Strategic Plan For Malaysian Airlines: Industry Analysis Using SMART Model, PEST Analysis, And Porter’s Five Forces Model

Background of Malaysian Airlines

The report aims to develop a strategic plan for the chosen organisation; Malaysian aviation and focuses on Malaysian airlines using different analysis tools. The industry issues are highlighted based on the analysis from the external and internal environment.   

Malaysians airlines system Berhad or Malaysian airlines system or MAS was found in 1947. The government recognises it has the flag carrier. The headquarters is situated, at Sultan Abdul Aziz Shah Airport (Selangor). The first base from where the flight operates is in Kuala Lumpur International Airport, and Kota Kinabalu is the secondary base. MAS is the holding company for the National airlines carrier of Malaysia. Firefly and MASwings are two subsidiaries. MAS are using A330-200 and A330-300 and boeing 737-400, 800 and 400/400 (malaysiaairlines.com, 2018). 

MAS offers cargo transportation services, manufacture aircrafts parts, offers trucking, laundry and dry cleaning service for the airline industry. The transition from small airline to the award-winning air service is commendable. Currently, it has more than 1000 aircraft. The service is available in six continents and 110 destinations.  It has received second position in Aviation Week’s Top Performing Companies (malaysiaairlines.com, 2018).

There is a need of continuous operational improvement. It is still a challenge to excel in commercial effectiveness, cost management and flight operations. The company is yet to provide branded customer experience during pre-flight, in-flight, and post-flight. The company is far from achieving the extensive global network. It must make a simple business structure that can increase the premium services, alliances and partnerships (Ong and Tan, 2010). 

The company’s vision is to develop itself as premium carrier and become, “An airline of excellence”. It aims to gain strong position in the Asian aviation marketplace. In the ASEAN arena, Malaysia is relatively smaller. Despite this, the organisation aims to harness the Malaysia’s geo economic centricity. The company has its unique way to go beyond expectations, work through the cost competiveness (malaysiaairlines.com, 2018).

The mission of the organization is explained in three main thrusts. It includes provision of the best travel and transport service without compromising on punctuality, safety and comfort. MAS dreams to become a leader in this sector in the areas of quality of service, efficiency and safety. The third mission is to become a profitable airline (malaysiaairlines.com, 2018).

The SMART model is a tool to evaluate the business process employed to meet its mission and vision. The acronym stands for, “Specific, Measurable, Attainable, Relevant, and Time-based” and represents smart goals for business (Shields, et al., 2015). In this section the mission and vision of MAS will be evaluated using this model. 

Model	Description
S- Specific	The vision and mission of MAS is specifically defined. The mission is not too specific when it mentions providing safe and comfortable service. The mission to be profitable is too not specific as it has not mentioned specific number it wants to achieve. Therefore, MAS must be more specific in its goals (King, 2013).
M-Measurable	The mission is measurable as it was easy to track the progress and is relevant. Profit earned by the company and if it has become the leader in the industry can be measured through graphical representations and statistical analysis. However, being excellent service is not measurable as “excellence is not limited” (Suki, 2014)
A-Achievable	Both the mission and vision can be attained considering the present position of MAS. However, it is slightly challenging considering the fluctuation in fuel prices and low cost carriers adding to competition. Before, 2011, the profits and the quality of the service were very low (Taraj?áková, and Rozenberg, 2013).
R-Relevant	Both the mission and vision of the MAS are relevant considering the great demand for Asian aviation industry (Mun, 2011).
T-Time-bound	Considering present condition that is influenced by the government regulation, tax and fuel prices and safety issues, the vision to be an excellent service in terms of time line is questionable (Serpen, 2014).

Services Offered by MAS

The mission and vision of MAS seemed unattainable due to 2011 crisis. However, the recovery model after crisis has helped the company to work through half of its vision. With the help of small and profitable network strategy it has dropped seven routes from Kuala Lumpur. It has increased art passenger amenities in all its aircrafts. The start of new boeing 737-800 in 2012 increased the premium services. A MA has been partially successful in winning back the customer since 2013.  However, with these strategies, the vision is yet to be accomplished as there is stiff competition in the market, and stringent government regulations due to environmental impact (Serpen, 2014).

