Malaysia Airlines, Soaring with the Phoenix

| Edison Lim Jun Hao | Lim Jun Hao | Ong Jun Hao | Wayne Kaiends Kang |

Malaysia AirlinesSoaring with the

Phoenix

J & W Consulting

Executive Summary

Where are you now:

Questions to consider:

Strategy:

Where you want to be:

Strategies ResultsAnalysis

Malaysia Airline has to reverse the impact of high profile

aviation disasters on its financial performance

How to curb rising

operational costs?

How to rebuild lost

confidence?

How to increase revenue

stream?

How do you balance

expectations as a National

Carrier?

Rising from the Ashes Soaring through the Skies

To provide safe and reliable air travel services,

underscored by efficiency and transparency

Implementation


Aviation Industry Analysis

Implementation

Porter’s 5

Forces


Malaysia Airlines Analysis

Implementation

12000

13000

14000

15000

16000

17000

2009 2010 2011 2012 2013

RM‘0

00

Year

Total Revenue Total Expenditure

Expenditure CAGR of 6%

Revenue CAGR of 5%

Source : Company Annual Report


Malaysia Airlines Analysis

Implementation

12000

13000

14000

15000

16000

17000

2009 2010 2011 2012 2013

RM‘0

00

Year


Expenditure CAGR of 6%

Revenue CAGR of 5%

Source : Company Annual Report

MAS Core Problem:

Unit costs have remained persistently higher than unit revenue.


Malaysian Aviation Industry Analysis

Implementation

Source: Boeing CMO 2013-2032

National Flagship Carrier


Stakeholder Analysis

Implementation

Any analysis of Malaysia Airlines will have to juggle Social and Political

obligations, yet still provide value for Customers

Social Political


Malaysia Airline’s SWOT Analysis

Strengths

5-Star airline accreditation

94 fully-owned fleet

4.5 average aircraft age

OneWorld Alliance

Prestige as national courier

Low labor costs

Weaknesses

Poor financial performance over

last 3 years

Unionised Workforce

Weak public relations

Almost non-existent Social Media

presence

Opportunities

Prime geographical location

Center of region primed for

exponential growth

Business Related Travel

Medical Tourism

Threats

Erosion of international and

domestic market share by

competitors

Negative public opinion stemming

from recent aviation tragedies

Increase in fuel prices

Positive Negative

Internal

Factors

External

Factors

S W

O T

Summary of Malaysia Airline’s Competitive Positioning

Implementation

Positive Negative

Strategies ResultsAnalysis Implementation


5-star Accreditation

OneWorld Alliance

Low Labor Costs

Prime Geographical Location

Center of region primed for

exponential growth


Poor financial performance

Negative public opinion

Erosion of international and

domestic market share

Negative


Key Challenges

Poor financial

performance (High

costs)

Erosion of international

and domestic market

share (Low Revenues)


Low

Revenue

Demand Supply Lower Price

Decrease in domestic market

share

Negative


Key Challenges

Poor financial

performance (High

costs)


and domestic market



Low

Revenue

Negative


Key Challenges

Poor financial

performance (High

costs)


Weak social media

presence


and domestic market


High Costs

Increase in

Fuel Prices

Unprofitable

Flight Routes

01

23

45

67

Mn A

SKs P

er E

mplo

yee

Malaysia A

irlines

Cath

ay Pacifi

cSin

gapore

Airlin

es

Unproductive

Employees

Negative


Key Challenges

Poor financial

performance (High

costs)


Weak social media

presence


and domestic market


High Costs

Negative


Key Challenges

Poor financial

performance (High

costs)


Weak social media

presence


and domestic market


Unprecedented

Aviation Disasters

Negative


Key Challenges

Poor financial

performance (High

costs)


Weak social media

presence


and domestic market


Poor Social

Media

Engagement

Positive




OneWorld Alliance

Low Labor Costs

Prime Geographical

Location

Center of region primed

for exponential growth


Established and

Quality Brand




OneWorld Alliance

Low Labor Costs

Prime Geographical

Location

Center of region primed

for exponential growth


Positive

Prime

Geographical

Location

Potential

Exponential Growth

Untapped Markets


Malaysia Airline’s Aim

Curb Rising

Operating Cost

Increase Revenue

Stream

Rebuild their

brand


Criteria to Evaluate Strategies

Implementation

Degree of

ComplexityHigh Impact Growth Potential Competition

Simple

Matches well

with core

competencies

Cost

effectiveness

Sales

Impact on Brand

Expertise

Future Potential

Scalability

Cost-benefit

Analysis

Similarity to

competition

Economies of

scale

First-mover’s

advantage

Simple. Impactful.

