Business Turnaround and Labelling the Companys Competition - Assignment Example

Malaysia Airline: A Business Turnaround 1. “What steps should an established carrier such as MAS take to counter the threats posed by low cost competitors?” Low cost competitors can be a threat to any established business. Nevertheless, there are strategies that an organization can utilize to ensure that low cost competitors are not a threat to their business. Malaysia Airline is threatened by low cost budget carriers in the region. To deal with this threat, the airline needs to adopt three easy steps to ensure that they remain competitive in the market amid the competition as suggested by Stritz (2012). These steps include; Labelling the company’s competition This entails the use of true but unappealing labels to position the low cost competitor as a less desired carrier than your company. This is aimed at slamming the competitors even though the competitor may deserve it (Stritz, 2012). The main purpose of labelling the competitor is to position the company as a better choice in the customer’s or prospects perspectives. The true but unflattering tag should expose the traits or information of the competitor that your prospects or customers might find unattractive. Customers usually buy services based on perception, thus they will develop the perception of both the company and the competitor. Educating the company’s prospect Malaysia Airline can deal with low cost competitors through rolling out an education program for their prospect. The more a company helps its prospect know its services or products they are purchasing, the better decision they can make. Basically, people go for cheap services or products because they do not see the differences (Stritz, 2012). MAS may show its prospect the differences in the services offered between them and their competitors through educating them. The company can utilize various ways to educate their prospect including seminars, demonstrations, tours of their company facilities, non-selling articles and white papers, tests, research and reports among others. However, MAS should be careful not to use educating efforts to carry out sales as this may chase prospect away. It is important to note that people know the difference between education and sales. In this way, MAS can be able to minimize threats by their low priced competitors. Deliver a better experience The experience that a company offers to their customers is more worth than the price. MAS should ensure that they are doing everything right and ensure that they know what the customers want from an airliner (Mukerji, 2007). This can be achieved through asking customers what they want and make sure that the company understands what the customers really want. The company can then tell their customers what they are capable of doing for them and how it helps them attain what they desire as customers (Stritz, 2012). Delivering a better experience entail doing what customers want, expect, deserve and even more. MAS can thus meet their customers’ expectations and going even further. The company can do this by showing their customers that they are willing to help them better than anyone else. By doing so, the company can still maintain high prices and offer great experience to customers who really know what they are looking for in an airliner. Doing this will help MAS make its low price competitors irrelevant. 2. “What are the major driving forces for MAS as per porter’s five forces model?” Rivalry among existing competitors The airline industry in Asia is reasonably competitive in spite of having just two major airlines (Mok & Jainurin, 2005). There are more service providers in both local and international markets. The different airlines are battling for the same customers. They are constantly competing against one another in terms of technology, prices, customer services, inflight entertainment etcetera. Malaysia Airlines is threatened by the dominance of low budget airlines in the country (Saeedipour, et al., 2004). Highly competitive sectors usually earn low returns due to the cost of competition. Threat of new entrants The airline industry is generally saturated with hardly space for new entrants. The major concern is the cost of entry, as the airline industry is among the most expensive industries because of the cost of leasing and buying aircrafts, safety and security concerns, customer service and labour. In addition, the brand name of existing airlines such as Malaysia Airlines and AirAsia is another barrier for entry in this industry. The airline industry in Asia has a fair to high barriers of entry (Mok & Jainurin, 2005). A new small airline operating one or two routes may penetrate the market easily. However, from previous developments in the industry, a larger airline operating multiple routes may find it difficult entering the Asian airline market. The evolution of small airlines into big airline is likely to be more successful as in the case of AirAsia (Desai, Patel, & Quach, n.d). However, access to labour and capital are the major obstacles for new entrants. Pressure from Substitute services and support from complements The industry is characterized by very minimal or low pressure from substitute products. The infrastructure such as roads, railway transport is not as developed as in the developed world. Travelling by air is incomparable to other supplements in Asia due to the efficiency provided by air transport. Besides, MAS operates local routes through government subsidy that ensure local routes are relatively cheaper to the locals (Ayupp, n.d). Besides, Malaysia Airlines being an international airliner, there is minimal threat of substitutes as the only option for travelling across borders is air (Mok & Jainurin, 2005). However, focusing on market segment of business travel, it is clear that there is a great prospect of decline in this segment due to substitute products such as video conferencing, which allow business officials to conference without necessarily travelling. However, the role of complements