The Losses of Flights MH17 and MH370 - Case Study Example

The losses of flights MH17 and MH370 have had ‘devastating’ Effects on both Malaysia Airlines and the number of inbound tourists to Malaysia. What are the potential strategies and tactics that Malaysia airlines can employ to re-build the damages (if any) to its brand? Author’s name Institutional Affiliation Abstract MAS has experienced its troubles since its profit decline in the last decade. However flight disappearance of MH370 and attack of MH17 have since deepened the airlines’ looses due to reduced demand and further damaged the image of the firm. MAS has been Malaysian flag carrier and ranked five star airlines, which put it in a competitive edge in the world airline industry. This document elaborates on MAS devastating losses in the financial performances, staff resignation and consumer behaviour affecting demand, all of which negatively impacted on MAS’s high valued brand. Following the incidences MAS seek to embark on rebuilding the damages by focusing on internationalization path and implementing better strategic marketing. Through this it would seek to expand into suitable market/ destinations, increase capacity and frequency in profitable routes to recover from losses that continue to hurt its image. Finally explore on safe and quality service delivery, advertisement and promotions other than pricing to redeem its image and influence the public perception. Keywords: International Expansion, Financial Performance, Brand, Service Delivery, Advertisement, Promotions, Product, Customer, Destinations, Market, Demand, Image, MH17, MH 370, MAS, Strategies Introduction The Malaysia Airlines (MAS) have been in a tight spot since the terrible incidences of the missing flights MH17 and MH370. This has been a blow after another for the two Boeing 777 model planes and the mystery behind their disappearance. Normally for such large firms in the international scene, such disasters end up affecting its market, reputation and profitability. Competition becomes tough and the airlines have a task to restore their trust to the customers and assure them of the safe flights again. The Malaysia Airline MH 370 was headed to Beijing from KLIA on 8th of March, but never got to its destinations as expected; six months later, its disappearance remains mystery with rumours of its crash perhaps in the Indian Ocean (BBC, 2014). MH17 from Amsterdam to Kuala Lumpur International Airport (KLIA) was confirmed to have been hit by type SA-11missile, launched from a rebel-controlled territory, before crashing on the eastern Ukraine (New York Times, 2014). Out of these disasters, about five hundred people are feared dead and a great loss for MAS within six months of 2014. Background Information of MAS (Malaysia Airlines) Business profile. MAS is a recognized 5-star and flag carrier in Malaysia. It dates back in 1940s from a joint venture of Ocean Steamship Company, strait steamship of Singapore and the now British Oversees Airways Corp (BOAC) (“Chapter” n.d). It became Malaysian Airways Ltd (MAL), then Malaysia Singapore Airlines (MSA) and later adopted MAS logo in the 80s, which exists to date. MAS has since expanded its operations and flies to approximately 110 destinations across the continents and operate using fleets of Airbus and Boeing aircrafts (Hassan, 2005). MAS is a public listed company in Malaysian stock exchange and aims to provide consumers with proficient transport system. MAS provides its market with high-end to low cost carriers (LCC). People have a choice of flights on economy, first class and business classes, which come with varying onboard services. It provides for online booking to make reservations for passenger and makes delivery of cargo through its fleet of cargo carriers. Firm’s commitment to internationalization. MAS has been on the international scene for decades now. After the WW II, MAS flights operated within the Eastern Asia region, particularly to Hong Kong other than domestic travels within Malaysia. After the early70s, the business experience expanded beyond Asia into Europe, Americana and Oceania continents for destinations like LA, London and Mexico cities. Based on its past operations and flights, MAS has more than 30 years of experience in the foreign markets, with thousands of employs across countries to support its international business (e.g. hotels and online booking services). MAS has demonstrated a high level of international marketing and is currently a member of Oneworld alliance since 2013. Before the tragedies occurred, the firm in 2013 planned to expand its international operation to improve its connectivity to the world, stimulate demand and increase their profit margin in an already competitive industry (CAPA, 2013). Key capabilities and competitive advantage. MAS uses state of the art technology and aircrafts. According to Hassan, it has partnership with other airlines in cases of passenger transfers, collaborations with Maintenance and Repair Operators (MRO) “like Aviation Partner Boeing to aid in installation of fuels saving wings” (2013, p. 21). It has the required human capital, aircrafts and technology it has invested on over time. It has its own recognizable brand, which is an effective marketing strategy and is well backed up by the Malaysian government (Mouawad, 2014). Effects on Malaysia Airlines Following the planes disaster, MAS financial resources have been under strain to meet the incurring costs in a moment where the profits had declined. Truth be told, MAS was already suffering losses over the last decade and has made numerous attempts to restructure its services. In the last April- June