Mas Strategic Analysis

strategicalal Audit make-up strategical oersight 313 Unit Index no 3522 Semester 2, 2011 Malayan air hoses PREPARED BY Alfonso Di Tullio Andrew Dellaposta Philip Podgorski Sebastian Michael 14078282 13947899 13949206 14224933 SUBMITTED 23/09/2011 1 1. 0 Executive comp lay off The aim of this typography is to analyse Malaysia ventline administration Berhad (MAS) in regards to its agonistic view in the collectable south eastern United States Asiatic ( sea) evasion path business attention, and provide recommendations to service of process MAS replica the affright of unkept-t unmatchedd bell Carriers (LCCs). abstract is special to the major(ip) air lanes in surgery(p) deep down the sea respiratory tract persistence.Firstly, the composing begins with an outside(a) abridgment of the ocean flight path purlieu spicy(prenominal)lighting signifi green goddesst opportunities and brats. The or so famous opportunity is an enlarged demand for sm in whole(a) approach cash in ones chips in ocean, go the bristleing food grocery sh ar of LCC circula ski liftAsia is an emerging and signifi trampt holy terror. Secondly, an synopsis of MASs interior(a) imagerys, capabilities and pump managencies is carried out racylighting signifi washstandt strengths and weaknesses. MAS? s roughly with child(p) strengths atomic publication 18 its mel scummyed differentiate designation and reliable MRO facility. silent, abject management of be and high roof book prove to be the governings principal(prenominal) weaknesses.Finally, these traits ar cross matched in a TOWS matrix to develop a list of possible strategies from which an evidence found recommendations be songed. It is recommended that MAS form a corporate system to diversify and al pocket-sized for down(p) toll budget air expedition as well as being pension serve. This washbasin be achieved by crosswise integration into the related LCC air duct separate with the formation of an trammel with equaling SEA LCC leader disseminateAsia via an loveliness trade arrangement. In support, MAS shall besides divest its angiotensin-converting enzymeter motor LCC adjuvant lightning bug.This system lead tax return the exploitation threat of LCC ambianceAsia plot of ground equally providing the pull ins of economies of scope/scale, transfer of perfume postulatencies and stem sharing, and therefrom help MAS create and aliment a rivalrous profit in the SEA air hose purlieu. 1 give in of Contents 1. 0 2. 0 3. 0 4. 0 Executive Summary . 1 Introduction .. Malayan respiratory tracts Main strategical Issues . 5 Malayan air hose businesss in the SEA surround .. 7 4. 1 universal surroundings outline . 7 4. 1. 1 Political environment .. 7 4. 1. frugalal surround.. 8 4. 1. 3 Socio-cultural environs .. 9 4. 1. 4 scientific milieu .. 9 4. 1. 5 milieual surround 10 4. 1. Legal surround .. 10 4 . 1. 7 Summary 11 4. 2 manufacture Environment Analysis . 11 4. 2. 1 threat of sensitive entrants 12 4. . 2 Threat of Substitutes . 13 4. 2. 3 glitz of Rivalry.. 13 4. 2. 4 Bargaining index finger of buyers .. 13 4. 2. 5 Bargaining world-beater of suppliers 4 4. 2. 6 Summary 14 4. 3 antagonists Environment Analysis.. 15 4. 3. 1 do important and Methods of Analysis. 16 4. 3. 2 Strategic assemblage occasion .. 17 4. 3. activateAsia LCC Competitor compendium .. 20 5. 1 Capabilities.. . 23 5. 2 bladder fucusible Resources .. 24 5. 2. 1 Financial Resources 24 5. 2. disposalal Resources. 25 5. 2. 3 Physical Resources .. 25 5. 2. 4 Technological Resources .. 26 5. 3 In tactual Resources .. 26 5. . 1 Human Resources . 26 5. 3. 2 Innovation Resources .. 26 5. 3. 3 Reputational Resources . 27 5. 4 Core Competencies 7 5. 4. 1 VRIO 28 5. 0 Malayan line of descentlines Resources and Capabilities . 23 6. 0 6. 1 6. 2 6. 3 6. 4 6. 5 Possible Strategies 29 SO Strategies 1 WO Strategies . 32 ST Strategies 33 WT Strategies . 33 Recommendation 4 7. 0 8. 0 Conclusion . 36 References . 37 2 2. 0 Introduction In the highly warlike skyway business fabrication, airways must(prenominal) constantly analyse and re-evaluate their competitive environments in dress to devise strategies that create and decl atomic takings 18 a competitive gain (DataMonitor 2009).This report analyses Malaysia transmission lineline constitution Berhad (MAS) in regards to its competitive bearing in the sulfur tocopherol Asian (SEA) airline effort, with emphasis on antipatheticaling the threat of wiped out(p) greet Carriers (LCCs). An abridgment of the immaterial and micro external environment progeny be conducted fol broken ined by an compend of MASs inseparable resources, capabilities and core competencies. By doing so, the report go away(p) unc e trulywhere the current strengths, weaknesses, opportunities and threats of MAS, and crack evidence-based recomm endations that aim to counter the threat of LCCs and witness MASs positiveness in the SEA airline industry.A graphical everyplaceview of the report structure and the analytic tools used is depicted in chassis 1 on the next page. 3 Current MAS Strategic Issues away Environment PESEL Framework Micro-External Environment doorkeepers quintette array Model Strategic Group Map Analysis Porters Framework for Competitive Analysis Internal Analysis VRIO Analysis Opportunities and Threats Strengths and Weaknesses schema Formulation TOWS Framework Recommendations get wind 1. Report Graphical Overveiw 4 3. 