Malaysian Airlines corporate strategy - Essay Example

?Introduction: Facing a tough economic environment, strong rivals and governmental interventions, Malaysian Airlines is facing a situation where it is fighting to remain operational. Low cost operators are developing different capabilities in their operations that are leading to a competitive advantage for them. Industry wide standards are evolving so rapidly that it is becoming difficult for airlines who have massive operational scale to adapt there processes to theses changes in a small period of time. In these times company has to thoroughly scrutinize its business processes to tighten up cost and in effect maintain those margins that allow it to remain competitive in the industry. However, there is a limit to this measure and therefore company has to explore other options. Actions Undertaken by Low Cost Competitors: Malaysian Airline has been facing serious threats from the low cost competitors. The competitors are trying to capture the market share of Malaysian by using different low cost strategies. Low cost strategies allow the organization to create a cost leadership and impose serious competitive challenges for other organizations (Nickols, 2011). In this particular case study, the competitors of Malaysian airline are offering heavily discounted seats in core markets, this in turn allows them to influence demand and set new standards in the market. Apart from this, another competitive action taken by the low cost competitors is of E-ticketing, since it’s a onetime cost which allows the airline to avoid cuts or commissions of different parties, who were involved with booking tickets for example agencies, queues and staff. Another factor which has allowed the competitors to offer services at relatively low cost is the low cost airports. This has tremendously reduced their cost and is one of the reasons for them to offer such low fares. The competitors are able to attain and maintain zero accommodation cost for airline staff. This has become possible because the operations of these competitors are designed in such a manner that they do not require their cockpit staff to spend a night at a hotel after the flight. The staff comes back home immediately on the next flight. Code sharing has also allowed them to keep their expenses low. Lastly, these competitors have implemented performance linked compensation i.e. these companies have tied their compensation with the performance of the airline employees, giving them an incentive to keep performing exceptionally. Impact of the Actions of Competitors on Malaysian Airline: The strategies and actions implemented by the low cost competitors have some serious impact on the Malaysian airline. The airline has been forced to offer better service standards. Obviously, this measure would require the airline to incur more cost. Low cost airline has set a new benchmark for operations; these latest operations require airlines to cut every ounce of unnecessary cost, thereby squeezing capital expenditure. Low cost competitors due to their smooth operations have set fares prices so low that it has caused big airlines with massive operation to explore ways to lower their fares. Due to their massive scale, such airliners are facing difficulty to offer competitive rates. Since low cost operators charge such a low cost on domestic flights, it has put pressure on airlines like Malaysian airline to increase the passenger load on domestic flight in order to keep domestic services operational. Low cost flight carriers are now moving towards countries and regions liken ASEAN, China and India, thereby attacking the most probable markets for big airlines like Malaysian Airlines. Probable Actions for Malaysian Airline: Malaysian Airline has to take several measures and steps in order to overcome the increasing competitive pressure by the low cost competitors. The company can take measures in order to facilitate the process of downscaling unproductive operations for example certain domestic or regional flights. Apart from this the company can also follow the Airline BTP2 manual that is aimed towards achieving 5-star operator status. This would help the airline to differentiate itself in this highly clustered industry. Malaysian Airline should continue to invest on high potential human resource. The airline should make strides to lay their hands on quality cockpit staff and pilots. This would help the airline to set a new benchmark when it comes to assembling an on flight crew. Along with this the airline can look into the operational strategy of South West airline, where the aircraft has the least turnaround time as compared to other airline, leading to a cost advantage. Porter’s Five Forces Model: Porter’s five forces model is used in order to analyze and explore the impact of important market forces on the operations, strategies, and performance of the organizations (Haberberg and Rieple, 2008). These five important market forces are (Grundy, 2006): Threat of new entry: this element highlights the threat imposed by the new entrants in the market. Threat of substitutes: this element presents the threat presented by the different substitute products in the industry. Supplier power: this market force highlights the power of the important suppliers of