quarterly results, MAS reported a financial loss of RM 307 Million compared to RM 175 Million loss for the same period in 2013 (“Media,” N.d). Owing to the planes incidences, the booking for the flights had declined affecting MAS sales of its services. Competition on the other had seemed tough, as the other rival airlines benefitted from the tragedy (customers bought services from MAS competitors). Unfortunately, the loss could worsen in the second half of the year if strict recovery measures are not implemented. The incident introduced an emotional trauma to a proportion of staff, especially the cabin crew. Other than passengers, the staff also feared for their lives. Unable to handle the pressure, a group of cabin crew staff have resigned, perhaps shifting to other airlines. This has put MAS in an under-staffed position, creating an additional task for hiring new staff. The image of MAS has no doubt been tainted by the double disasters. Some people have changed their perception of the 5 star airlines, which would take time to restore confidence. The mystery behind the disappearance and crash have been interpreted differently by people; some feel it’s getting common for MAS, others claim to unprofessionalism, mismanagement and Malaysia government involvement. In the end MAS image and reputation is at stake and this affects even its customers and profitability. Effects on Inbound Tourists Tourism is a big industry in Malaysia, which accounts for huge profits not only for MAS, but other airlines and Malaysian economy. Some tourists would prefer to postpone their visit until calmness settles in. Their safety and security is of major concern, and until MAS or Malaysian government can re-affirm that, the number of inbound tourists will continue to decline. For only flight MH 370, almost 2/3of the passengers were Chinese; out of this tragedy a confluence of factors have contributed to Chinese tourists cancelling their bookings to Malaysia while others prefer touring North Eastern Asia (CAPA, 2014). These tourists want to avoid been victims of a similar tragedy, and though a mixture of anger and fear emotions, you would expect the reaction. What are the Potential Strategies and Tactics that Malaysia Airlines can Employ to Rebuild the Damages (If Any) to its Brand? Expanding suitable international markets/ destinations. MAS continue to face stiff competition with Malaysia and abroad. Considering its financial situation, airlines like Air Asia is slowly edging MAS out of the domestic market through its rock bottom pricing. However, MAS has an advantage in the international scene, it has large markets in Australia, India and UK among others, with destinations it can build on to increase its profitability. According to Luo and Tung, “Emerging Market Multi- National Corporations (EM MNC) use international expansion as springboard to acquire strategic assets needed to compete more effectively against global rivals and to avoid the institutional and market constraints they face at home” (2007, p. 482). MAS has the opportunity to further tap into markets that are doing well in the international level. One, it can seek new destinations into the potential new or existing markets, based on the demand. Take an example of India market, this route has proved profitable over the years operating in its MAS five destination, yet demand is still high. Though a relatively low per capital income country that has experienced high inflation since 2013, it has managed to restore its financial stability and contributed to approximately 10% of MAS profits in the 2nd quarter of 2013 (IMF, 2014). MAS has since extended in Kochi markets, but still more profits can realized by into Kolkata. Second, it can increase its capacity and frequency of flights to destination markets where the demand is high. More frequency can be awarded to KL- Perth route, while India route is still potential and expected to grow in future. Through this, it would be salvaging its financial performance that has affected it image through losses and debt Marketing strategies. Pricing strategy. The price of a product is co-related to a firm’s brand through the value sold by the brand. In a critical time like this, MAS need to be sensitive to is pricing strategy, put itself in the customers’ shoes and evaluate whether MAS brand sells a unique value in exchange to customers payment. Most firms tend to use cost and competition than demand oriented pricing strategies to structure their service’s prices (Zeithalm, Parasuraman & Berry, 1985). Currently, MAS charges higher prices than rival Air Asia, not to mention its suffering high decline in demand and high costs in its operation. It is definitely not a time to pass extra costs to MAS customers, but a time to substantiate the value of its brand, using its existing prices. Lowering the prices could be interpreted as accepting failure or lowed value. However, MAR can focus on offering fair and predictable prices for its passengers. It should work on addressing the potential weekday and stay weekend travelers through discounted fare and ensure reduced fares relative to the rival airlines for its customers especially at peak seasons. Product and branding strategy. Considering the ongoing crisis, MAS should invest more on restoring market confidence of its services by enhancing on security and quality flights to enhance their safety experience. MAS must appreciate that customers have changing needs depending on the operating environment. At the current state, most in the airline industry would seek more value from the service, and the firm that can offer it at lower prices would best win the market. Other than