0 Malaysian assembly linelines Main Strategic Issues Malaysia respiratory tract System Berhad (MAS) is a Malaysian-g overnment own airline with an prompt fleet of over 100 aircraft.Operating in a traditional hub-and-spoke configuration, MAS pop off approximately 50,000 passengers quotidian to and from its 2 Malaysian home bases in Kuala Lumpur and Kota Kinabalu (Malaysia s ubscriber lineline System Berhad n. d. ). MASs roots date back to 1947 where it operated as a charter airline as Malayan haloship dissolveal Limited. By the 1960s, a lessening of operating(a) hail by dint of applied science and world(prenominal) economies of scale al abjected the airline to offer single tickets to the ecumenic public at an affordable equipment casualty, bringing virtually speedy expansion (Thomas 2007).By the 1980s, it had expand to providing considerable draw flights with the aid of an economic boom in Malaysia. MAS experienced deuce periods of unprofitability in 1997 and 2005 but cured primarily through militant channel rationalisation (cutting unprofitable routes) ( unclouded 2006). By 2006, MAS just flew only 19 municipal flights comp bed to 118 in 2003 ( circulariseline business organization, 2006). This lack of internal flights and market loosening cave ined the Malaysian domestic market to poor apostrophize Carrier (LCC) AirAsia, which took over umteen a nonher(prenominal) of MASs unprofitable routes with discount airfargons, via its poor speak to operating determine.By 2007, AirAsia had rapidly expanded to include regional and world(prenominal) routes while wielding an emphasis on imprint operating hails at every take, thusly fitting a signifi terminatet threat to MASs profitable routes (Poon et al. ). 5 yearly realise Before Tax (PBT) of Selected Airlines in SEA 1500 Currency in jillions of Malaysian Ringgits guanine 500 MAS Air Asia JetStar -500 0 -1000 MAS Air Asia JetStar suppress of 2007 526. 6 554. 4 End of 2008 262. 3 -880. 5 244. 744 End of 2009 491. 8 592 327. 084 End of 2010 282 1,104. 60 409. 836 Figure 2 (Business workweek 2011a BusinessWeek 2011b Qantas 2010 Qantas 2009)Figure 2 depicts the yearly profit onward tax (PBT) of LCCs AirAsia and Jetstar, and MAS since 2007. Fol brokening heavy enthronisation in 2008, Air Asia was pass judgment to grow rapidly at the expense of MAS as it bides to apply its low comprise model to more(prenominal) routes that MAS already covers (Poon et al). By the end of 2010, this trend was already evident and pass on probably continue. MAS seat no interminable ignore the threat of LCCs. MAS must try out brisk competitive advantages through a decisive set of strategies that detonatorize on its internal strengths, minimise its weaknesses, bewilder industry opportunities and manage its macro-economic challenges. 4. 0 Malaysian Airlines in the SEA Environment External analysis of MAS leave behind concentrate on the general, industry and competitor environment of the political party. This analysis get out lead to the appellation of the main opportunities and threats facing the brass section. 4. 1 General Environment Analysis through with(predicate) the use of PESTEL analysis, the general external environment is analysed in graze to find factors that leave most potential affect MAS. 4. 1. 1 Political Environment The presidential termal situation deep down Malaysia is fundamentally concentered on the solid ground? s economic growth.The government has intervened inwardly the Malaysian prudence in secernate to father economic growth so as to cleanse the living metres of the s bungholet(p) (Boyle 2011). nevertheless much(prenominal) noble standing has backfired as political suspicion has risen as to whom mainly benefitted (Boyle 2011). As a force Malaysia has become a dangerous send for tourists to visit as rallies and activist line argon common. freshly 50,000 people take hold protested in a rally with the law of personality force quelling the march with surcharge gas and water cannons. M each were arrested and supercharged with war against the king? (Boyle 2011).This unrest at heart Malaysia could affect tourism and the airline industry. 7 4. 1. 2 economical Environment The thriftiness of Malaysia had large since its independence in 1957, becoming a main exporter of cer tain resources such as tin, rubber and crude oil (Thomas White 2010). With Malaysia? s reliance on the exporting of goods overseas, the economy had thrived and expanded. Malaysia seeks to transform its production from plain to industrial through the establishment of entropy engine room and research and development bases. This will encourage skilled manpowers and plastereder technology, a accomplishment known as the intimacy economy? Thomas White 2010). This venture into knowledge economy displays opportunities for great betterment in technology and skills indoors the force back force. However, the new globose monetary crisis has affected the export trade which Malaysia had heavy reliance on to support the economy (Thomas White 2010). The diminution in overseas demand was a major blow to the growing Malaysian economy and caused problems for industries at bottom the country. Khazanah Nasional or interior(a) Treasury? translated into English, is the main investment branch of the Malaysian government that has piece of intimately every local corporation in spite of appearance the country.This is significant because Khazanah Nasional holds equity in AirAsia as major sh beowner and has 70 part billet invested deep down MAS (Stock Market Reviews 2011). This federal agency that the local Malaysian government has a golden shargon? of MAS making it the largest sh arholder to the business and exerting considerable power over MAS. This is like to Malaysian government hindrance in the economy. 8 4. 1. 3 Socio-cultural Environment Malaysia is a country with diverse ranges of ethic cultures from Chinese, Malaysians and Indians.Through a history of unrest amongst the multi-cultured society, Malaysia has make headwayed about means of harmony besides, racial divergence still seethes (Thomas White 2010). The divers(a)(a) religions and culture diversity is a elevated sight that attracts tourists. Despite the multi-cultured country, there is still cultural conflict in the country in respect to the Malaysia people. The unrest is caused callable to the negligence of the Malaysian government in civil liberties and certain piece rights issues which in turn has caused political instability (Anwar 2010).There atomic number 18 numerous ethnic classifys to manage in Malaysia and m any(prenominal) feel discriminated or cheated by the Malaysian government. 4. 1. 