To analyse the market attractiveness and industry issues environmental analysis will be conducted.

This section deals with the Pest analysis. This tool is used to scan the external business environment to examine the macro environment in which the MAS is operating. It includes analysis of the political, economic, social and technological factors of Asia (Pearson, et al., 2015).

During recession the tax policies are an obstacle to the organization. There was an increase in net loss of tax in 2014 that is RM433 million compared to that of 2013 (RM2.52 billion). Further, there is an increasing operational cost due to changes in the government wage policy. Government’s influence by announcing official rates and discounts, and enforcement of the unofficial routes has both positive and negative impact on industry. More wages are demanded owing to increasing life standard that pose challenges of cost reduction. A negative impact on tourism industry was observed with the “Khazanah Nasional’s airline” renewal promise. It acted as threat for employees (Pires and Fernandes, 2012.) 

Considering the Ukraine crisis, there is a high chance of hike in fuel price. The rapid growth of the fuel cost may decrease the employees’ wages. Further, the revenue earnings may be hampered by the fluctuating exchange rate and decrease in the ticket prices. Decreased cost may be advantageous for domestic and international travellers. The economic challenges come from the differentiated needs. For, some people the airline services are luxury and for others it is a necessity. For the travellers, the airline travelling is a luxury, but it is the requirement for the business travellers. There is a trend of increase in low cost airlines and investment need in improving the airport infrastructure adds to economic burden (Pearson, Pitfield and Ryley, 2015).  

Mission and Vision of MAS

Recent incidents related flight hijacks, plane crash, disappearances of flight MH 370 have increased the public fear and anxiety due to safety issues. Only 7% of the youth consider air travelling as an enjoyable activity.  Global pandemic disease such as H1N1 and rise of terrorism in particular is decreasing the public travelling. Some people are compromising on the food due to high ticket prices. This increases the advantage of the low cost carriers. This is having negative impact on the business thereby increasing demands for innovation and public security (Shah Alam and Mohd Yasin, 2010).

The business is highly influenced by the online purchasing practice. There is an increasing practice of using debit and credit cards for purchasing tickets that boost sales. The partnership of the organisation with the “Agoda.com” has given public with many more options such as smart hotel booking, discounts, and rewards. It has become popular website in Asia.  This has made the public life smoother. Other technological innovations that has ensured smooth running of the services are Interactive Voice Response System, Integrated Communication System, and use of knowledge portal to decreases the operational cost. Purchasing was found to increase by the introduction of the social media and on board infotainment system. This has high level of impact on increasing the business growth (Dharmavaram, et al., 2012).

In this section the industry analysis is conducted using the Porter’s five force model. It helps in concise analysis of the airline industry and gain the micro perspective.

The objective of this analysis is to identify the factors of the competition, maintain the business attractiveness for long term, analyse the attractiveness of the industry and relate the five dynamic forces with business performance and c competitive advantage. These forces include, “Competitors, Threat of Entry, Substitutes, Suppliers, and Customers” (Dobbs, 2014).   

Industry competition is very high in this business. The local competitors of Malaysian airlines are Firefly, Air Asia, and others. International competitors are Garuda, Cathy, Singapore, and Thai international airways. The organization also has threat from low cost airlines such as Jetstar Asia Airways, Tiger Airways, and Virgin blue airlines. The internal competition has increased with deregulation and emerging low cost carrier. There is a low profitability and it is highly volatile (Arakaki, 2015).

The power of suppliers is also high for Malaysian airlines. It is attributed to the ever increasing fuel prices, which significantly impacts the cost. However, there is growth potential in the Asian aviation industry. It is very optimistic and is evident from the huge aircraft orders, which is increasing the bargaining power of the suppliers. The drawback is the requirement of large capital, so that the leasing companies can come into picture.  There is a monopolisation by the two major manufactures of then aircrafts. There is a high demand for the five star services, which can be fulfilled by the highly specialised and professional employees. The price reduction in the airline industry is attributed to recent crisis (Pearson, et al., 2015).

