full service airline, MASholiday, MAS aerospace Engineering, training, catering, and ground handling. The company is planning to remove this clutter and focus on its prime business activity flying so it is planning to give sufficient amount of freedom to its ancillary business units so that even they can utilize their potential to the fullest. 5) Launch of new regional premium airline: In 2012 the company plans to launch its new short haul brand which would be flying entirely on the new Boeing 737-800. The smaller Boeing size would enable the airlines to fly to more places where the customer wants to travel and even sometimes according to their convenience. A separate management structure would be brought enforce to focus on the unique needs of the premium travel customers. The airlines would set new standards of product service and quality which would include high degree of cost and operational efficiency. 6) Alliances and partnership: The airlines plan to join the extensive global network and looks forward to increasing traffic with the help of combined networks and infrastructure. The airline plans to enter into material partnerships with major airlines to strengthen its international presence. 7) Branded customer experience: The customer would be top priority of the airlines and an improved experience would be provided at all touch points pre-flight, in-flight, and post-flight.

8) Continuous operational improvement: To support the vision of becoming a preferred premium carrier the airlines would be making substantial changes at the operational level to excel on three lines: commercial effectiveness, flight operations and cost management. In order to determine the success of the future strategy the current market condition of the airline industry must be brought into focus. So to analyse the market attractiveness porters five force model would be best suited (Douglas). Porters Five Force Model 1) Industry competitors Local competitors are Air Asia, Firefly, etc

International competitors- Singapore airlines, Garuda, Cathay Pacific, Thai International Airways Other Low cost Airlines- Compass, Tiger Airways, Cebu Pacific, Jetstar Asia Airways, Impulse, Virgin blue Airlines. The number of competitors is very high and with the emergence of low cost carrier and deregulation the internal competition has increased and the only reason that reduces it is the low and highly volatile profitability. Suppliers Power Fuel prices are ever increasing affecting the cost so the supplier power is high.

The Asian airline industry is very optimistic about the growth potential of the Asian aviation industry so is placing huge aircraft orders thereby increasing the bargaining power of the suppliers again The civil aircraft industry is monopolized by two major aircrafts manufacturers Large capital required so the leasing companies come into picture.

Highly specialized and professional employees are required to maintain the status of five star carrier services. The recent crisis in the overall airline industry has to some extend lead to a reduction in the prices of the aircrafts. Buyers power Local population (Malaysian) Southeast population- Indonesia, Thailand, Singapore, etc.

There is no switching cost as the buyer can easily switch from one airline to another so the power of the buyers increases.

There is a very low product differentiation so to succeed providing either services at very low cost or give a five star experience so that customer pays the price for the superior services offered. The availability of information is really high and with the emergence of travel portals who guarantee that they can search for the lowest fares out of all the options available and book it for the client with just a click which even provides the ease of purchase, the bargaining power of the buyer is increasing Frequent flyer programme and online duty free purchase services can create customer loyalty and reduce the threat of customer switching over to other airlines to some extent. Low buyer concentration can also reduce the power of buyers.

Potential entrants Airline industry has a high barrier to entry and exit as once an airline is operative then exist from the industry would amount to huge amount of loss. Licensing is one of the major barrier for the industry.

JV and partnership is the most recent trend in the industry which has increased the threat to this industry. High unit cost makes the entry to the industry unattractive. There are no economies of scale and scope available. Deregulation has to some extend reduced the restriction to the entry in the industry. Internet has again increased the new entrant possibility in the industry.

The substitute The surface transport can be substitute.

With the advancement in technology for many thing travelling personally is not important as with the help of web conferencing and services like online counselling the need for travel is reduced. The customer can switch to modes which are reasonable in terms of fare as air travel to some extend is expensive as compared to other modes of travel. The factor which alone reduces the attractiveness of the substitutes in the minds of the travellers is the fastness and reliability of air travel. With the help of Porters model we have the various micro conditions under which the airline operates and now I would like to discuss the macro environment of the airline industry with the help of Pest analysis PEST ANALYSIS

To analyze the economy in the macro perspective we need to study the Political, economic, social and technological environment of Asia as a whole.

a) Economics .The rapid growth of Asia fuels the growth of the air travel in Asia. The growth is also because of the region being geographically dispersed and the countries having a large population. The governments of the various countries have invested in the development of airlines and travel infrastructure and have made investment in the airports to make them competitive with the rest of the world. Again with high growth and increase in trade and business the competition has increased which has led the full service airlines like MAS to start cost cutting. In the view of many economists Asia would soon be on the top of the global economy growth charts. b) Political/ Legal Government policies are important drives for the success of Asia. In the late1990s, there was increase privatization and deregulation of the airline industry in Asia. It was noticeable that some Asian countries established open-skies agreements while others allowed the entry of private airlines. For instance, in 1997, a few LLC spouted quickly after Malaysia signed an open -skies agreement with the United States. Hence, it appears that although the travel market will be expanded, in reality MAS would also have to operate in a more challenging environment with intense competitions. c) Social-Cultural Surveys revealed that more people were willing to compromise on food and other services in exchange for lower prices. In fact, it was stated that price of tickets was the single most important consideration that influenced passengers decision in case of a conscious leisure passengers who are always looking to make their budgets decrease further. This presents an opportunity for all LCC increase their revenues by offering travelling at a much lower fare. With the entry of such low cost carriers the competition for the full service airlines like MAS increased so the company has to segment its market and target only those high class premium business travels for whom service and luxury is very important and are not concerned about their budget. d) Demographic In 2005, the total population in Asia stands at more than 3.5 billion. The United Nations statistics also show that Asia has an astonishing demographic dividend where more than 35% of its population is below the age of 25 and more than 55% hovers below the age of 35. This shows that the population of middle age is group is increasing thereby increasing the number of working population which results in the increase in the overall disposable income and so the number of business and leisure travellers is bound to increase. This therefore presents a golden opportunity for MAS. e) Technological The technological advancement including introduction of services like internet telephony and use of various other telecommunication services ( like buying of tickets online) provides MAS a new arena to boost up its sales by leveraging the new technology. The use of e-commerce and internet based activities which includes reserving a holiday online and even buying tickets online opens ways to

derive ancillary revenues. Technology advancements sometimes also help in reduction of the operational cost such as savings on commissions for travel agents. Analysis of the Industry MAS though currently does not have a strong presence in the region, the macro environment of Asia presents vast opportunities to enlarge the companys market shares. The Airline businesses are closely linked to economic activities in Asia and the world. As such, MAS needs to be cognisant with the business cycle so that it can to take full advantage of such effects especially when there are changes in discretionary income and consumer spending patterns. The company should also keep in mind that increases in the demand of fuel and limited supply can lead to higher fuel price that will decrease the yield. Last but not least, the impact of crisis such as 9/11 (2001) and SARS outbreak (2003) was able to hit the airline industry badly and as such they continue to pose serious threat to airlines. MH79