Opportunities And Threats Within The Airline Industry Management Essay
Due to the increase in the affluence of people around the world, the airline industry has become a major component to travel. MAS being an international carrier, faces a lot of competition from well-established full service airlines likes Cathay pacific, British Airways, and Singapore Airlines (Centre for Asia Pacific Aviation, 2010). Similarly, low cost carriers (LCC) such as Air Asia, Jet Star/Qantas airline and Virgin Blue pose a high threat to MAS. LCC airlines attract customers who prefer to fly in low price and quality not being an issue. LCC’s have the advantage during the periods of economic crisis, as the demand for full service carriers would be low and people would prefer to travel in low cost. However, as the price being the main competing element, Air Asia leads the way due to its low operating costs. As a result Air Asia has surpassed MAS, currently Air Asia’s share price surged 46.9% or RM1.21, while MAS rose by 7.49% or 7.5 Sen (Yap, 2010). With the growth of the key destinations, it could be possible for MAS to increase the market share by increasing capacities on the routes. MAS could also take advantage of the cargo segment by expanding their cargo warehouse. This would help to cover the losses of the passenger segment by compensating with the additional revenue gained from cargo.
Another major threat faced by MAS is the unstable and high fuel cost, which would lead to affect the operations and profit margin of MAS (Bernama, 2010). In addition, rates of airport departure charges, security charges and landing charges tend to be increasing, which is also a threat. As the revenue stream of MAS is denominated from various currencies, MAS is also exposed to the threat of foreign exchange rate fluctuations. Fluctuations in inflation and interest rates affect the exchange rate between two currencies. Apart from that, there are a number of substitute threats that affects MAS at the present time. The most prominent threat is due to the Internet. The Internet has facilitated electronic methods of communication which involve videoconferencing, teleconferencing and email. Thus this substitute lowers the potential of business travellers to fly to other destinations to satisfy their needs. Furthermore, in domestic MAS market there are many substitutes like cars, buses and trains, however these modes are considered as low threats because they are also affected by environment trends, i.e. the rising of oil price. To battle a situation of such a crisis, MAS could focus on improving revenues, optimizing the MAS network and reducing cost as retaining high standard. This would enable MAS to optimize their saving and when there are crisis for fuel and economy they could use the saving to sustain in the market. MAS could also reduce the costs by eliminating services that bring no obvious value to their customer, and those could be office space, excessive fuel intake by the pilots and also with the ongoing maintenance of facilities and assets. By this MAS could increase the quality of services and products they offer.
Another major threat for MAS is terrorism. Since the incident of September 11, people are afraid to fly and their confidence towards airlines has decreased. As MAS operates in over 100 destinations, if an incident occurs MAS would have to halt their flights which would affect their profit margin.
In order to enter the airline industry, large amount of capital is required to purchase or to lease aircrafts and other resources that are required like staff and offices. Therefore, there is a high barrier for entering the airline industry which reduces the threat of new comers to MAS. However, when borrowing is cheap, there are possibilities for more airlines to enter the industry. Government legislation and regulation could also be major barriers for new entrants. Since MAS has been protected by the Malaysian government on the route to Sydney and Seoul Incheon (Boynton & Thomas, 2010), this declines the landing rights for other airline and could pose as a threat to other airlines. Due to limited takeoff and landing rights, it would be difficult for new carriers to find suitable airports. In order to reduce the entrants to market, MAS could alliance with other major airlines to strengthen their position by tapping into their partners landing slots and rights which in turn would make difficult for newer airlines to penetrate the market.
Business Model Recommendations
Currently, MAS follows a full-service carrier (FSC) business model. However, Low-cost carriers (LCC) have been growing rapidly in North America, Europe, Asia and Latin America (Holloway, 2008). In order to remain sustained and competitive in the current market, MAS has to bring changes to the current business model. The growth of the budget airlines has intensified rivalry and MAS has found it impossible to compete in low-cost, point-to-point segment of the airline market. MAS could extend LCC for short haul and medium haul routes (extend from local to regional) to ward of competition from the budget airlines, and could remain as full-service carrier (FSC) for long haul routes. The higher product quality that can be offered by FSC model could be used to attract customers who are willing to pay a premium for additional services. In addition, the LCC airlines mostly concentrate in the regional destinations, therefore, FSC model could benefit by flying the long-haul routes.
Furthermore, MAS could take into account the potential need of increasing seating capacity during the year-end holiday season and other peak seasons. In order to meet peak customer demands, they could provide additional flights in the busy routes such as Sydney and London (Chaudhry, 2010). Apart from that, the demand for MAS destination to Indonesia seems to be high, where MAS has carried 800000 passengers between Indonesia and Malaysia last year (TheStar online, 2010). Therefore, MAS could also increase their flights between these two routes. This would complement the regional tourism activities and encourage Malaysians to visit their friends and family. MAS could also terminate the operations of unprofitable routes. Similarly, MAS could offer promotional measures which could include special privileges to government officials, students and incentives to frequent flyers. In order to attract government officials, MAS could provide free upgrade facility, which would enable the passengers to upgrade to a higher class of seats on a full fare ticket purchased on international sector. In addition, they could allow the use of MAS golden lounge as part of the privileges to those passengers.
MAS should ensure that their fleet is young, in this way mechanical failure would be rare, few flights would be cancelled and few take offs would be delayed. In addition, it would be more fuel efficient and would require less repair and maintenance. In order to reduce cost, MAS could study their customer’s inflight eating trends. By analyzing the results they could cut down costs by loading fewer meals during the hours where customers do not prefer to have large meals (e.g. late night). MAS could also hedge on a fixed oil price with their jet fuel providers via a mutual agreement contract with their fuel supplier for US$85 for a barrel for the next 5 years. Forecasts show that the price of the crude oil would rise to an average of US85 a barrel next year and $100 in 2012 (Koc, 2010). By doing so, they could effectively manage their operation cost based on the oil price fluctuations.
MAS’s two main assets are their planes and the employees, and MAS could build strategies to effectively manage them so that they could compete with their competitors and lower their operations cost. This could be done by conducting training programs which include courses on cultural sensitivity, social behavior, courses on deportment and wine appreciation. Courses which focus on the necessity of reducing the cost on the delivery of service could also be provided to educate employees and to enable them to contribute to the aims. By conducting such training courses the employees would be aware to deal handle ad hoc situations which would reflect back to their service excellence. Providing training would also enable the employees to play their role effectively by enhancing their capacity to read customers intention and respond to them in a creative way. By focusing on these two assets, MAS could provide better service than their rivals and by building dedicated work forces.