This slide explain about Porter`s 5 Forces Model & Value Chain by using Malaysia Airlines as the case study

1. PORTER'S 5 FORCES MODEL & VALUE CHAIN
CASE STUDY:
BY: NORIDAH YAHYA (GP 02434)

2. WHAT IS PORTER’S 5 FORCES MODEL?
 is a framework to analyse level of competition within an industry and business strategy development (Wikipedia).
 It captures key elements of industry competition
Threats of
new
entrants
Rivalry
among the
existing
competitors
Bargaining
power of
buyers
Threat of
substitute
products or
services
Bargaining
power of
suppliers

3. OBJECTIVES OF PORTER’S 5 FORCE MODEL
To identify the behavior factors of the competition
To manage the long-term business attractiveness in the industry
To analyse and access industry attractiveness structured
To explain the relationship between the 5 dynamic forces and the business performance

4. PORTER’S 5 FORCES MODEL : AIRLINES INDUSTRY (MALAYSIA
AIRLINES)
Threats of new
entrances
Competitive
Rivalry:
• AirAsia
• Malindo
Bargaining
power of
buyers
Threat of substitute
products or services
Bargaining
power of
suppliers
• National airlines
• Foreign airlines
• Budget Travelers
• Pleasure Travelers
• Business Travelers
• Travelling alternative: Bus,
car, train
• Technology alternative :
Video Conferencing
• Fuel Companies
• Catering supplies
• Aircraft companies

5. MALAYSIA AIRLINES BACKGROUND
Founded 1 May 1946; 68 years ago (as Malayan Airways)
Commenced operations 1 October 1972; 42 years ago
Hubs Kuala Lumpur International Airport
Kota Kinabalu International Airport
Secondary Hubs Kuching International Airport
Frequent-flyer program Enrich
Subsidiaries Firefly
MASwings
MASkargo
Destination 60 exl. codeshare and subsidiaries`
Parent Company Penerbangan Malaysia Berhad (Government Holding Company)
Headquaters Sultan Abdul Aziz Shah Airport
Subang, Selangor, Malaysia
Company Slogan More than just an airline code. MH is Malaysian Hospitality
Website www.malaysiaairlines.com

6. COMPETITIVE RIVALRY
Threats of new
entrances
Competitive
Rivalry:
• AirAsia
• Malindo
Bargaining
power of
buyers
Threat of
substitute
products or
services
Bargaining
power of
suppliers
Competitive Rivalry:
• The main driver is the number and capability of competitors in the
market. Many competitors, offering undifferentiated products and
services, will reduce market attractiveness.
• The airline industry is extremely competitive because of a number
of reasons which include entry of low cost carriers, the tight
regulation of the industry wherein safety become paramount
leading to high operating expenses.
• It seems to be in the mature stage of the business cycle. The
number of competitors stays the same in the long run and it
doesn’t seem to be under or over capacitated. The fixed costs are
extremely high in this industry. This makes it hard to leave the
industry because they are probably in long term loan agreements
in order to stay in business. The products involved or the planes
are highly complex which also heightens the competition.
• The competition is lessened by the brand identities of different
firms. As for example; Malaysia Airlines is worldwide known giving
the best hospitality to the passenger, while Air Asia formerly
known for its low price.

7. COMPETITIVE RIVALRY
Threat of new entrances:
• Profitable markets attract new entrants, which erodes profitability.
Unless incumbents have strong and durable barriers to entry, for
example, patents, economies of scale, capital requirements or
government policies, then profitability will decline to a competitive
rate.
• Airline industry has a high barrier to entry and exit as once an airline
is operative then exist from the industry would amount to huge
amount of loss.
• Since the needs to start an airlines company are hard, consequently,
the threat of new entrants has reduced. Furthermore, brand name is
important to the consumers these days. Adding to that, to go into
this business not also need high capital but also need an establish
brand name. Thus, rather than start an establish brand name, the
new threat entrants will focus more on the loyal customer.
• Malaysia Airlines has a good history as the safest airlines and an
excellent hospitability service. Unfortunately, after the sad tragedy of
MH17 & MH 370 it affected the company's reputation and an
establish MAS brand name
• Now, the new threat entrants Malaysia Airlines need to focus on the
international (foreign) airlines.
• National airlines
• Foreign airlines
Threat of new
entrances
Bargaining
power of
buyers
Threat of
substitute
products or
services
Bargaining
power of
suppliers
Competitive
Rivalry:
• AirAsia
• Malindo