Sustainable


Evaluating Strategic Options

Implementation

Degree of Complexity High Impact Growth Potential CompetitionStrategies

Internal Restructuring

Heavy Marketing

Brand Differentiation

Reduce C

ost

Incre

ase R

evenue

Consolidation of

Flight Routes

Source for potential

growth locations



Implementation



Heavy Marketing


Reduce C

ost

Incre

ase R

evenue

Consolidation of

Flight Routes


growth locations



Implementation



Heavy Marketing


Reduce C

ost

Incre

ase R

evenue

Consolidation of

Flight Routes


growth locations



Implementation



Heavy Marketing


Reduce C

ost

Incre

ase R

evenue

Consolidation of

Flight Routes


growth locations



Implementation



Heavy Marketing


Reduce C

ost

Incre

ase R

evenue

Consolidation of

Flight Routes


growth locations



Implementation



Heavy Marketing


Reduce C

ost

Incre

ase R

evenue

Consolidation of

Flight Routes


growth locations


Areas for Growth

Implementation

Geographical

Asia Pacific Middle EastSouth

America


Low Cost Economy Business Class First Class

Relatively less price-sensitive

Frequent and Loyal Flyer

Aligns with Business Strategy to establish a premium

branding

Target Customer Profile

• Asian Professional

• Age 25 – 50

• Flies frequently on business trips

Areas for Growth

Segmentation


Profile of Malaysia Airline’s Target Consumer

Implementation

Who he is

ASEAN Professional

21-50 years old

Above average

disposable income

What he cares about

Why he travels

What attracts him

Safety is paramount

Keeping connected even while he flies

Convenience

Comfort

Competitive Pricing

Availability of in-flight WiFi option

Above average disposable income

Business trips around the region

Personal trips

Strategies Implementation

Rising from the Ashes

Analysis Results

Short-term



Analysis Results

Five-year Initiative 2019Present

1.

2.

3.

4.

Customer Base

Too diverse, too little volume

Profitability

3 straight years of losses, costs far

outweigh, many unprofitable routes

Government Independence

Government-owned and backed

Brand

Significant misalignment between

goal of being premier and operating

strategies

Customer Base

Regional outreach, focus on niche

Businessmen market

Profitability

Year-on-year increase in

profitability, regional juggernaut

in commercial flights

Government Independence

Healthy balance sheets and stable

independence from grants

Brand

Long-term realignment to being strong

regional Jaggernaut

> >



Analysis

Reduce Cost Increase Revenue

Results

Rebrand

Repositioning

Regain trust and confidence

Re-haul the public relations

team

Focus on social media as an

outreach tool

Focus on core

competencies

Regional market

Increase productivity

Target labor cost

Increase sources of

revenue

Increasing profitable

routes

Provide value adding

ancillary services

Strategies ImplementationAnalysis Results

Rebrand

Increase Relevancy



Brand Repositioning Statement

Staying Focused

through Repositioning

Unprecedented

Aviation DisasterStiffening Industry

Competition

Declining

Profitability


Strategies to Substantiate Brand Repositioning

Analysis Results

RebrandingTo provide safe and reliable air travel services,


Brand Repositioning Statement

Achieved by:

Driving Business Results

with Analytics

Structural Analytics

• Customer-centric Public

Relations

• Greater focus on Social

Media platforms


MAS must focus on Customer Intimacy to grow

Analysis Results

Co

mp

etitiv

e A

dv

an

tag

e

Customer Engagement key to

expanding consumer baseDerivation:

