Malaysia Airline Strategic Plan 3731x

Akhtar Ali Bilal Hassan Krushangi Katkoria Maria Sarker Russell Mendonca

• Demand shocks caused by the earthquake/tsunami in Japan and floods in Thailand • Europe’s sovereign debt crisis • Continued high cost of jet fuel

Need for new business & finance strategy to restore profitability

Net loss The airline which turned a profit in 2010 (RM 234 million) incurred a loss of RM 2.5 billion by the end of Q4, 2011.

Fuel & Non-Fuel expenditures • By the end of Q4, 2011, fuel costs had gone up 25% to RM 305 billion • Non-fuel costs had gone up 50% mainly due to additional provisions: Redelivery of aircraft  Stock obsolescence

• Lost focus on ‘full service’ portion of the market • Diverted resources to low cost segment of the market • Operating one of the oldest fleets in the region

Airline had lost 40% of engers flying a ‘full service’ competitor airline

• Increase in group revenue of 2% from the previous year • Revenue levels still 15-25% below regional peers

• Lower load factors had helped to increase yields • Yield and RASK had increased by 4% and 2% respectively

• Airline is expected to go bankrupt by the end of 2012 • 40% of its routes are unprofitable • Cut back on loss making routes - Argentina & South America s for over 5% of total international capacity per ASKs. • Revenues of airline similar to those of LCCs while maintaining full service cost structure • Must focus efforts to class of travel

•Discontinuation of routes to South Africa and Argentina, its only destination in Latin America. • 40% of its current routes are unprofitable.

• Australia and New Zealand now for 22% of MAS’ international ASK’s • Europe s for 29%. • Asia s for 39% of total international ASKs. • On an ASK basis the domestic flights only for 12% of total capacity.

•Unit revenues have slipped significantly below leading Asian carriers such as Cathay and SIA.

• MAS' revenues are closer to those of Air Asia and Tiger Airways(USD 2.2 cent difference) than full-service carriers like SIA and Cathay (USD 4.8 cent difference).

MAS' costs, however, are much closer to SIA and Cathay (USD 1.4 cent difference) than LCCs. MAS' costs are 2.5 times those of Air Asia and twice those of Tiger Airways.

Aircraft

Number of Aircraft

Airbus A330-200

3 (To be phased out)

Airbus A330-300

16

Airbus A380

1 (Effective 1 July 2012)

Boeing 737-400

33

Boeing 737-800

25

Boeing 747-400P

10

Boeing 777-200

17

Aircraft

Number of Aircraft

Airbus A330-200F

4

Boeing 747-400F

2

Aircraft

Number of Aircraft

ATR 72-212A

10

In 2012, MAS will take delivery of 23 new aircrafts. Phase out the A330-200 and B747-400 fleets.

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MAS, in its new business plan, confirmed its first A380s will be deployed on the Kuala Lumpur-London route.

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MAS’ London route, which is now served with double daily B747-400s, suffered over the last several months from low load factors and yields.

MAS points out that swapping the B747400 for A380s will improve fuel costs per ASK on the London route by 20%.

• In the first half of 2012, MAS will launch their new regional airline, a shorthaul airline. • The new carrier will exclusively fly Boeing 737800 aircraft.

• New partnership with Air Asia is also expected to have a big impact on the revenue side as MAS begins to use Air Asia to improve its network connectivity.

• A connection service will be launched on non-overlapping routes.

• The new connection product with Air Asia will allow MAS to gain access to over 24 cities which MAS does not serve, resulting in additional feed to MAS’ long-haul network.

• The first airline in the world to offer booking and checking in application on the iPad.

Innovation

Stimulating Demand

• Introduction of MHdeals, displays information about tourist attractions and deals that are currently on offer by Malaysia Airlines on iPhone.

• Upgraded enger Service System – MHmobile • In 2010 MAS partnered with Australia Tourism called “Only in OZ Holidays”.