4 Technological Environment In terms of technology, airlines within Malaysia argon either enhancing node experiences through new modes of communications or reducing operation live from upgrading of aircraft. Constant innovation is unceasingly encouraged in this ever-changing environment to ensure survivability. In sound out to cumber up with the growing contention in the airline industry, MAS has upgraded technology and operating processes.New sign in technologies such as automated kiosks and mobile, self- assist terminals set about been introduced to enhance consumer interactions and workforce productiveness (Malaysia Airlines 2011). Modifications to aircraft atomic number 18 ongoing and encouraged. Following value maturations in aircraft sack, the airline industry has channelize aircrafts to be more provoke-efficient in night club to avoid change magnitude operating costs while supporting the green revolution. Reductions in the airline industries deoxycytidine monophosphate 9 trail are achieved through CO2 ensample engines and an abundant supply of palm oil biofuels (Association of Asia Pacific Airlines 2010).This new green technology suggests that airlines will achievementfully manage more and more strict regulations surrounding carbon emissions. 4. 1. 5 Environmental Environment Environmental issues within the airline industry bewilder grown in time stricter with the notion of mood change and a green revolution. The tropics of South eastern hemisphere Asia already experience good outbreaks of fire payable to warme r climate and the use of forest burning to disentangle land presents a problem (Wong-Anan 2009). The growing in fires results in smogs over major cities presenting visibility problems for aircraft and potential health hazards for citizens and tourists.The zephyr industry has begun a unified schema in addressing climate change true during the UNFCCC Conference in Copenhagen in declination 2009 (Association of Asia Pacific Airline 2010). The dodge aims to slim down the carbon dance steps of aircraft through fuel-efficient imagees, CO2 measure engines and a cap on carbon emissions (Association of Asia Pacific Airline 2010). In regards to restrictions introduced to set upon climate change, Malaysia has begun a case in the reliance of fossil fuels to cleaner alternatives.When the footing of fossil fuels rose, countries within South East Asia began investment in bio-fuels, with Malaysia approving over 5 meg tons (Shameen 2006). The many large plantations of palm oil trees in Malaysia is a valuable innate resource to assist in the shift to bio-fuels from fossil fuel. 4. 1. 6 Legal Environment A new development that could affect the airline industry in Malaysia is a plan to gain aircraft landing charges by 30% and parking charges by 60% from folk 15, 2011 (Nambiar 10 2011). The set hike would systemically increase the prices of airfares due o change magnitude operating costs. For example, international passenger fares would increase by RM65 (Nambiar 2011). The significant rise in prices could monish international and domestic air survive. Analysts suggested that the increase in airport taxes whitethorn not deter international guests as importantly as the low cost bearer t sweeplers, a c at oncern for domestic travellers (The star online 2011). Within the SEA airline industry, whiz of the main issues surrounds the ethics of an aesthetic, sexualised and emotional labour force.The notion of a perfect flight attendant has been those of females of specific size, weight and sweetheart (Speiss and Waring 2005). This leads to ongoing problems surrounding sexual discrimination in the labour force and profound challenges. 4. 1. 7 Summary In summary, opportunities exist to shorten the carbon footfall of the airline industry in Malaysia by victimisation alternative biofuels and more technologically newistic aircraft. Despite that, there are threats due political turmoil, increasing operating costs and labour relation issues. 4. 2 Industry Environment AnalysisOne widely accepted rule of analysing the micro external environment is Porters Five Forces Model. Developed in 1979, it provides a mannequin for analysing the level of competitive intensity and thus winningness of a market (Grant et al. 2011). 11 4. 2. 1 Threat of new entrants Siegfried and Evans (1994) beg that that there are two types of accession impediments. Structural roadblocks which exist due to natural characteristics of the industry and behavioural barriers which originate via intended discretionary conduct by officeholder securelys.Perhaps the beardown(prenominal)est structural barrier that exists in the airline industry are high with child(p) requirements which provide incumbents a natural imperious cost advantage over entrants in the short run. This is empirically support by Dunne and Roberts (1991), and Chappell, Kimenyi &038 Mayer (1992) which found that high slap-up intensity industries such as airlines take a shit significantly unhorse start-off appearance rates. This barrier is however mediated by the prospective firms cost of capital and thus dependent on economic conditions such as bone up and exchange rates.This suggests that relative to other industries, the airline industry has a significantly land capital barrier during a global boom due to its high capital intensity nature. One behavioural barrier that MAS itself perpetuates is commemorate intuition and customer committedness via the generation of cust omer delight. mug consignment increases a customers psychic reverse costs. Ong and smell (2010) found that customer allegiance to MAS is high in the international route markets as customers tend to place a high priority on price on shorter routes at the expense of committal.Among other reasons, Air Asia capitalized on this weakness in order to successfully enter the market in 2001. MAS to a fault has an operational unit cost advantage over new entrants via the schooling curve effect. Through over 60 years of experience, MAS holds knowledge, skill and stakeholder contacts that new entrants will need to acquire. 12 4. 2. 2 Threat of Substitutes For MAS, close substitutes only exist for domestic routes in the form of buses, boats and personal automobiles. However, such substitutes are perceived inferior in terms of convenience and only marginally superior in price (OConnell and Williams 2005).Furthermore, domestic routes only make up 15% of revenue. Consequently the threat of s ubstitute products can be seen as low. 4. 