Malaysian Airlines System analysis
|✅ Paper Type: Free Essay||✅ Subject: Marketing|
|✅ Wordcount: 1648 words||✅ Published: 1st Jan 2015|
Founded in 1947 as Malayan Airways, later renamed to Malaysian Airways System (MAS) in 1963 with the formation of Federal Malaysia, is the national flag carrier of Malaysia. With the largest and the youngest fleet size of South East Asia, MAS flies to some 100 destinations across the globe from its primary hub at Kuala Lumpur and the secondary at Kota Kinabalu whilst Kula Lumpur International Airport (KLIA) is its main base. MAS is internationally recognised as a five-star carrier. Along with air travelling, MAS is engaged in other related businesses such as airfreight (cargo) and airline catering. This document summarises how the current business model and IT infrastructure has led MAS to its apparent success.
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Current Business Model
Having suffered a loss of RM1.3 billion(b) in 2005, MAS, under the CEOship of Idris Jala, announced a Business Turnaround Plan (BTP) that consists of two phases, BTP1 and BTP2. BTP1, created using Government-Linked Companies Transformation manual as a guide, successfully helped MAS cut losses from a forecasted RM1.7b to RM600 million(m). BTP1 focused on creating yield and cut costs while MAS got rid of non-core assets (MAS, 2006). By selling its main building at KL, reducing its staff size and closing non-profitable routes MAS generated a record profit of RM850m in 2007 (OFB, 2009). Further, BTP1 has helped MAS to increase its customer base by introducing Everyday Low Fares (ELF). ELF offers discounts to 30% of unsold seats on the day of travel (MAS, 2009). BTP1’s strategies towards fuel management helped MAS to reduce fuel surcharge from 50-70% on domestic flights.
MAS is currently at the second phase of BTP (BTP2). Its main focus is to maintain its 5-star name achieved under BTP1 (MAS 2008). BTP2, launched in the first quarter of 2008 with a focus to maintain a lower cost-structure, has the following goals. [here goes the goals]. Under BTP2, MAS generated a profit of RM180m in 2008, which is a 70% decrease compared to previous year’s profit (OFB, 2009). In 2009, MAS reported a profit of. However, up until the third quarter of 2010, MAS is experiencing losses (OFB2010).
Although 2010 is an unprofitable year for MAS, BTP (BTP1 and BTP2) is a remarkable business plan. It has helped MAS to stay strong and competitive in a situation when fuel, operating and maintenance costs ever increasing. MAS’s inability to generate profit in 2010 could be related to MAS purchasing new aircrafts. Optimistically argued could be that these are new investments and its return is expected to be observed in the following years. The new aircrafts would help MAS considerably save costs on fuel since these aircrafts have a 17% lower fuel-consumption rate than the existing aircrafts (MAS, 2010).
Furthermore, new aircrafts is also a boost to the cargo business. Aircrafts with greater capacity indicates possibility of increasing customer base that would in turn fuel profit generation. Among the ordered aircrafts, some are specifically focused on increasing airfreight business (MASKargo, 2010).
Another point that expresses the strength of BTP is establishing new routes to destinations with more likely travellers. As mentioned earlier, a number of unprofitable routes were closed under BTP1. Closing itineraries involve high closure cost sustained due to cutting short agreements and other similar issues. However, the new routes would have its long-term benefits; closure cost would be far less than the profits the new routes would generate. For example, there is an increased number of Middle Eastern travelling to Malaysia. Further, the Malaysia-China routes are with high potential. Under BTP2, MAS has introduced new routes to China and Middle East and is still increasing; a new route to Riyadh starts on December 2010 (MAS, 2010).
Additionally, ELF is an incontestable strategy since MAS brand is well known and tendency to choose MAS for a slightly higher price than the LCCs for its excellent services is justifiable. Further, selling of MAS building at KL is another decision that might have enabled MAS to close aforementioned unprofitable itineraries. While MAS was facing losses, the money generated from this sale was available to manage such actions. Additionally, BTP emphasised on maintaining some of its other core businesses. For example, catering to airlines and maintenance services are two potential businesses that would generate profit. Further, KLIA express and transit from KLSentral to KLIA was not closed for this is marked as another profitable business (OFB, 2009).
