MALAYSIA AIRLINES

MALAYSIA AIRLINESYearHistory1947Known as Malaysia Airways Ltd. (MAL)British Overseas AirwaysCorporation (BOAC - now British Airways), Ocean Steamship Company of Liverpool and the Straits Steamship Company of Singapore. End of 1947, Malayan Airways engaged in an expansion exercise and MAL began providing regional flight services. MAL's entry as a member of IATA.1958 MAL was launched as a public limited company.MAL then entered the jet age with the purchase of Vickers Viscount aircraft1960MAL propelled into other far-flung regions of Asia. The acquisition of an 82-seater Briston Britania in 196 made mass transport by air a reality.1963Renamed as Malaysian Airlines Limited (MAL)1965Borneo Airways merged with MAL resulting in fleet and network expansionWith the separation of Singapore from Malaysia, MAL became a bi-national airline and was renamed Malaysia-Singapore Airlines (MSA)1973

Malaysia introduced Malaysian Airline Limited, which was subsequently renamed Malaysian Airline System or in short, Malaysia Airlines1976Computerized its whole operation1980MAS became the first major government agency to be privatized1986First flight service to the United States1987End of the year, established itself as an international carrier of choice, offering 34 domestic routes and 27 international destinations.1991Expand its fleet of aircrafts2001Had a fleet of 95 aircrafts in its network serving over 114 destinationsTodayMAS flies around 50,000 passengers daily to some 100 destinations worldwide.

3Quarter2011 Results Overview

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World-class cabin crewWorld-class ground servicesWorld-class employerWorld-class products and service Vision MissionTo be the Number One Airline in Asia by 2015To be a Consistently Profitable Airline

MAS Event 2010

WHAT WE DO ???

Malaysia Airlines Cargo Sdn Bhd (MASkargo), the cargo arm of MalaysiaAirlines, had a sterling year for the period under review, registering a pre-tax profit of RM142 million, in a dramatic reversal of fortune after thelosses of 2009. The 2010 performance represented the highest operational profit ever attained in the companys history.In line with industry trend, total cargo revenue for the company for FY2010 increased by 29.2% compared to 2009.

November 2010, Firefly announced its biggest expansion plan to date that will see it operate a base fleet of 30 Boeing B737-800 jet aircraft by 2015. Fireflys jet operations began on 15 January, 2011 with flights to domestic destinations, notably between Peninsular Malaysia, Sabah and Sarawak. It will introduce new routes to selected ASEAN cities from end 2012 to complement Malaysia Airlines network

In the year under review, MASwings undertook 13 major initiatives to improve productivity and customer service, as well as to reduce operational costs. Measures include the F50 Fleet Renewal Programme, consolidation of its operational hubs

Top Shareholders

Fleet Status

Board of Director

Board of Director Tan Sri Dr. Wan Abdul Aziz bin Wan AbdullahNon-Independent Non-Executive DirectorDatuk Amar Wilson Baya DandotIndependent Non-Executive DirectorMohammed Rashdan bin Mohd YusofNon-Independent Non-Executive DirectorDatuk Sukarti bin WakimanIndependent Non-Executive DirectorDato Puteh Rukiah binti Abd MajidAlternate Director to Tan Sri Dr. Wan Abdul Aziz bin Wan AbdullahDatuk Amar Haji Mohamad Morshidi bin Abdul GhaniAlternate Director to Datuk Amar Wilson Baya DandotDatuk Pengiran Hassanel bin Datuk Pengiran Hj Mohd TahirAlternate Director to Datuk Sukarti bin WakimanIFE MATRIXWeightRatingWeighted scoreFactor cost particularly fuel fluctuations of price0.140.4Threat of possible terrorist attack0.0320.06Green house gas emission restriction0.0210.02Overcapacity0.0730.21Economic condition0.0940.36Rising cost0.0830.24Global pandemic of Airborne diseases0.0320.06Emerging in Low- Cost- Carrier0.0940.36Rising of technology and information system0.140.4Product line expansion0.0320.06Online sales0.0530.15Government supported0.0630.18Business class growth0.0420.08Tourism industry0.0940.36New market segment0.0630.18Increase in traffic volume (cargo and passengers)0.0630.181.003.3Revenue Improvement Offset by fuel Price and Currency Volatility

