Malaysia Airlines (MAS) faced significant financial losses from 1994-2005 due to poor management, increased fuel prices, and high maintenance costs. MAS operations were constrained by government intervention and lacked flexibility to change routes and pricing. Competition from local and international airlines also increased pressure on MAS. Over 60% of MAS routes were unprofitable. To address these issues, MAS terminated unprofitable routes, joined an airline alliance to expand networks, implemented fuel hedging strategies and surcharges, sold old aircraft and bought newer fuel-efficient planes, and established maintenance as a profit center to reduce costs. These recommendations aimed to make MAS a more competitive and profitable airline.

1. INTEGRATED CASE STUDY (PAS 3183)
MALAYSIA AIRLINES (MAS)
PRESENTED BY
Luluk Nor Khotima Bt Nursam
Ashvenee Devi Selvaraju
Noor Armi Addila Bt Noor Ariff
Nur Azlinda Bt A.Azaman
Norliza Bt P P Mohamed

2. AGENDA
• INTRODUCTION
• MANAGEMENT CONSTRAINT
• COMPETITION
• UNPROFITABLE ROUTES
• INCREASED IN FUEL PRICE
• MAINTENANCE COST
• RECOMMENDATION

3. INTRODUCTION
• 1994- Privatized 32% controlling stake
to Tajuddin Ramli through Naluri
Berhad
• 1998- Asian Financial Crisis MAS faced
substantial losses
• 2005- MAS reported loss RM1.3b
• 1 Dec 2005- Idris Jala became CEO of
MAS
• 27 Feb 2006 - BTP 1 was announced

4. 1. MANAGEMENT CONSTRAINT
Constrained freely
changing
destination, routes and
pricing
Government intervention
Action taken by
management

5. Constrained Freely Changing
Destination, Routes And Pricing
• MAS suffered high losses due to poor
management & fuel price increases.
• MAS operations were identified as the
causes of the RM1.3 billion loss are:
– Escalating fuel prices
– Increased maintenance and repair costs
– Staff costs
– Low yield per available seat kilometre

6. Government Intervention
• Transformation Programme:
- Widespread Asset Unbundling
(WAU)
RM7bil in debt were shifted to
Penerbangan Malaysia Berhad (PMB)
- Government Linked Corporation
(GLC)
BTP is also part of the GLC which aims
to make all GLCs more successful.

7. Action Taken By The Management
• Increased domestic price
• Major cost reductions were
made
• Improve MAS network
• New low cost community
airline
• Malaysia’s first commuter
airline was launched

8. 2. COMPETITION
LOCAL AND INTERNATIONAL COMPETITORS
LOCAL INTERNATIONAL
• EUROPEAN
• AUSTRALIAN
• UNITED STATES

9. THREAT OF NEW ENTRY : COMPETITIVE RIVALRY :
• Need huge investment to • Many airlines with same
setup this business. routes.
N
• Less threat 5 – 10 years E • Most of MAS competitors offer
before. W lower fare to customers.
• Now bank increase the
E • International airlines
N
possibilities through T
somehow have access to many
offering long term loans R routes that MAS do not have
with low interest. Y • In term of safety
POWER OF COMPETITIVE POWER OF
SUPPLIER RIVALRY BUYER
SUPPLIERS POWER :
• Less opportunity for bargaining
because not many suppliers. BARGAINING POWER OF CUSTOMER :
• High bargaining power as customers
THREAT OF SUBSTITUTE : can easily shift to AirAsia which is
• For international do not ha ve cheaper.
problems because the only way to • However, if they prefer a high and
travel fast is using airline. good quality services, only MAS can
• For domestic have to compete provide it.
with other cheaper substitute.

10. COMPETITIVE ADVANTAGE
WHAT?
Business should concentrate their efforts on things they do
well
WHY?
To stay in business and become success
HOW?
From one or combination of these factors ;
price, service, quality, location, or customer base.
1. Find out factors that important to the customers
• Good quality of services – best Cabin Crew Award #1
• Low fare rate
• Safety
2. MAS competencies and things that they do well ?
3. Identify whether MAS can develop what important to
customers as their competitive advantages?
• Low fare : reduce costs

11. FOLLOW COMPETITORS STEPS
WHY ?
“if you can’t beat them, join them”
HOW ?
1. Alliance - ONEWORLD
2. E-ticketing
3. Promotion packages in off-season –
MATTA FAIR
BENEFITS?
1. More routes and benefits
2. Cut-costs
3. Increase sale in off-season

12. 3. 60% Unprofitable of MAS Routes
• Pricing properly to maximize yield (profits)
• Yield = Revenue per Revenue Passenger Kilometer (RRPK)
• MAS made the past ‘strategic mistake’ of not joining a global airline
alliance.
• 66 of the airlines' international routes are unprofitable while 48 are
profitable.
• Example – Kuala Lumpur-Manchester – routes to be dysfunctional –
140% capacity-full to break even.