8. COMPETITIVE RIVALRY
Bargaining power of buyers
• An assessment of how easy it is for buyers to drive
prices down. This is driven by the: number of buyers
in the market; importance of each individual buyer to
the organisation; and cost to the buyer of switching
from one supplier to another. If a business has just a
few powerful buyers, they are often able to dictate
terms.
• As for Malaysia Airlines buyers can be categorized by
type of travelers :
i. Budget Travelers
ii. Pleasure Travelers
iii. Business Travelers
• It a big challenges for Malaysia Airlines to have
business attractiveness for budget travelers compare
to pleasure travelers and business travelers.
• Frequent flyer programme and online duty free
purchase services can create customer loyalty and
reduce the threat of customer switching over to other
airlines to some extent.
Bargaining
power of
buyers
Threat of new
entrances
Threat of
substitute
products or
services
Bargaining
power of
suppliers
Competitive
Rivalry:
• AirAsia
• Malindo
• Budget Travelers
• Pleasure Travelers
• Business Travelers

9. COMPETITIVE RIVALRY
Threats of substitute products or services
• Porter’s threat of substitutes definition is the availability of a
product/services that the consumer can purchase instead of the
industry’s product/services. It also as an alternative way for consumer
to go to other option with different approach. According to Porter’s 5
forces, threat of substitutes shapes the competitive structure of an
industry.
• Consumers can choose other form of transportation such as a car, bus,
train, or boat to get to their destination.
• There is however a cost to switch because plan ticket can be more
expensive. For Malaysia Airlines to win domestic traveler is quite
challenge because of this alternative and pricey cost to the consumer.
• But, the main cost is time. Planes are by far the fastest form of
transportation available and also convenience way for oversea
destination.
• With the development of technology today, consumer also have a
choice for not travelling. Video conferencing can save time & money
especially for business traveler.
Threat of new
entrances
Threat of substitute
products or
services
Bargaining
power of
suppliers
Competitive
Rivalry:
• AirAsia
• Malindo
Bargaining
power of
buyers
• Travelling alternative: Bus, car, train
• Technology alternative : Video Conferencing

10. COMPETITIVE RIVALRY
Bargaining power of suppliers
• An assessment of how easy it is for suppliers to drive up prices. This is
driven by the: number of suppliers of each essential input; uniqueness of
their product or service; relative size and strength of the supplier; and cost
of switching from one supplier to another.
• For fuel, the bargaining power of suppliers is not really high since in
Malaysia there is only little petrol organization and the price is set by the
government.
• The 25 years catering contract with Brahim’s Holdings Bhd is a bailout for
Malaysia Airlines. Brahim’s Holdings Bhd paid 170 million upfront and took
over the accumulated losses. So, this 25 years contract can be long term
threat to Malaysia Airlines.
• There are 2 companies that are competing against each other in the
aircraft manufacturing industry which are Boeing and Airbus. Since
Malaysia Airlines are choosing Boeing as their main aircraft, therefore,
Boeing has no option to increase their aircraft prices. But it a big risk for
Malaysia Airlines, to change to another aircraft manufacturer since their
maintenance staff are experienced with Boeing’s aircraft. By changing the
aircraft manufacturer, Malaysia Airlines need to spend a lot of money to
train their maintenance staff which and switching cost is high. Therefore,
the power of suppliers cannot be a negative factor since Malaysia Airlines
only rely on one aircraft manufacturer.
Bargaining
power of
suppliers
Threat of new
entrances
Competitive
Rivalry:
• AirAsia
• Malindo
Bargaining
power of
buyers
Threat of
substitute
products or
services
• Fuel Companies
• Catering supplies
• Aircraft companies

11. WHAT IS PORTER’S VALUE CHAIN?
 is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or services for the
market. (Wikipedia).
 Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that
organization, and have the potential of a sustainable competitive advantage for a company.
 For efficient value chain analysis, it can be focus in 2 major activities:
1. Primary Activities : Related with production
2. Support Activities : Background need for the effectiveness & efficiency of the company