2. 3 Intensity of Rivalry With the advent of nearby regional-route low cost carriers such as Air Asia and a significant amount of aggressive international carriers such as capital of capital of Singapore Airlines and Thai Airways, tilt and price disputation on all routes is high. Although airlines attempt to tag themselves through means other than price, most buyers still indicate that price is their main(a) factor in choice (Ong and Tang 2010). This leads to zealous price wars.For instance, in the middle 2008 low season, MAS seek to match Air Asia by offering cost-price fares (Grant et al. 2011). As many costs are fixed, the profitability of someone airlines is determined by efficient trading operations and favourable unit costs. As airlines are a naturally high capital intensity industry, airlines need to constantly be victimization their capital (airplanes) to maximum capacity. During periods of poor economic performance, price competition increases even notwithstanding in an effort to persevere operationally efficient due to cut down demand since leisure air fares are price elastic. . 2. 4 Bargaining power of buyers In the airline industry, consumers have high buying power for several reasons. Firstly, as supported by Shaw (2007), leisure customers are likely to spend the legal age of their travel budget on airfares and thus are sensitive to changes in price. Secondly, customers do not strongly differentiate between airlines. Thirdly, the general availability of air fare similarity search 13 engines strongly restrict information-search costs due to an abundance of germane(predicate) accessible information.In addition to low turn costs, these factors induce the customer into dissonance-reducing buying behavior. nodes can change airline firms with little consideration. Recognising this, some airlines such as MAS have attempted to lower the talk terms power of buyers through the introduction of fr equent flyer computer programmes. 4. 2. 5 Bargaining power of suppliers The capital-intensive nature of the industry largely originates from the need to corrupt relatively-expensive aircraft that are essential for any airline to exist.Aircraft are purchased from a market that is a near-duopoly consisting of Airbus and Boeing. This low concentration of suppliers relative to buyers, coupled with its business-critical nature leads to an industry where suppliers have strong bargaining power. Indeed, this bargaining power is so strong that Boeing, MASs primary aircraft suppliers, have complained of constant undue demand with backlogs for some of its aircraft orders stretching to 2019 ( transnational Business Times 2011). Furthermore, it is near-impossible for an airline firm to vertically ntegrate its aircraft purchases due to extremely high entry costs in the form of very large capital requirements and a high knowledge curve. 4. 2. 6 Summary In summary, it can be concluded that the SEA airline market is moderately attractive. truehearted supplier and buyer bargaining power a big with strong arguing within real firms restrict MASs profit margins. However, high barriers of entry and a low threat of substitutes suggest that the number of competitors (or competitive goods) will likely not significantly increase. 14Furthermore, these factors also suggest that in the presbyopic-term, demand for airline travel will increase due to a shortage of viable substitutes and people growth. Figure 3 Adapted from Porter (1980) 4. 3 Competitors Environment Analysis To perceive how competitors within the SEA airline industry create a competitive advantage, a Strategic Group Map will be formulated in order to analyse how airlines form convocations based on the strategies they have adopted. Following this, an analysis of the most significant competitor derived from the strategic conference map will be compressn employ Porters Framework for competitor analysis. 5 4. 3. 1 Scope and Methods of Analysis Malaysian Airline Systems (MAS), the national airline carrier of Malaysia, is dictated in SouthEast Asia with a cosmos of 600 million (ASEANstats 2011). Air travel within the ASEAN region alone accounted for 36% of MAS? s passengers in June 2011 and is predicted to grow significantly (Malaysian Airline System Berhad 2011). Based on this, competitive analysis will be limited to the major small(a) constitute Carriers (LCC? s) and profit Airlines based in this region, as listed in put over 1.Airline Air Asia Indonesia Air Asia Thailand Air AsiaX AirAsia Firefly Garuda Indonesia Jetstar Lion Malaysian Airways Nok Air One to Go Singapore Airways Thai Airways tiger Airways Country Indonesia Thailand Malaysia Malaysia Malaysia Indonesia Singapore Indonesia Malaysia Thailand Thailand Singapore Thailand Singapore Associated Carriers AirAsia, Air Asia Thailand, AirAsiaX AirAsia, Air Asia Indonesia, AirAsiaX AirAsia, Air Asia Indonesia, AirAsia Thailand Air AsiaX, Air Asia Indonesia, AirAsia Thailand Malasian Airlines Qantas Firefly Thai Airways Tiger Airways Nok Air Singapore Airways Type of CarrierLow Cost Low Cost Low Cost Low Cost wax go/ net profit Low Cost Low Cost Full Service/ profit Low Cost Low Cost Full Service/ cyberspace Full Service/Network Low Cost disconcert 1 Major South East Asian Airlines (Zhang 2009) 16 4. 3. 