Evaluation of Mission and Vision using SMART Model

The power of the customer increases with easy switching from one airline to another. The south east population comprises of Thailand, Singapore, Indonesia and others. Malaysians are the local buyers.  Having low product differentiation is the major drawback. If the customers are paying the price for superior services, the organisation must serve at either five star levels or provide low cost services (Abdullah, et al., 2012). As the travel portals have increased buyers are competing to get the service at low fares and book it instantly. This has led to ease of purchase and increase in the bargaining power of the buyers. The customer loyalty can be increased by initiating the frequent flyer programme. Free purchase duties or services are the other option that can prevent the switching of the customers to other airlines. The power of the buyers in this industry decreases with the low buyer concentration (Munusamy and Chelliah, 2011).  

The airline industry has many barriers to entry and exit. One of the barriers is licensing and threat is caused by increasing partnerships. The entry cost is very high that makes the industry unattractive.  In addition, the entry is restricted by the deregulation.  However, with the increasing intensity of the internet user’s new entrant possibility is again high (Rinehart, 2014). 

To identify the strategic capabilities in terms of resources and competencies, value chain analysis is conducted. Value chain analysis helps to identify the strength and weaknesses of MAS in regards to resources and if the value chain activities are accurate to retain and attract customers in highly regulated industry. The chain of activities are categorised as primary and support activities. The primary activities are related with the physical creation, product maintenance, sales, and support of services. Support activities are related with above mentioned primary functions for efficiency of company (Pearson, et al., 2015).

Value chain activity	How MAS create value for customers	Does this create value?
Primary Activities
Inbound logistics	Flexibility of online booking and self service kiosk Enter into code sharing with qantas, Cathyway,   Online time table or accurate flight information (Pires and Fernandes, 2012)	Yes
Operations	MAS has split its operations into  different departments such as “air craft maintenance team” (Pearson, et al., 2015)	Yes
Outbound logistics	Gives services in 100 destinations Increased passengers with better planning and scheduling team Increased frequency of existing routes (Jumadi and Zailani, 2010)	Yes
Marketing and sales	Has competitive pricing strategy, There many point of purchases, ticket counters, online purchase, discounts, offers, online promotions, Launch of  “Enrich Frequent Flyer Program”   (Vrontis, et al., 2010)	Yes
Services	Catering, lost luggage, unloading, delivery to terminal, special services for infants, special meals to Muslims and physically challenged people, five start services    (Nambiar,  2012)	Yes
Support activities
Procurement	MAS purchases various airlines equipments and machinery. There is a need of better procurement department. Successful with Airbus A380, A330  Boeing 747, 777, 737 Lease agreement with new 4 new Airbus (Hussein and Yaacob, 2012)	Yes
Technology development	MAS was found to invest highly in the R&D activities on different airlines as well as marketing and testing, new mobile booking facility Cabin crew scheduling is computerised   (Abdullah, 2010)	Yes
Human resource management	High skilled workers are recruited and are motivated with rewards and recognitions, enforce avoidance of conflict of interest,  open door policy, rightsizing of workforce (Razali and Vrontis, 2010)	Yes
Infrastructure  and management style	The organisational structure is flat. It has planning and controlling system. There are different departments apart from the finance and legal Special team of booking management, after sales communications, Gate management   (Marmaya, et al., 2011)	Yes

According to Serpen (2014) the primary income of the organisation is based on the maintenance of the aircraft, technological development, and logistic services (Primary activities). The structure is of low cost, and there is increase in the outcome product values. MAS can sustain the market competition by increasing the end product value. It can reduce the unnecessary cost by better collaborating with the suppliers and customers. Ensuring the public security by ensuring the performance will help it gain high profit. It needs to focus more on the technology and development and efficiency of the aircraft maintenance (Support actvities). It needs to be more cognizant with the business cycle to gain customer loyalty. The threat to the business continues due to the tragedy of MH370 and MH17, which implies for branded customer experience.

Strength	Weakness
Extensive operations in global destinations are increasing the brand image. The organisational structure is well designed After 2011 crisis it is again gaining the premium brand image with intense marketing and sales and high quality service Increase in modern facilities and covering more than 60 routes both domestic and international Multiple meal facilities (Tan and Yap, 2015)	High operational cost due to tax Low growth prospects High demand and price insensitivity Domestic traffic limited Less technology innovation   (Graham 2013)

Market Attractiveness and Industry Issues: PEST Analysis

The VRIO model is the framework that examines each type of resources and capabilities of the organisation. The acronym stands for value, rareness, imitable, and organisation. It is an internal analysis that considers the set of evaluation dimensions (Njoya and Niemeier, 2011). 