Promotion In MAS website special promotional deals are offered - MHcoupon, MH deals and MASholidays. In 2011, Queens Park Rangers announced a multi million pound shirt sponsorship deal with MAS for the next 2 years. On 14th Jan 2012 engers arriving at Kuala Lumpur International Airport were greeted with a flash mob as MAS special event to welcome the New Year. On 24 April 2012 Malaysia airlines were big winners at the Putra brand awards 2012. Malaysia airlines was rewarded Gold for its transportation and travel and tourism category.

MAS introduced its enhanced Enrich FFP on 12 June 2006, now known as Enrich.

Four levels of Enrich hips- Blue, Silver, Gold and Platinum. Privileges - priority check-in, extra baggage allowance, amongst others, etc.  The miles earned allow for redemption for free travel, free upgrade and other complimentary services. Enrich Airline Partners - Air , All Nippon Airways, Delta Airlines, Etihad, Jet Airways, KLM, SriLankan Airlines, Virgin Atlantic and many more. GRADS - discounted airfares, great packages and other special deals.

MAS’s customers are their top priority. Consumer platforms include call centers, sales offices, agents, airports counters and town center kiosk for the convenience of walk-in customers.

MAS internet booking system was launched in august 2004, reduced airlines distribution cost significantly over the years. Allows customer faster access to information and to look through its products and services offered.

Introduction of MHbuddy to MAS Facebook page in March 2011, interesting approach to leverage Facebook to book a flight. MAS have a key presence on both Twitter and Facebook

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• MAS’s current marketing efforts have been predominantly focused on tactical sales promotion rather than brand building. Generate low yields insufficient to cover an increasingly uncompetitive cost structure.

MAS Recovery Plan – Branded customer Experience Branding revamp

Enrich Loyalty Program

Competitive product roll-out

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MAS should improve customer satisfaction at every touch point which is pre flight, in-flight and post flight.

Develop customer facing skills

Enhance customer experience

20,000 employees of various ethnic groups consisting of Malay nationals, Indian nationals & those from the ASEAN region. Attempt to downsize employee strength. Employs highly skilled personnel who tend to reflect the company’s brand image as a multinational firm.

Stringent selection process.

Developing staff holistically recruitment.

Investment in training and retraining. Quality of management(building high performance service delivery teams). Communication and motivation(motivating staff through rewards and recognition).

“MH is not Just a code: it stands for Malaysian Hospitality”. Accolades received from Skytrax: - “Worlds Best Cabin Staff” (2001–2004, 2007, 2009) - “5-star ranking” (2005–2007, 2009) Staff Service Excellence for Asia Award (2010).

• Unique distinctive features of their product differentiate them from other competitors in the region. • MAS Services: On the ground • Golden Lounge available for use. • Kids corner. • Platinum suites.

In the air • Experience First, Business & Economy class. • “Select” IFE.

Technologically advanced fleet including Boeing 737s, 747s, 777s & Airbus A330s, A380s. Introduction of new corporate logo starting July first- 1st A380 flight in network & to London.

• Collaboration with Air Asia/Air Asia X providing seamless connections throughout and resulting in lower fleet procurement costs, ground handling & maintenance costs. 3 key Dimensions Commercial Effectiveness

Flight operations

Cost Management

•Improvements in ontime performance. • Improvements in asset utilization.

Strengths • Highly recognizable brand

name. • Government . • Diversified Revenue system. • Accredited by awards and accolades. • Network Growth.

Opportunities

Weaknesses • Low Margin •Weak Cash Flow

•High Costs

Threats

• Expanding enger traffic.

• Increasing fuel prices.

• Increase in cargo traffic.

• High Competition.

• Expansion of fleet with introduction of the Airbus A380.

• Downturn of the economy will affect the company. • Terrorism & Health Scare.

Maintain 5-star airline image

Lower Costs and Competitive Fares

Increase customers and revenue

Grow network and build capacity

Alliances and partnerships Launch of a new regional airline Winning coalitions Business model improvements

Win back customers