2 Strategic Group Map As exposit by Porter (1980), a strategic group map aims to grade a cluster of companies within an industry that devour similar strategies. Two headstone strategic variables are selected for the airline industry and its competitors are plotted on a quadrant according to these variables to help bring out the strategic groups (Grant et al. 2011).One of the strategic issues to be communicate in this report is the threat of low cost carriers to full gain carriers such as MAS. A key characteristic of LCC? s is the basic run offered on board flights versus the many included helps offe red by the full operate earnings carriers (Damuri and Anas 2005). Based on this difference, one of the variables selected for the strategic group map will is the level of portion? offered by an airline shown on the (Y) axis. The geographical range in which relevant airlines operate has been selected as the endorsement variable, used on the (X) axis of the strategic group map.This ranges from domestic, regional (within SEA), through to international coarse puff for the identified airlines in postpone 1. A strategic group map has been formed (see Figure 4 on next page) to display the position of each major SEA airline a longsighted the strategic variables of level of service and geographical range 17 Figure 4 18 Analysis of the strategic group map (Figure 4) identifies four unambiguous strategic groups within which airlines adopt similar strategies based on the variables chosen 1. national LCC 2. Regional LCC 3. International long squeeze LCC 4.Network Full service carriers T he pursuit conclusions can be drawn from observations of the Strategic Group map. ? As shown in Table 1 some of the LCC airlines within these strategic groups are subsidiaries of the Network carrier airlines. They are in use(p) in the LCC and the full service plane sections. For example, in 2007 MAS created a fledgling wholly owned domestic LCC called Firefly (Firefly 2009). ? By comment MAS has similar strategies to those airlines within its strategic group and as such faces the most intense rivalry from them.Each of the airlines within this group has similar capabilities such cargo, engineering and ground discussion services. ? MAS also face engage competition from other strategic groups. Malaysian based airline AirAsia and its subsidiaries span all the strategic groups that employ a LCC scheme on domestic, regional and some long haul routes. ? Within the International Long haul LCC? strategic group AirAsiaX is the only airline competing. This clearly gives them a competiti ve advantage and perhaps threatens some of the Network carriers long haul market.Philip Lim (2011) from the Taipei times reports that since fresh tough economic conditions there has been a substantial swing of business travellers to LCC? s in the long haul travel segments. New entrants, may also reckon this strategic group as an attractive segment due the low rivalry. 19 Form a corporate level it is clear that MAS? s main competitors within the South East Asian airline industry are SIA, and Thai Airways. However the focus of this report is to analyse how MAS is to counter the threats of low ost competitors. AirAsia? s Malaysian base and breadth over all LCC strategic groups highlights that they may also be a more relevant, threatening and emerging competitor. This is supported by Thomas (2007) who notes that AirAsia has captured over 50% of Malaysia? s total air travel market. Based on these findings it is pertinent to undertake a brief competitor analysis of AirAsia in order to g ain a deeper understanding of their activities. 4. 3. 3 AirAsia LCC Competitor analysisBased on the observations of the strategic group analysis, an analysis of Malaysian airlines main LCC competitor, AirAsia will be undertaken using Porters Framework for competitive analysis? (Grant et al. 2011). The framework focuses on analysing an organisations Strategy, Objectives, Assumptions and Resource capabilities in order to understand and predict competitors behaviour. Focusing on AirAsia, each of these aspects is explored. AirAsia Strategy AirAsia has subsidiaries in all the LCC strategic groups such as AirAsiaX, AirAsia Thailand, &038 AirAsia Indonesia.AirAsia competes with littler LCC? s and also Large International Network carriers. Air Asia? s annual report (2010) highlights that the Organisation implements the following 5 Strategies in order to gain a competitive advantage. 20 1. Low Fares No Frills ? ? No frequent flyer programmes or airport lounges Choice to purchase in-flig ht services 2. mettlesome Aircraft utilisation ? ? gritty relative frequency flights High turnaround of flights 3. Point to render network ? All flights are non-stop. Does away with resources at transit locations. 4. Convert quiver to more reliable and efficient aircraft. effected fleet of A320? s. This homogeneous fleet abases criminal keep costs. 5. Safety First ? orbit standard maintenance of fleet by esteemed provider (Luftansa). AirAsia Objectives The organisations goals are as follows ? ? ? To continue to be the Lowest cost airline in every market it operates within High margins Sustainable growth It can be seen in the Table 2 (next page) that AirAsia has grown remarkably since 2007 across all significant measurables. It has also won the Skytrax Worlds vanquish low cost airline? yield for the last 3 years (SYTRAX 2011). 21For the year ended 30 June 2007 Revenue Ringit Millions nitty-gritty Assets Ringit Millions Profit before Tax Ringit Millions No of Passengers Carried Group Fleet Size No of Employees No Routes Served R1,603. 00 R4,779. 00 R278. 00 8,737,939 54 2,924 75 For the Year ended 31 December 2010 R3,948. 00 R13,240. 00 R1,099. 00 16,054,738 90 4,702 132 Percentage increase since 2007 to 2010 146. 29% 177. 05% 295. 32% 83. 74% 66. 67% 60. 81% 76. 00% Table 2 Air Asia Group Recent Performance (AirAsia 2010) AirAsia Assumptions In AirAsia? s 2010 yearly report the organisation made a number of assumptions about the airlines operating environment.Firstly, global economic conditions are set to improve and secondly demand for air travel in the SEA region is predicted to rise substantially. However oil prices are expected to continue increasing, putting further rack on operating costs and political uncertainty in the Middle East may continue to cause further disruptions to flight services. AirAsia Resources and Capabilities One AirAsia? s main strengths and key to its success is quoted by Poon and Waring (2010, 203) as the , forensic management of costs well-nigh monitored on a daily ass.This focus has come from the strong lead of the group CEO Tony Fernandes who monitors costs daily in order to find ways to deal with any issues. 