the organization. Customer power: this element tells the bargaining power of the customers. Rivalry among existing competitors: this market force measures the level of competition in the specific industry or market. Porter’s Five Forces Model of Malaysian Airline System Berhad (MAS): The overall porter’s five forces model with reference to this particular case study about the Malaysian Airline have been presented below: Thus, after using the Porter’s model it is clear that Malaysian Airlines is facing a very hostile environment. It has a very narrow breathing space when it comes to setting airline fares. This is because of fluctuating oil prices and increasing cost of operations. These prices come in the category that does not permit the passing of these cost to the customers, who in the end would compare based on their available resources. Competitors are also giving a tough time to the airline due to their effective operations. These low-cost competitors are attracting other new entrants into the marketplace and especially in those markets where Malaysian Airlines would like to expand its operations to. Malaysian Airline is also in a tight spot from financial aspect also and any operational failure leading to financial consequences would put the company out for the rivals to undertake a hostile takeover. Deregulation of the industry, along with liberalization and removal of protective cover is raising the level of competition, and thus is providing the ground for mergers and acquisition. All in all the company’s management is made to be on their heels and stay extra vigilant to the developments in the industry. Macro-environmental Challenges Affecting the Future Growth of Malaysian Airline System Berhad (MAS): Since the airline industry is one of those industries that are affected heavily by economic cycles, events and outcomes, therefore any action undertaken or strategy implemented by the company should address the time in the economic cycle. As the world has just come out of recession, having said this it would be wrong to imply that the repercussions of recessions are over, and the economic engine has just restarted it would be advisable for airliners to match their scale with the current demand for air traveling. Therefore, in order to streamline their operations it would not be a bad idea to aim for synergy, even if the cost for achieving this is merging with other airlines. This action should be seen as minimizing competition in the face of stiff demand and rising cost of operations. Cost of operations that heavily comprise of fuel cost will be high in these times as the supply of oil is being curtailed. With overcapacity dominating the industry and profit margins eroding, it would be wise for competing airlines to join hands. Even after joining hands, this consortium should streamline their operations according to their customer profile. Some of the impacts of recession would be curtailed leisure trips, reduced business trips and a switch to cheaper modes of commuting when talking about travelling domestically. This would require these consortiums to become a low cost leader. Another uphill task for these consortiums would be to lobby against state rules, which do not allow companies with similar businesses to form monopoly. This rule should be relaxed so that these companies remain liquid and solvent in these trying times. Also the cost of fuel would make it necessary upon the airlines to reduce their number flights. This may seriously damage the airline’s image among the passengers, who would prefer switching to other airlines. Conclusion: Although, Malaysian Airlines is facing a tremendously complicated situation but the Airlines management is swiftly handling the complicated situations which are arising for the Airline. After a through case analysis I am of the opinion that the airline should exploit its links with the government to influence the relaxation in antitrust laws because it is only through this measure that it would be able to maintain sustained operations. Since, it is also evolving into other countries as well therefore it needs a sustainable competitive advantage that could nullify the competitive advantage of low cost airlines. Other than this the company can also emphasize its corporate social responsibility role that it is playing on behalf of the government to strengthen its brand equity and bring customers to its end. Bibliography Glueck, W.F. (1980). Business Policy and Strategic Management. New York: McGraw-Hill. Grundy, T. (2006). Rethinking and reinventing Michael Porter’s Five forces model. Strategic Change, vol. 15, no. 5, pp. 213-339. Haberberg, A. & Rieple, A. (2008). Strategic Management: Theory and application. New York: Oxford University Press. Henry, M., Mintzberg, H., Quinn, J.B., & Cliff N.J.E. (1992). Five Ps for Strategy in The Strategy Process. Prentice-Hall International Editions, 12-19. Johnson, G., & Scholes K. (2001). Exploring Corporate Strategy: Text and Cases. 6ed. London: Prentice-Hall. Mintzberg, H. (2002). The Strategy Process: Concepts, Context, Cases. 4th ed. Prentice Hall: Upper Saddle River. Nickols, F. (2011). Strategy, Strategic Management, Strategic Planning and Strategic Thinking. Distance Consulting. [online] Available from [Accessed 28 March 2012] Read More