this feature, MAS customers want to feel safe in their flights with ultimate hope to reach their destination, without fatal incidences. Service differentiation, especially the delivery of service to customers by MAS need to be improved in quality so as to change how customers view the services been offered and enhance the good image. There exists high possibility for MAS to rebuild and reclaim its brand through partnership. This is a strategy to extend its brand into partial merger with successful airlines (e.g. Air Asia), to increase overall value in service and create an impression to the consumer, while MAS can reduce costs, enhance revenue and improve the portrayed image in the public. In effect, the new merged entity (especially in the affected areas) can be rebranded, which serve to enhance and positively leverage the parent brand. Communication strategy. It’s quite tragic that just two consecutive incidences could turn around the airline’s financial performances and emotions and satisfaction of MAS customers. It would take time to convince customer of MAS safety services again, but provided with other attractive packages, it would bring them back over time. According to Kotabe et al., “a unique feature of international marketing is polycentric orientation, with emphasis on product and promotional adaptations in foreign market” (2011, p. 16). MAS has already established centres across market destinations like in Sydney and Mumbai, which can serve as base point of its communication plan. Advertisement. In this modern society, technology is at its best in communicating and advertising firms products and services. MAS need to advertise its brand and services to appeal to existing and new customers, and convince them of their quality and safe flights once again. It’s possible through TV, online and social media channels; explore on service and brand marketing through sponsorships of and partnerships with companies to engage customers and support the marketing campaigns. Tradeshows and promotions. MAS should be part of tradeshows that promote customer awareness and interest, and airlines’ services/products. They would serve to accelerate internationalization, acquire customers’ and foreign market’s knowledge to establish stronger ties in future (Evers & Knight, 2008). Strategic partnership and customer loyalty programs can be exploited enhance promotions. Conclusion MAS tragic incidences of plane crash and disappearance have left a dent in its financial performances and damaged the image of the firm by affecting the market demand and effectively profits. Amidst, confluence factors have either indirectly or directly impacted negatively on it image (brand). MAS can redeem these effects through expansion into suitable international markets/ destinations and restructuring its marketing (product and branding, pricing, and communication) strategies. Reference List BBC. (2014, September 8). Missing Malaysian Plane MH370: What We Know. Retrieved from http://www.bbc.com/news/world-asia-26503141 CAPA. (2013, November 21).Malaysia Airlines Pursues Rapid Expansion but Yields and Profits are Under Pressure. Retrieved from http://centreforaviation.com/analysis/malaysia-airlines-pursues-rapid-expansion-but-yields-and-profits-are-under-pressure-140403 CAPA. (2014, July 18). Airlines and Tourism Market Hurts as Chinese Tourists Diverts from South East to North East Asia. Retrieved from http://centreforaviation.com/analysis/airlines-and-tourism-markets-hurt-as-chinese-tourists-divert-from-southeast-to-northeast-asia-177129 Chapter 1: Introduction. (N.d) Retrieved from http://studentsrepo.um.edu.my/2110/4/BAB_1.pdf Evers, N., & Knight, J. (2008). Role of International Trade Shows in Small Firm Internationalization: A Network Perspective. International Marketing Review, 25 (5), 544 – 562. Retrieved from http://jpkc.swufe.edu.cn/up_files/file/cankaowenxian/yingwen/%E6%96%87%E7%8C%AE7%EF%BC%9ARole%20of%20international%20trade%20shows%20in%20small%20firm%20internationalization_%20a%20network%20perspective.pdf Hassan, R.B. (2005). Malaysia Airlines Vision and Mission. Retrieved from http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/034f7dea846b0c594825706900235469/$FILE/MAS-EGMNotice-10YearStatisticalReview-ChairmanStat%20%281.2MB%29.pdf IMF. (2014, February 20). India: Economy Stabilizes, but High Inflation, Slow Growth Key concern. Retrieved from http://www.imf.org/external/pubs/ft/survey/so/2014/car022014a.htm Kotabe, M., Ang, S, H., Griffiths, K., Marshall, A., Voola, R., & Helsen, K. (2011). International Marketing: Third Asia Pacific Edition. 3rd Ed. New York: John Wiley & Sons Publishers Luo, Y., &Tung, R. L. (2007). International Expansion of Emerging Market Enterprises a Springboard Perspective. Journal of International Business studies, 38, 481-498 Media Release: Impact of Mh370 Tragedy Dents Malaysia Airlines Q2 2014 Results. (N.d) Retrieved from http://ir.chartnexus.com/mas/doc/media/q2_2014.pdf Mouawad, J. (2014, August 8). Malaysia Steps in to Save its Reeling National Airline. Retrieved from http://www.nytimes.com/2014/08/09/business/international/malaysia-airlines-to-be-taken-over-by-government.html?_r=0 New York Times. (2014, July 23). What Happened to Malaysia Airlines Flight 17? Retrieved from http://www.nytimes.com/interactive/2014/07/18/world/europe/malaysia-airlines-flight-mh17-q-a.html Zeithalm, V.A., Parasuraman, A., & Berry, L.L. (1985). Problems and Strategies in Service Marketing. 1985. Journal of Marketing, 49, 33-46. http://areas.kenan-flagler.unc.edu/marketing/facultystaff/zeithaml/selected%20publications/problems%20and%20strategies%20in%20services%20marketing.pdf Read More