22 another(prenominal) strength of AirAsia lies in the creation of AirAsiaX to compete in a new strategic group of low cost long haul services. As exposit by Wensveen and Leick (2009), this is a new competitive environment that creates a bridge between various short-haul LCC? s across the globe. Perhaps opportunities exist for of LCC? s around the globe to form bond certificates to compete with the network carriers.AirAsia has no aircraft maintenance repair or overhaul (MRO) facilities of its own. MRO is a key element of AirAsia success as it provides safe and reliable aircraft. As described by Rieple and Helm (2008) leaving this to a third party could be regretful as AirAsia is not in direct control of these activities and is subject to market forces in relation to the cost of the se services. With a growing fleet this could be interpreted as a weakness and competitive blemish compared to the major network carriers such as MAS, SIA and their low cost subsidiaries who all have their own MRO facilities. . 0 Malaysian Airlines Resources and Capabilities The internal analysis of MAS will focus on the organisations resources and capabilities that help it gain a competitive advantage. This analysis will lead to the identification of the main strengths and weaknesses of MAS. 5. 1 Capabilities Capabilities, put simply, are the integration and collaboration of individual resources to reach a desired outcome (Grant et al. 2011). Capabilities are a combination of both tangible and intangible resources. By analysing a corporation? capabilities, we can deduce both the core competencies and competitive advantages that the come with may possess. A competitive 23 advantage may lie within a company? s capabilities if they are not good replicated (Grant et al. 2011). The b elow table represents MAS capabilities based on the resources mentioned below Functional Area Management Capability Forward Thinking snuff it Objectives Resources Business Turnaround Plan 1+ 2. Transparent information sharing. Skilled Managers. groundbreaking programs. Awards, Customer Loyalty, Recognisable, Various advertising mediums.Skilled Technicians, swear supplier materials. Revered History, Government co-operation, strong supplier support, strong government links, open communication channels, innovation, employee knowledge Marketing Manufacturing Organisation character Customer Service Brand intelligence specialisation High Quality reapings Product Range Strong Network R Strong CSR Development Table 3 5. 2 Tangible Resources 5. 2. 1 Financial Resources MAS have several distributeholders. Penerbangan Malaysia Berhad? is the majority dispenseholder with a 52. 0% stake of MAS. The second-largest shareholder is Khazanah National? which holds 17. 33% of the shares. un usual shareholders make up 5. 13% (Grant et al. 2011). Up until December 2008, MAS had shrunk its operations for the tenth unbent quarter (IntellAsia 2008). MAS? officials identified that increasing maintenance, repairs costs, an increasingly unable route network, higher cater costs and escalating fuel prices and increasingly inefficient route networks as reasons for the financial losings (Scribd 2011). The 24 introduction of the BTP has helped MAS deal with the financial issues, increased competition and government interpellation (Grant et al. 011). 5. 2. 2 Organisational Resources The introduction of the BTP (Business Turnaround Plan) in 2006 and its successor the BTP2 in 2008 was implemented to encounter profitability after 10 square(a) quarters of negative profit. MAS profit of RM 493 Million in 2009 (Grant et al. 2011) can be largely attributed to the success of the BTP. MAS has been able to successfully implement its private MRO (maintenance, repair overhaul) department which has reduce costs and increased both durability and efficiency simultaneously (The Financial post 2008).In 2008 MAS expanded their partnerships with other airline organisations such as Singapore Airlines, Air Mauritius and Silk Air. in any case in 2008, MAS and Etihad Airways, two opposing competitors, gestural a code share engagement? to enhance their networks respectively (Etihad Airways 2008). In 2009, MAS once again expanded its network by signing a code share agreement and frequent-flier partnership with low cost carrier Jet Airways. This agreement increased passenger traffic between Malaysia and India (The Economic Times 2009) 5. 2. 3 Physical Resources The home base of the airline is in Kuala Lumpur, Malaysia.In total, MAS has approximately 19,000 employees (Airfleet 2010). MAS has the energy to use 100 routes globally. MAS has over 70 offices oecumenic, which again displays its strength in its prodigious customer service (Airlines Information 2011). As of 2010, MAS has 12 A330 Airbus? s, and a fleet of 68 Boeing Aircraft, and 42 Boeing freighter aircraft. The MAS fleet comprises of 109 aircraft. (Airfleet 2010) 25 5. 2. 4 Technological Resources MAS source its aircraft from the two most reputable aeroplane manufacturing companies in the world, Boeing and Airbus (Ahmed , 2010).By using these two companies as suppliers, MAS leads customers to entrust that they use only the safest and highest bore part when assembling their fleet. 5. 3 Intangible Resources 5. 3. 1 Human Resources MAS have been able to break and employ highly skilled and sure-footed workforce, which has been illustrated by the array of destines MAS has received. With pilots, engineers and technicians in especially high demand globally (Pearson, 2008), MAS will have to offer a number of incentives and strategies to keep the most suitable workforce possible. MAS customer service has always been revered.Continual selects and recognition are testament to this MAS has recei ved the award of outflank cabin crew in the world 8 times since 2000 (Skytrax World Airline Awards, 2010). Customer service in the airline industry is a major factor to be considered when customers choose which airline to fly with. 5. 3. 2 Innovation Resources MAS have implemented a number of new strategies to suggest it is a creative and innovative company. The introduction of the Everyday Low Fares? constitution in 2008 meant that MAS matched the lowest prices of its competitors, mainly Air Asia.Although this severely cut profit margins, it 26 was able to offer 1. 3 million zero? fares, and most importantly, MAS were able to price match Air Asia (Grant et al. 2011). In what has been described as a pioneering? move, MAS has introduced the ability for customers to be able to check into their flights via the social networking website of Facebook. Malaysia Airlines is soon the only airline in the worldwide to have such a bluster available (Cnet Australia 2011). 