Analysis of Airlines Operations

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Route Revenue

StrengthsWeightRatingWeighted ScoreHighly recognizable brand name0.1540.62. Total revenue increase by 5 % 0.1130.333. Low labour costs compared other airline.0.0240.084. Accredited by international bodies(received more than 100 awards in the last 10 years).0.0740.285. Strong technical skills and highly trained cabin crew0.0540.26. Wide variety of customers and has loyal customer0.0530.157. Innovative features that distinquish the company name(based on product and service).0.0530.158. Diversified revenue stream such as maintenancen and aircraft leasing.0.0530.15WeaknessesWeightRatingWeighted Score1. Cargo capacity down -12%0.0220.042. High costs included staff costs and aircraftmaintenance up by 11%.0.0710.073. High rate of airlines tickets compare others0.0310.034. Net income decreases by RM 711 million.0.0610.065. Marketing skills are inefficient0.0320.066. Fuel price increases by 37%0.1410.147. Very sensitive to equity markets0.0510.058. Negative cash flows 0.0510.05Score1.002.44MAS Critical Success Factor

Operational ProblemsMAS was facing was the government intervention which required MAS to fly routes that didn't make any commercial sense and MAS, as a GLC had no choice but to abide to the requirement.MAS product marketing and yield management division focused merely on selling their products to fill the quotas and not to improve the profit yield.

FINANCIAL ISSUES/PROBLEMS

MALAYSIA Airlines says its net profit of RM876mil for the second quarter of 2011 is its highest ever quarterly profit. Thats true but thats not the whole truth.The accounting profit due to hedging gains masks Malaysia Airlines serious operational problems caused by declining traffic and prices, and high costs.Malaysia Airlines current profit and more are coming entirely out of the provisions for hedging losses it made if there had been no provision, there would have been no profit.

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The problem is pricing. Despite a good, and even excellent, product it is not able to price it properly and this is reflected in its yield, which is the revenue per revenue passenger km flown (sen per RPK the average amount an airline gets for flying a paying or revenue passenger one km) Hence there are no profits but losses now.

MANAGERIAL ISSUES/PROBLEMMAS were facing the problems of management competency. Most of its subsidiaries, like MAS Catering and MAS Cargo were in bad financial shapes (i.e. operating at loss). Besides, some of the subsidiaries were transferring money for the directors personal use. The previous management has also failed to lead MAS efficiently and makes a viable decision on its expansion program.

MANAGERIAL ISSUES/PROBLEMThree major human resource issues are being identified including over-supply of manpower and low productivity, discrimination and diversity.

Strategic ProblemMAS was hit by the high fuel price in the first 8 to 9 months of the year which had increases up to USD$182 per barrel and affected the overall operating cost. MAS was slammed by the economic crisis and downturn which pressured the yield and profit margin. The world's economy today is also being treated by the uncertainty and volatilities which can affect share price and trust from the shareholders.Strategic Analysis

SPACE MATRIX1, -3.36MARKET PENETRATIONReducing price flight ticket especially for customer who buying online ticketBCG MATRIXQUESTION MARK:-Industry high sales growhMAS totally low on market share positionRECOMMENDATION:Divestiture:- swap share between MAS and Air Asia.Market penetration :- MAS should reduce the price ticket and copy-cat strategies of Air Asia.The Internal-External (IE) MatrixRefer on text book page 221Position in (ii)IFE- 3.3EFE- 2.44Strategies: market penetrationReduce price ticket to stimulate demand

MANAGERIALHuman resource issues cause these problems to arise if it was not being solved in a professional way.

Solution such as retrenchment, equal employment opportunity (EEO), work-life balance, training and development, workforce diversity and performance management have being done and suggested by MAS to further cope with the human resource issue that they are facing now and then.A new professional management team should be establish to make management more efficient.RecommendationOPERATIONALSuspend or stop the routes which generates a loss for MAS Kuala Lumpur-SurabayaKuala Lumpur-DubaiKuala Lumpur-Karachi-DubaiKuala Lumpur-Dubai-DammanLangkawi-Pulau Pinang-SingapuraKuala Lumpur-JohannesburgKuala Lumpur-Cape Town-Buenos AiresKuala Lumpur-Rome

MAS is also planned for aggressive global advert campaign and trying to seek a strategic alliance with other reputable airlines.

FINANCIALDue to MAS bad financial standing, the government has to step in to save the entity from further deterioration.Should implemented a restructuring planIssues more shareDivestiture swap share with Air Asia or other establish company

MANAGEMENTIn order to revive MAS back into its healthy condition, A new professional management team should be once again establish to manage MAS. Key figures like Datuk Idris Jala.A few reputable consultant firms were also appointed to advise and consult MAS on how to transform the losing company into efficient and profitable one.

MARKETINGMarket penetration reducing flight ticket for those customer who buying earlier through online.Improved customer loyalty programCreate student card to encourage them to flying with MAS