Reach out to Customers via

Social Media PlatformsAction:

Rebranding


Company Social Media Analysis

Source: Facebook

Implementation

Malaysia AirlinesSingapore

Airlines

SIA

1 million likes

MAS

1.4 million likes

10k likes, 712

shares

83 likes,

1share

MALAYSIA AIRLINES HAS MORE LIKES

ON FACEBOOK

SINGAPORE AIRLINES HAS MORE

CUSTOMER ENGAGEMENT

‘Likes’

Cu

sto

mer

En

ga

gem

en

t

Malaysia Airlines has great market outreach,

but is doing badly in customer engagement


Growing with the Social Media

Analysis Results

Rebranding Social Media Strategy

Create greater customer

engagement via FacebookWhat:

How:

Dedicated 24/7 Social

Media TeamSocial Media Analytics


Using Analytics for Future Growth

Analysis Results

Rebranding What is

Social Media Analytics

Technology that enable

analytics for social media

sentiments over Twitter and

Facebook

Connect more efficiently with

customers


Taking Public Relations on Social Media Platforms

Analysis Results

Rebranding

Crisis

Managem

ent

Response Time

Market Outreach

Emotional

Sensitivity

Public Relations

Faster Response Time

Customer Intimacy

Goal

Social Media Strategy

Better Crisis

Management


Increasing Productivity

Analysis Results

Reduce Cost

Technical and Service

StaffUpper Executive

Employee Remuneration

Packages

Align remuneration

with KPI (Key

Performance

Indicator)

Replacing portion of

salary with stock

options

Rewarding Staff for

Timeliness of Flights

Flat rate bonus payout


Increase Revenue

Value-Adding Ancillary Services

Steady Increase in

Ancillary Revenue

Large Growth

Potential

Source: Ancillaries derived from IdeaWorks 2013 report, IATA forecast



In-flight WIFI

services

Increase Revenue



Ancillary ChargesBusiness Class

Fare

In-flight WIFI charges

Current Prevailing Price

+ 6 USD

30 Minutes of WIFI

Included

For additional usage of

WIFI:

12 USD / hour of WIFI

usage

Increase Revenue


Soaring through the Skies

Analysis Results

Long-term


Code Sharing

Analysis Results

Code Sharing Partners

Qatar Airways

China Southern

Airline

Xiamen AirlineGoals

Market

Penetration

Market Capture

Increase Revenue


Code Sharing

Analysis Results

MSA with 3%

International

Capacity Share in

Middle East

Untapped Market

Potential

Source: CAPA – Centre for Aviation & OAG

26%

18%

13%

12%

3%1%

27%

Malaysia Airlines International Capacity Share (% of ASKs) By region: 1st Sep 2014 - 7th Sep 2014

Western EuropeOthersMiddle EastSouth East AsiaSouth AsiaNorth East AsiaSouthwest Pacific

Source: CAPA - Centre for Aviation & OAG

Working with Qatar Airways

Increase Revenue


Code Sharing

Analysis Results

Working with Qatar Airways

Limited Codeshare: Only

Kuala Lumpur – Doha

Middle East - 9.2 %

passenger growth to

capacity increase of 8.2%

Improved offline Access for

Qatar to SEA and Australia

Increase Revenue


Code Sharing

Analysis Results

Focusing on Chinese Market

17.6% CAGR

Average household

income

(2007-2012)

LARGEST

Middle class population in

the world and still growing

Negative Public SentimentsIncrease Revenue


Increase Sources of Revenue through Code Sharing

Analysis Results

Working with China Southern

Airlines and Xiamen Airlines

Large Domestic Volume

of Air Travel

Source: Boeing

Increase Revenue


Sourcing For Profitable Routes

Analysis Results

Countries Identified

MyanmarVietnam

Key Reasons:

Emerging Markets

Growing air travel demand

Additional Demand for Capacity as the country’s middle class

expand

Increase Revenue



Analysis Results

Vietnam

“Vietnam’s long-haul market is also incredibly

underserved, with big prospects for additional

capacity from both Vietnam Airlines and other

flag carriers.”