5. 3. 3 Reputationa l Resources Throughout the organisation? s history, MAS has enjoyed strong taint recognition.MAS places a heavy emphasis on customer service and can boast about being one of only sextette international airlines to be awarded a 5-Star? judge (Grant et al. 2011). Other significant awards include the phoenix Award? for businesses undergoing a life changing transformation and magazine Aviation Week ranking MAS as the 2nd best full service carrier globally (Skytrax World Airline Awards 2010) . With this reputation, customer commitment is increased. These loyal customers are crucial to the success of any organisation, as they will often exclusively only use MAS. . 4 Core Competencies The core competencies of a company have been defined as activities that an organisation performs better than its other internal activities and that are the most critical to competitiveness and profitability (Business Dictionary 2011). By extracting and reviewing the core competencies of any organisation , competitive advantages and the strengths of MAS can then be identified. By using the VRIO? model (Valuable, Rare, costly to Imitate, Substitutable), we can then extract the strengths and weaknesses of MAS. 27 5. 4. VRIO RESOURCES AND CAPABILITES VALUABLE RARE COSTLY TO come after NONSUBSTITUABLE Brand Recognition High R Spending see the light Objectives Quality Customer Service Forward Thinking High Quality Products Strong Network Product Range Strong CSR Development Yes Yes Yes Yes Yes No Yes Yes Yes Yes No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Table 4 No Yes Yes Yes No Yes Yes Yes No Yes 28 6. 0 Possible Strategies Following external and internal analysis of MAS, prominent strengths, weaknesses, opportunities and threats can be identified.These elements have been plotted into a TOWS matrix as shown in Table 5 on the next page, in order to link these characteristics and facilitate the formation of strategies that may aid the organisation locate the inten ded strategic issues outlined in this report. (Weihrich 1982). 29 Strengths 1. High Brand Recognition 2. Strong learning curve advantage 3. Superior Customer Service 4. 5. 6. Clear Positioning Strong Route Network Reliable MRO subsidiary with prove render Opportunities 1. Increasing demand for low cost travel in SEA 2. Low rivalry in the longhaul LCC strategic group 3.Availability of new technology biofuels to reduce fuel costs 4. Availability of newer more fuel-efficient aircraft SO 1. O1+O2+S1+S2+S4 Form adherence with a LCC to foregather demand for market segments which prefer low cost over full service while maintaining the existing subvention trademark and positioning O1+O2+S2 Expand and escalate Firefly operations in the SEA domain O3+S6 leverage reliable in-house MRO to retrofit existing aircraft with biofuel Weaknesses 1. Government Golden Share Socioenvironmental indebtedness to Malaysia 2. Poor Cost Management 3. High capital intensity WO 1.O2 + W3 transfer un derutilized aircraft to the Low cost/long haul segments to improve returns on capital. O3 + O4 + W1 Use modern fuel efficient aircraft and biofuels to reduce carbon footprint to fulfill government social righteousness obligations 2. 2. 3. Threats 1. LCC? s are increasingly providing long haul services that compete with MAS 2. act global economic uncertainty is increasing the attractiveness of long haul LCC? s such as AirAsiaX 3. High rivalry is further increasing from network carriers and low cost subsidiaries 4. Buyers and suppliers have increasingly higher bargaining power 5.Airports are act to increase landing and parking prices in a market with few alternatives 6. Malaysian labour legalisation may raise labour overhead costs. ST 1. S1+S3+S5+T2+T3 Develop promotional campaign to stress safety, a proven track record and customer service awards are worth the agiotage S1+S3+T4 supplement customer service awards and brand recognition to further develop loyalty programs to fall down buyer bargaining power WT 1. W2+T1 Shift focus from differentiation to cost leaders (similar to AirAsia) W1+T6 Lobby Malaysian government to reduce social obligation and improve tractability . 2. Table 5 MAS TOWS Analysis 30 Described below are the strategies positive from TOWS matrix that will aid MAS in achieving a competitive advantage. 6. 1 SO Strategies Form alliance with a LCC to satisfy demand for market segments which prefer low cost over full service while maintaining the existing premium brand and positioning The airline industry can be can be behaviourally secernate into two broad segments those consumers which place a high importance on the price of air fares above all else, and those are who are willing to pay more for premium service (Kotler et al. 010). By forming an alliance with an established existing LCC, MAS will be able to maintain and capitalise on its existing premium brand and learning curve advantage in the full-service industry whilst satis fying increasing demand for low-priced air fares in SEA (O? Connell and Williams 2005). Furthermore, establishing an alliance will ensure that each firm will be able to focus on their core competencies and established customer base by maintaining their current positioning.Expand and intensify Firefly operations in the SEA area Firefly, MASs wholly-owned subsidiary, presently operates a wasted amount of domestic and regional routes (Firefly, 2011). To capitalise on increasing demand for inexpensive air fares, MAS could expand and intensify Fireflys operations to cover more of the SEA region. such a complete dual-brand strategy, as first introduced in the SEA region by Qantas/Jetstar, would fundamentally see Firefly compete with MAS, except that it will target the more price-conscious segment (Sandilands, 2009).MAS would be able to maintain its high brand recognition for its premium services whilst building Fireflys existing brand and experience in the LCC industry. 