Below given is the implementation of the VRIO model-

Value chain activities	Characteristics of resources	Competitive outcomes
	Valuable?	Rare?	Difficult to imitate?	Organisation capable?
Inbound logistics	ü	X	X	ü	Short term competitive advantage
Operations	ü	ü	ü	ü	Long term competitive advantage
Outbound logistics	ü	X	X	ü	Temporary competitive advantage
Marketing and sales	ü	X	X	X	competitive parity
Services	ü	ü	X	ü	Long term competitive advantage
Procurement	ü	X	X	ü	Short term competitive advantage
Technology development	ü	ü	ü	ü	Long term competitive advantage
Human resource management	ü	X	X	X	competitive advantage
Infrastructure  and management style	ü	ü	ü	ü	Long term competitive advantage

TOWS analysis is the tool to study the possibility of the organization to exploit its opportunities and use the strength to diminish the weakness and threats. This analysis is based on the strength and weakness obtained from the PEST analysis, porter’s value chain and VRIO model (Jasiulewicz-Kaczmarek, 2016).

Figure: TOWS analysis of MAS

Strength	Weakness	Opportunities	Threats
Have won plenty of awards, Strong brand image, High skilled team for cabin crew and flight schedule  management	High operational cost, Plenty of routes are not revenue making, Trust issue persisting, Frequent changes in business model   Low profitability	Increase in Demand for airlines Increase in customer’s interest for travelling, Excel in global market with the low price strategy – low end segment	Increase in new entrants, Price competition due to low cost carriers, Competition from leading airlines, Increase in fuel costs, Government regulations Threats from substitutes
TOWS analysis	Market penetration	Market development
Product development	Diversification

Market penetration would be effective strategy for MAS as it has opportunity to excel in global market. Winning awards have created unique brand image. In order to fulfil its mission to be a leader in this industry, MS need to enter new market and take advantage of the opportunities. By further improving its services and quality, it can gain the rivals’ customer (Pearson, et al., 2015). As there is an increasing threat from the low cost carriers, MAS can come up with innovative products. It will help counter the competitive entry, and cost issues with new revenue streams (Gurcaylilar-yenidogan, T.u.g.b.a. and Aksoy, 2018). Therefore, MAS can be suggested to exploit new technology for product development in the existing market. Using its expertise and experience MAS can expand to new markets to attract new customers with existing product. Such strategy of market development will help in exceeding the low cost carriers. Using the diversification strategy the organisation can extend its operations towards growth of ancillary products. To minimise the risk of diversification MAS can start with related markets. Existing products gives competitive advantage (Yashodha, 2012).  
As per Ansoff’s matrix, all the strategies are well applicable for MAS. It is a guiding tool to future growth of an organisation. MAS is already using some of this strategies, such as extensive marketing and promotion, online booking, social media, investing R&D for new products, starting new routes and others. Product development will add to competitive advantage by strengthening the existing markets (Bocken, Fil and Prabhu, 2016.). 

SAF is a tool to scrutinise the company’s effectiveness, on implementing the chosen strategy. This model has three aspects  

Suitability- All the four strategies are suitable based on the threats and available opportunities. The strategies are suitable in regards to fighting the entrants, gaining advantage over low cost carriers, and excel in global market with low price strategy.  New products such as multiple meal options for Muslim patients will satisfy the customers with high interest in travelling. It is easy for MAS to excel in the international market as it well established in the existing market and has gained its brand image. Thus, product development is most suitable for attracting new customers (Pearson, et al., 2015).

Industry Analysis using Porter’s Five Forces Model

Acceptability- As MAS has tried its best to recover from the loss due to 2011 crisis and is growth period; it is acceptable to target the international market. Product development will strengthen exiting customer base and attract new customers by increasing the excellence of services, which is the vision of MAS (Taraj?áková and Rozenberg, 2013).  

Feasibility- As the company is already investing in R&D, product development would be cost effective. It can be well financed owing to present resource and profitability, so, the feasibility is strong (Serpen, 2014). 

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