The discussion hitherto was about BTP’s strengths in non-IT, though indirectly related, areas. However, the fact remains that established IT infrastructure under BTP played a vital role to emerge from the losses MAS was facing. Under BTP, to cope with the changes, MAS underwent from several physical-network enhancements to virtual infrastructure enhancements.
As per physical-network improvements, MAS sought the assistance of Nortel- a leading network hardware vendor. MAS purchased Nortel’s gigabit-switching platforms that support real-time business communication via voice and video (Nortel, 2008). Virtual solutions adopted include Sabre’s AirVision Revenue Manager (ARM) (Sabre, 2009) and SITA’s Reservation Management System (RMS) (SITA, 2008). To improve inter-office communications, MAS employed Avaya’s Contact Centre Solution (MAS, 2010). As part of MAS’s Internet enhancement program, it sought Akami to power its main website (Akami, 2009). Further, MAS is seeking IT consultation from Tata Consultancy Services (EI, 2010).
All the above-mentioned decisions made by MAS under BTP are interesting and justifiable. Firstly, under a turnaround plan like BTP, which is primarily focused on reviving profitability, it is believable that if the asking requirements were available, cost would come above all. Hence, the preference of Nortel equipments to those by more famous Cisco and HP is justified. Nortel offers 50% cost saving on its product compared to Cisco or other vendors (Info-Tech, 2008). Secondly, although Sabre and SITA provide expensive solutions, the two are renowned in airline industry for providing excellent solutions. Errors in areas such as scheduling and reservation in airlines is unbearable for one slight error could be fatal. Hence, the importance to choose experience over cost in this situation is logical. Selection of Sabre and SITA for that matter is justified.
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The benefits MAS achieved by Sabre’s and SITA’s solutions were vast. ARM provided business rules automation, automatic ticket pricing based on customer behaviour and competitors’ pricing, financial evaluation and inventory controlling (Sabre, 2010). Features of SITA’s RMS include online reservations, automatic flight scheduling, individual and group booking and customer profiling (SITA, 2010). It could be observed that features of these two systems combined allow automation of almost all the tasks that was done manually. Although MAS utilised KOMMA to do these tasks, it did not have intelligence to forecast or schedule on its own (MAS, 2007).
Adopting these solutions could be one of the ways MAS managed to decrease its staff. Moreover, adopting the solutions at an earlier stage of BTP allowed MAS to efficiently forecast into the future and refine the BTP. Introduction of reservation management allowed MAS to introduce e-ticketing. This eliminated its customers to be physically present in one of its offices to book or purchase tickets. Further, it allowed customers to check-in online, check flight schedules and status.
Introducing web-based services increased MAS’s website traffic. One of Akami’s solution – uploading mirror sites – helped MAS to boost website performance and management (Akami, 2009). Mirror sites mean that customers would be accessing a MAS’s site hosted at a location nearer to the customer’s location. This mirror would be faster for the customer since it is nearer to the customer. Moreover, mirroring allows load balancing since customers would be literally accessing different websites although linked.
SITA’s integration platform allowed integration of ARM, RMS and the website (MAS, 2008). SITA has additionally provided MAS with an iPad-based kiosk for reservations and checking-in (SITA, 2010). Certainly, iPad is cheaper than a physical kiosk and hence MAS could now cut costs on the bulky kiosks. The only downfall of the combined solutions seems to be that there is no apparent feature for cargo management.
Moreover, introduction of Avaya to its IT applications allowed efficient communication throughout MAS’s offices located locally and globally. Avaya’s features include web-based, virtual meetings, presentations and workflow management (Avaya, 2010). Apart from this, MAS signing contracts with Tata consultation indicates that it would be receiving up-to-date IT enhancements and hence would help to stay competitive in the industry.
In conclusion, it could be said that BTP was a success. Business decisions made under BTP were mostly successful. Implemented IT infrastructure only needs slight improvements such as integration of cargo management. BTP has enabled its website to be its main distribution channel while secondary channels include kiosks based on international airports. Beneficially for MAS, it is the only organisation in the industry with iPad-based kiosks. This is an innovation as well as a cost saver. Overall, BTP and the improved IT infrastructure have transformed MAS from a suffering business to one of the strongest competitor in the industry.
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