12. • includes planning and control systems, such as finance,accounting, and corporate
strategy
• E.g: Financial Department, Legal Department
Value Chain Activities
Inbound logistics
- Involved material
management. From
the upon of receive
the material from
supplier, stored and
handling it for
production
- E.g: Supplier
scheduler (fuel,
airlines food
catering)
Operation
- Related to the
production of
products and
service. This
operation can be
split into more
department in
certain
companies.
- E.g: Aircraft
Maintenance
work
Outbound
logistics
- Involved activities
that can be delay
& intrude final
product or service
to the customer
- E.g: Purchasing
airplane ticket
Marketing &
Sales
- To analyses the
needs & demand
of customer and
responsible for
creating awareness
among the target
customer
- E.g: Market
research
Firm Infrastructure
• Involved recruiting,training, motivating and rewarding the workforce of the company.
Human Resource
Management
• an area that is concerned with technological innovation, training and knowledge that
is crucial for most companies today in order to survive
• E.g: Marketing Testing, R&D
Product & Technology
Development
• responsible for purchasing the materials that are
necessary for the company’s operations. An efficient procurement
department should be able to obtain the highest quality goods at the lowest
prices.
• E.g: Machinery, Subcontracting, Supplier management
Procurement
S
U
P
P
O
R
T
P
R
I
M
A
R
Y
Services
- Related to the
production of
products and
service. This
operation can be
split into more
department in
certain companies.
- E.g: Complaint
Handling

13. VALUE CHAIN OF MALAYSIA AIRLINES
• From this value chain analyses we can conclude Malaysia Airlines income is based from good services
(Primary Activity-Services)
• On the other hand to reduce expenses, Malaysia Airlines need to focus more on product & technology
development (Support Activity); such as research of reducing spending on material services, but at the same
time maintain the premium quality services. Beside that, operation (primary activities) such as aircraft
maintenance need to more efficient.
• As such, MAS needs to be cognizant with the business cycle so that it can to take full advantage of such
effects especially when there are changes in discretionary income and consumer spending patterns.
• By coordinate these value chain analysis activities, Malaysia Airlines can have a lower cost structure and
increase the value of outcome product. By increasing the value of outcome product, Malaysia Airlines can
compete better in the industry by understanding the connection between each of the value-chain activity.
• Additionally, a proper coordination with their union, customers and suppliers can reduce cost and adds up
the bonding between customers and company itself. As its outcome, improvement of the performance in
Malaysia Airlines primary and secondary activities can be achieved and higher profit can be gained in the
process.
• Last but not least, the impact of tragedy of MH370 & MH17, was able to hit the Malaysia Airlines business
badly and as such they continue to pose serious threat to the business

14. REFERENCES:
 http://en.wikipedia.org/
 https://sites.google.com/site/admn703ai/the-team
 http://managementstudyguide.com/porters-five-forces-analysis-of-airlines-industry-in-united-states.htm
 http://strategiccfo.com/wikicfo/threat-of-substitutes-one-of-porters-five-forces/
 Malaysia Airlines Annual Report 2012 (http://ir.chartnexus.com/mas/doc/ar/ar2012.pdf )
 Malaysia Airlines Annual Report 2013 (http://ir.chartnexus.com/mas/doc/ar/ar2013.pdf)
 http://www.slideshare.net/harrisonaimiyekagbon/malaysian-airlines-power-point
 Shahren, “Brahim’s Willing To Sell AC stake; New Straits Times Online, 21 August 2014 (http://www.nst.com.my/node/25010 )
 http://www.academia.edu/7519765/MALAYSIA_AIRLINES_UNDER_STRATEGIC_MANAGEMENT
 http://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/2516-porter-value-chain.html
 http://www.monografias.com/trabajos89/strategy-michael-porter/strategy-michael-porter2.shtml
 http://www.slideshare.net/busterblitzstrikeaegisduel/strategic-management-20393538
 http://www.ukessays.com/essays/management/value-chain-analysis-at-air-asia-management-essay.php