in Asia has not been fully tapped. Most people prefer using separate services as opposed to inclusive services by the airline companies such as accommodation and cab services as they perceive it to be relatively cheaper (Chow, 2007). Power of supplier The airline industry is characterised by low to moderate power of input suppliers. It is very improbable that any one supplier group to have a central control over industry constituents (Mok & Jainurin, 2005). The airline suppliers are basically aircraft makers, airports and fuel companies and there is very little competition among suppliers. The likelihood of supplier incorporating vertically is minimal. Power of buyers The industry is characterised by medium to high power of buyers. The cost involved with changing airplanes is diminishing as customers can access internet easily to compare and purchase tickets online today. With development of budget airlines such as AirAsia and Jetstar, more customers, travel agents and individuals prefer to take the budget airlines over full service airlines (Mok & Jainurin, 2005). Porters five forces is summarized in appendix 1. 3. “What macro-environmental challenges will affect MAS in the future?” The macro-environment explains all factors which impact the organization as a whole but are out of their direct regulation. There are several factors in the macro-environment will influence the decision of leaders of Malaysia Airlines. The PESTEL analysis model will be applied in this case to help analyse the macro-environmental challenges that will affect MAS in its future operations. Political factors Political factors in Malaysia play a major role in the running and operationalization of Malaysia Airlines. Being largely controlled by the government which is a major stakeholder in the company, MAS is affected by government policies such as the policy for ensuring local routes are cheap despite this putting the company at risk of making loses (Ayupp, n.d). Besides, the government has the mandate of planning and implementing policies regarding development of infrastructure such as roads, internet, as well as airports which influence the running of MAS (Gillespie, 2010). Economic factors Economic factors are inevitably volatile. They include both local and international economic trends. At the time when the European Union is experiencing an economic downturn, Malaysia Airlines will bear losses as it operates in those markets, relying mainly on corporate customers who make a rather small percentage but a great portion of revenues for airlines. Asia is becoming more competitive in the international market which means, Malaysian currency may continue strengthening against major global currencies such as the Euro and the US dollar which may influence MAS market negatively (Gillespie, 2010). The volatility in fuel prices in the future will impact basic costs of flights as well as the probability of customers to take a flight. Social factors Generation Gap organisations will be coupled with challenges of reducing the gap between these generations (Gillespie, 2010). Besides, technology is raising education levels of the Malaysian population hence will positively influence MAS operations. However, the demand for staff in other countries will increase the need for training in foreign language. Technological factors The growth of the information technology industry is creating a knowledge dependent international society and information will be the basic commodity of most industries. New and larger airplane models will enable companies such as MAS to attain better economies of scale. Environmental factors The world is becoming more concerned with environmental issues due to global warming threat. The use of environmental friendly airplane designs as well as alternative energy such as solar power is going to influence the airline industry (Gillespie, 2010). MAS will therefore need to be well acquainted with greener procedures in the market. Legal factors These are issues associated to the legal environment in which a company operates. Malaysia has adopted various legal changes regarding employment law, consumer protection as well as competition laws which will determine the future operations of MAS (Gillespie, 2010). The procedures set for establishment of a plant of site for any operations are very detailed as shown in appendix 2 which may affect expansion of airline business. References Ayupp, K. (n.d) Malaysia Airlines: A business turnaround, Case Study. Chow, Y.N. (2007).Developing a methodology in aviation risk management based on susceptibility, Report Submitted In fulfilments for the degree of Masters of Science. Department of environment: Environmental Requirements: A Guide For Investors http://www.doe.gov.my/portal/wp-content/uploads/2010/12/A-Guide-For-Investors1.pdf Desai, K., Patel, V. and Quach, D. (n.d). Southwest Airlines, retrieved October 12, 2012 http://www.mcafee.cc/Classes/BEM106/Papers/UTexas/351/Southwest.pdf Gillespie, A. (2010). Business Economics. Oxford New York: Oxford University Press. Mok K.M. and Jainurin, J. (2005). AirAsia in The Malaysian Domestic Airline Market: Empirical Analysis Of Strategy, International Business & Economics Research Journal, 4, (12): 1-12. Mukerji, A. (2007). Facing Low Cost Competition? Retrieved October 12, 2012 from http://www.fastcompany.com/659427/facing-low-cost-competition Saeedipour, HR, Razali, R, Ng, YC, Chang, TY, Abdullah, F, Aminuddin, SN, (2004). “Aviation Market Analysis in South East Asia”, 2nd New Root Asia Forum, International Conference Organized by ASM International / UK, Kuala Lumpur, Malaysia, 25-27 Stritz, K. (2012). 3 Easy Ways to Beat Low Price Competition, retrieved October 12, 2012 from http://qualityprofessional.net/articles/beat-low-price-by-kevin-stirtz.htm Appendix Appendix 1: Porter’s Five Forces Model Appedix 2: Environmental procedures for establishment of a site Source: Department of environment: Environmental Requirements: A Guide For Investors http://www.doe.gov.my/portal/wp-content/uploads/2010/12/A-Guide-For-Investors1.pdf Read More