31 Leverage r eliable in-house MRO to retrofit existing aircraft with biofuel MASs owns an award winning reliable maintenance-repair-operations division that could be utilised to lower fuel costs by retrofitting existing aircraft with bio-fuel technology (Grant et al. 2011). Bio-fuel as resource will likely be comparatively inexpensive for MAS as Malaysia has sound palm oil business from which it can produce bio-fuel from (Shameen 2006). . 2 WO Strategies Shift underutilised aircraft to the low cost/long haul segment. The airline business is capital intensive and MAS uses a large portion of its capital to purchase expensive machines compared to its labour costs. When these machines lay promiscuous or are underutilised they can drastically increase costs for the airline (Wensveen 2009). Low rivalry identified by the strategic group map in the low cost/long haul segment could be an opportunity for MAS to diversify and shift underutilised aircraft into this new segment to increase aircraft utilis ation.Use modern fuel efficient aircraft and bio-fuels. The governments golden share of MAS allows the Malaysian government to put internal pressure on the MAS board to aid social and environmental responsibility obligations to Malaysia. Malaysia has booming palm oil business that could be used to reduce reliance on high carbon emitting fossil fuels (Shameen 2006). along with this, the use of new generation aircraft that are more fuel efficient can substantially reduce MAS carbon footprint and help satisfy some government social responsibility obligations. 32 6. 3 ST StrategiesDevelop a promotional campaign to emphasise safety, track record and customer service awards. The attractiveness of low-cost carriers and higher rivalry from the low-cost subsidiaries presents as threats to MAS in maintaining survivability within the airline industry. Recently in 2010, Malaysia Airlines had won two awards as Asia? s track Airlines and Asia? s leading Business shape Airlines which can become the core focus of the promotional campaign (Malaysia Airline 2010). Through implementing a promotional campaign, MAS is able to restore its brand as the high quality airline that it is.Leverage customer service awards and brand recognition to further develop loyalty programs to decrease buyer bargaining power. With the increase in buyer bargaining power, the strategy of developing loyalty programs ensures higher displacement costs to keep loyal fliers of MAS with the company. MAS already have the meliorate loyalty program in which customers are able to benefit from. In 2007, Virgin Blue had get together in partnership with MAS Enrich loyalty program to further the benefit for consumers (Malaysia Airline 2007).The partnership of Virgin Blue with MAS Enrich Loyalty program creates higher switching costs for buyers and reduces the bargaining power that has been on the rise. 6. 4 WT Strategies Shift focus from Differentiation to Cost Leadership Malaysian Airlines systems currently operates on a differentiation? strategy. This strategy has allowed the organisation to distance itself from its competitors, and have a recognizable and strong brand recognition, which is rife in gaining and retaining customer base. In recent 33 imes, some competitors, namely Air Asia (a Low Cost Carrier) has started to increase long haul services, which previously was only offered by Malaysian Airlines. The implications of LCC? s increasing long haul routes means that a number of customers will use LCC? s over MAS purely due to having a lower cost. A feasible strategy would be for MAS to offer same the same prices as these LCC? s over similar routes, essentially nullifying the LCC competitive advantage. Customers would be more likely to fly with MAS over LCC? s due to a) MAS reputation b) Customer service.This would change MAS overall strategy from differentiation? to a cost leadership? strategy. Lobby government to reduce social obligations and improve operational flexibility Mal aysian Airlines currently has to meet a number of social obligations demanded by the government. Malaysian Airlines is widely supported for meeting its corporal Social Responsibilities, but faced with the threat of an increase in labour restrictions and legislation, it would be wise for MAS to propose to (lobby) the government that for a relaxation of these Corporate Social obligations.This in turn, would improve operational and organizational flexibility, which would help MAS deal with the possible threat of increasingly stringent labour restrictions. The lobbying process would have to be done in a manner in which the final result (increased organizational flexibility) benefits both the government and organisation, as the government has veto powers over any decision made by the MAS board. 6. 5 Recommendation Based on the strategies authentic following internal and external analysis of MAS, it is recommended that MAS adopt a corporate strategy to diversify and offer low cost budge t air 34 ravel to satisfy the increasing demand for market segments which prefer low cost over full service, while maintaining the existing premium brand and positioning (Jegathesan 2011). This is to be achieved by horizontal integration into the related LCC airline segment through the formation of an alliance with existing SEA LCC leader AirAsia via an equity swap arrangement. In support of this agreement, MAS shall also divest its fledgling domestic LCC subsidiary Firefly. This strategy best resolves the main strategic issue of how an established carrier such as MAS can counter the threats present by low cost competitors for the following reasons 1.Each airline can focus on their core competency to create synergy and economies of scope. This strategy brings benefits of the specialisation of the two companies together. MAS in the long-haul premium travel and AirAsia low cost air travel. 2. Exchange in human capital such as Air Asia? s Tony Fernandez who was able to make Air Asia su ccessful. The exchange of human capital is more than just able-bodied men, but the transferee of skills and experiences. Both companies stand to benefit in the exchange of knowledge and skills. 3. Sharing of prominent intangible resources that each business