Source: CAPA – Centre for Aviation and Innovata ; Airline Leader

Increase Revenue



Analysis Results

Myanmar

“Demand will continue to

grow as the Myanmar

economy continues to grow

rapidly and it will continues

its emergence as a major

tourist destination”

Increase Revenue


Implementation Timeline

Analysis Results

Strategy 2014 2015 2016 2017 2018

Reduce Cost +

Increase Revenue

Brand Re-

positioning and

branding

% Revenue

Analyze

salary

structure

Wi-Fi Installation

Survey potential markets

Realign Strategy

Source

for IT

Vendor

Train

Social

Media

Team

Implement

IT System

Revamp employee

remuneration

package

Evaluat

e

Perform

ance

Increasing Service Standards

Evaluate

Perform

ance

Evaluate

Perform

ance

Implemen

t new

payment

scheme

Continuously access and improve if possible

Continuously access and improve if possible

Revamp employee remuneration

package

8%

CAGR

Tie up with authorities in Vietnam

and Myanmar

Tie up with Airlines in China

Tie up with Airlines in Middle East

CBA

Analysis

Strategies Results

Financial Projections

Analysis Implementation

12000

13000

14000

15000

16000

17000

18000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

RM‘0

00

Year


Revenue CAGR of 6%

Maintaining their 5 star

rating on Skytrax through

conducting regular audits

Strategies Implementation Results

Risk Mitigation

Analysis

Customer

Industry

Long-Term

Potential

Internal

Might feel that MAS is

sizing down and loses its

“premier” Image

Threat of other

Airlines

Unsustainable

growth

Mission

misalignment

Engage in regular

stakeholders’ meeting

Engage in partnerships to

reach out to more markets

Monthly reviewing of financial

statements to streamline cost

coupled with economic of scales

to create barrier to entries

Risk Group Risk Mitigation

Strategies Results

Conclusions

Analysis Implementation

Rise from the

Ashes Optimize internal

structure

Remuneration

Get in the ‘black’

Soar through the

Skies

Market creation

Profit from these

markets

Strategic Alliance

Target

Relisting of MAS

Stabilize

Revenue and

Costs

Rebuild Image

Sustainability

Short Run Long Run

Value Proposition



Appendix

Appendix 1: Income Statement

Appendix 1: Income Statement (Part 2)

Appendix 3: Statement of Cash Flow

Appendix 4: Comparison of Price with Competitors

Appendix 5: Air Traffic, RPKs (billion)

Appendix 6: China Domestic Frequencies

Appendix 7: Major ASEAN Aviation Markets

Appendix 8: Vietnam Airline Market Capacity

Appendix 9: MAS Group Financial Performance (2013/2014)

Appendix 10: Analysis of Malaysia’s Aviation Market

Appendix 11: Assessment of MAS in Airline Industry (2013)

Appendix 12: MAS Financial Difficulties in the last 14 years

Appendix


Appendix

Appendix


Appendix 2: Statement of Cash Flow

Appendix

Appendix 3: Comparison of Price with Competitors

Appendix

Comparing Air Fares with Close Competitors

Singapore Airlines $1,888.00

Air Asia $534.10

Malaysia

Airlines

$267.19

Comparing prices of Malaysia Airlines to its competitors on the

following parameters

From: Singapore

To: Osaka International Airport (Japan)

Departure Date: 7 September 2014

Return Date: 11 September 2014

Search Date: 3 September 2014

Appendix 4: Air Traffic, RPKs (billion)

Appendix

Appendix 5: China Domestic Frequencies

Appendix

Appendix 6: Major ASEAN Aviation Markets

Appendix

Appendix 7: Vietnam Airline Market Capacity

Appendix

Appendix 8: MAS Group Financial Performance (2013/2014)

Appendix

Appendix 9: Analysis of Malaysia’s Aviation Market

Appendix

Appendix 10: Assessment of MAS in Airline Industry (2013)

Appendix

Appendix 11: MAS Financial Difficulties in the last 14 years

Appendix