Malaysia Airlines

Malaysia Airlines

Malaysia Airlines is the national air carrier of Malaysia that is operating jet services on the network of domestic as well as international destinations in four of the continents. It is based on Passenger Transportation Industry. The slogan of Malaysia Airlines is “Going Beyond Expectations” (Centre for Aviation (2019). Through various subsidiaries, the airline industry manufactures aircraft parts, offering trucking, cargo transportation services, offers laundry and dry-cleaning services for the airline industry. Malaysian airlines have several challenges arising not only in operating and financial problems, but also, they have several issued in management.

Uncertainty / Changes

The Airline’s woes appeared immense when the sole shareholder Khazanah reported its first annual loss in over a decade. Malaysia has become a challenging market for airlines, set back by intense competition and volatile demand. Six of Malaysia’s seven carriers were unprofitable in 2018, and the seventh, AirAsia, generated its smallest operating profit in four years. An uncertain future for Malaysia Airlines is a destabilizing feature. Passenger growth at Malaysia’s flagship airport, Kuala Lumpur International, slowed from 11.2% in 2017 to 2.4% in 2018. The growth in the overall Malaysian market slowed from 10% in 2017 to 3% in 2018. Growth is likely to remain in the low to middle digits in 2019. Profits continue to be under pressure, and overcapacity is once again a concern.

The uncertainty surrounding the future of Malaysia Airlines is unhealthy. Shutting it down is not likely a feasible option politically, although the Malaysian market does not necessarily need three airline groups. It is also hard to imagine a sale of a significant stake or the entire airline group, given the current state of the Malaysia Airlines Group and the overall Malaysian market. Another phase of restructuring, which ideally would go deeper without any interference, is the most likely scenario. Increasing liberalization also makes it easier for airlines to compete outside of their home markets. In the US and Europe, this combination of overcapacity and liberalization has invariably yielded market consolidation, with only the strongest airlines surviving in their original form.

New Entrants

Malaysia Airlines had always enjoyed brand recognition among its customers until the MH370 and MH 17 tragedy that hit people all around the world. The threat from the low-cost carriers is a constant to Malaysia Airlines. A new entrant into the industry, Malindo Air is posing a difficult challenge to Malaysia Airlines. Malindo Air attracts customers by offering them appreciable services at low costs. Given the unlikelihood of consolidation, competing in the Malaysian aviation market is not about to get any easier (Centre for Aviation, 2019). Competition between the three players is fierce, and there is also intensifying competition regionally for local, and particularly sixth freedom traffic since Kuala Lumpur is a major hub airport. Malaysia Airlines operates 23% of the seats at KLIA, so it is winding down, or withdrawal would cause a jolt to the airport, as well as the market, but one which AirAsia and Malindo would undoubtedly quickly exploit. Controlling over half the market and benefitting from its very low-cost structure, AirAsia is clearly in a position of strength. Malindo and Malaysia Airlines will continue trying to carve out sustainable niches, but profitability is likely to remain elusive (Centre for Aviation, 2019).

The strategy of focusing more on the Asia-Pacific market also has its challenges as other carriers from the region, both low-cost and full-service, are similarly increasing their focus on Asia. From the full-service sector, SIA regional subsidiary SilkAir is growing at an annual clip approaching 20% while the new Thai Airways unit Thai Smile is rapidly expanding its international network. But it is from the LCC sector that MAS is facing the toughest challenge. MAS and its biggest rival, AirAsia, have significant network overlap as AirAsia is now similarly focused on the Asia-Pacific region, having dropped European services in 2012. AirAsia already has a leading 52% share of capacity in Malaysia’s domestic market, compared to 47% for the MAS group (includes turboprop subsidiary Firefly).

Gap of Performance

A gap in performance is another strategic issue that affects Malaysian Airlines. The company has been unable to meet the demand of the people. It was witnessed when the company had to change its first-class offering to the business suite to meet the increasing demands for a business product from customers. The company lacks competitive products that attract new clients and maintain existing customers. Again, a loyalty program is another performance gap experienced by the company. The company’s strategic plan lacks a loyalty program that motivates their clients. All these open the door for competitors to grab their customers.

Threats

Threats are those factors in the environment that can be detrimental to the growth of the business. Some of the threats faced by Malaysian Airlines include competition from brands such as Singapore Airlines, China Southern Airlines, China Eastern Airlines, Air China, Emirates Airlines, Qatar Airways, and Etihad Airways. There is domestic competition from Malindo Air, which poses a difficult challenge to Malaysia Airlines. Malindo Air attracts customers by offering them appreciable services at low costs. It is, therefore, a tough challenge for Malaysian Airlines in its pricing strategy, considering their current financial situation. They are not in a position to compete at a lower process since they aim at cutting their recent loses. Other threats such as terrorism and political unrest, foreign currency fluctuations, increasing jet fuel prices, and economy, equally have an impact on the performance of the Malaysian Airline.

Critical Incident

Malaysian Airlines has had a number of critical incidents that threaten its ability to discharge its services effectively. In 2014, Malaysia Airlines Flight 370, carrying 227 passengers and 12 crew lost contact with Subang Air Traffic Control. The Boeing 777-200 aircraft was en route to Beijing, China from Kuala Lumpur. Two hundred thirty-nine passengers, including two infants and 12 crew members were onboard the flight. Again, on December 17, 2013, Malaysia Airlines MH 710 departed Jakarta for Kuala Lumpur. While landing, the plane went into an air vortex caused by a previous flight and began tilting left and right. The pilot was able to stabilize the flight and land safely. It is also remembered that on September 15, 1995, Malaysia Airlines Flight 2133, a Fokker 50 (9M-MGH) crashed during approach in Tawau, Sabah, due to pilot error. Thirty-four people were killed and just to mention again that during December 4, 1977, Malaysia Airlines Flight 653, a Boeing 737-200 (9M-MBD), was hijacked and crashed in Tanjung Kupang, Johor, killing all 100 people aboard. These are just but a few of the critical incidences experienced by the Malaysian Airline. They have created fear among the clients, posing a danger to the market share of the company in this industry.

Constraints

Malaysian airline business units and subsidiaries have traditionally been saddled with overstaffing and productivity issues. The company has experienced financial issues considering its inability to make a profit in recent years. Again, changing policies in the aircraft industry also hinder the success of the Malaysian Airline. The company currently provides about 263,000 weekly seats, which represents about a 9% reduction compared to Jun-2014, according to CAPA and OAG data. The new policies have seen them struggle in the international market, where companies with strong financial stability dominate. Government policies directly affect the airline industry. Fiscal policies such as excise taxes on airline tickets increase consumer prices, and that affects demand. Consumer protection legislation requiring airlines to limit tarmac time during weather delays increases the flight cancellation rate, decreasing revenue. Monetary policies determine interest rates and an airline’s ability to purchase aircraft. Stimulus checks to consumers provide discretionary income, which increases demand for vacations and air travel. All these have created an impact on the performance of Malaysian Airlines.