13. The Main Causes of Unprofitable Routes
1. There has been a slowing of global
Revenue Passenger Kilometer (RPK)
growth
• relatively large ratios between RPK growth and GDP
growth.
2. Factor costs—particularly fuel—have
increased
• increase in fuel prices alone.
3. Low cost competition is on the rise
• Competitors hoping to stimulate demand by dumping
large numbers of very low price seats in core markets
4. The frequency and impact from global
demand shocks is increasing
• many of their customers do not need to travel.
• with the current transparency and immediacy of
global media - end up with increasingly volatile
demand.

14. EVALUATION
1. Launched the Route Profitability Project.
 efforts around eight route-cluster ‘labs’
2. Implemented a Revenue Enhancement Project
(REP).
 various surcharges and administrative
fees in line with the rest of the market
have been introduced to align revenue
with costs
3. Launched 'Travel Fair 2006‘.
 rewarded our customers by selling 5
million seats at up to 70% discount

15. EVALUATION ( CON’T )
4. Terminated any unprofitable
routes
 freeze recruitment except for front-
line staff, and crack down on
corruption
5. Joining global airline alliance
 adopt regional alliances
 ‘hub and spokes’ strategy - allows
partner airlines’ networks to ‘feed’
passengers to MAS regional hubs
 saving MAS from spreading itself too
thin flying all over the place

16. 4. INCREASE FUEL PRICE
• Global economic crisis (2008 – 2009)
• Price is in US dollar – cause the price of
fuel affected
US$ 166.48 per barrel
July 2008
US$ 52.78 per barrel
February 2009

17. Price of Jet Fuel & Crude Oil

18. EVALUATION
• Price hedging strategies
– Foreseeable for the following month, heating oil
futures should be the chosen hedging
instrument
– Greater supply than demand, the oil prices will
decrease
• Fuel surcharges to the customer
– Ex : SIA and SilkAir, fuel surcharge increase
between US$3 and US$25 per seat, depending
on the distance and class of travel.
• Buy a new aircraft
– That are superjumbo airplane has more seats
and fuel savers (A320neo)

19. ADVANTAGES
Mitigate
losses
Reduce More
volatile
Advantages profitable
Cost most
consistent &
manageable

20. 5. MAINTENANCE COST
Maintenance Cost
RM’000
1600000 20%
1400000 70%
1200000 8.5% 3.5%
1000000 50%
800000
600000
400000
200000
0 YEAR
2003 2004 2005 2006 2007 2008
 Sell the old aircraft
 Managing the maintenance cost
 Profit centre

21. Sell The Old Aircraft
• The average age of the aircraft is between
10 and 12 years.
• Older aircraft require more maintenance
and there has been a 10% increase in the
number of annual heavy maintenance
since 2004.
• An organize structure of selling the aircraft
• Buy new aircraft
• Considering leasing

22. Managing Maintenance Cost
• Well documented the maintenance
cost
• Properly classified the maintenance
cost and modification cost
• Maintenance cost based on the
accumulated flight hour and aircraft
life cycle
• Reducing the cost while maintaining
the same quality

23. Profit Centre
Malaysia
E&M
Aerospace
Project Delta Breakthrough
Engineering
Programme
(MAE)
• Optimize the used of fixed assets
• Optimize maintenance schedules by
maximising maintenance during off
peak season
• Improve inventory management
through Integrated Material
Management
• Joint venture with other international
airport

24. RECOMMENDATION
• Reduce government intervention
• Internet based service (e-ticketing)
• Terminate unprofitable routes &
joint Alliances One World member
• Properly analyze fuel price before
make hedging agreement
• Selling old aircraft & focus
Malaysia Aerospace Engineering
(MAE)