Harvard Case - AirAsia vs Malaysia Airlines
"AirAsia vs Malaysia Airlines" Harvard business case study is written by Mukund R. Dixit, Sanjay Kumar Jena. It deals with the challenges in the field of Strategy. The case study is 13 page(s) long and it was first published on : Jul 4, 2021
At Fern Fort University, we recommend that Malaysia Airlines adopt a strategic transformation focused on digitalization, cost optimization, and niche market development. This strategy involves leveraging technology and analytics to enhance operational efficiency, redefining its value proposition to cater to specific customer segments, and building strategic alliances to expand its reach and offer a more diverse product portfolio.
2. Background
This case study examines the competitive landscape of the Malaysian airline industry, focusing on the rivalry between AirAsia, a low-cost carrier, and Malaysia Airlines, the national flag carrier. AirAsia's emergence as a disruptive force challenged Malaysia Airlines' traditional business model, forcing it to adapt and innovate to remain competitive.
The main protagonists are:
- AirAsia: Founded in 2001, AirAsia quickly gained popularity by offering low fares and a no-frills service, targeting price-sensitive customers.
- Malaysia Airlines: Established in 1937, Malaysia Airlines traditionally focused on full-service offerings, catering to business travelers and high-income customers.
3. Analysis of the Case Study
This analysis employs several frameworks to understand the competitive dynamics and identify potential strategies for Malaysia Airlines:
a) Porter's Five Forces:
- Threat of new entrants: Moderate - Barriers to entry include high capital requirements, regulatory hurdles, and competition from established players.
- Bargaining power of buyers: High - Customers have numerous choices, including low-cost carriers and other airlines.
- Bargaining power of suppliers: Moderate - Airlines rely on various suppliers, including aircraft manufacturers, fuel providers, and airport services.
- Threat of substitute products: Moderate - Alternative modes of transportation, such as trains and buses, can pose a threat for short-haul flights.
- Rivalry among existing competitors: High - The Malaysian airline industry is highly competitive, with numerous players vying for market share.
b) SWOT Analysis:
Strengths:
- Strong brand recognition and reputation
- Extensive network and global reach
- Experienced workforce and established infrastructure
- Loyalty programs and partnerships
Weaknesses:
- High operating costs
- Limited focus on cost-efficiency
- Lack of agility in adapting to market changes
- Struggling to compete with low-cost carriers
Opportunities:
- Growing demand for air travel in Asia
- Increasing adoption of digital technologies
- Potential for niche market development
- Strategic alliances and partnerships
Threats:
- Intense competition from low-cost carriers
- Economic fluctuations and fuel price volatility
- Regulatory changes and safety concerns
- Environmental sustainability pressures
c) Value Chain Analysis:
Malaysia Airlines' value chain can be analyzed to identify areas for improvement:
- Inbound Logistics: Optimize procurement processes and negotiate favorable deals with suppliers.
- Operations: Improve operational efficiency through technology adoption and automation.
- Outbound Logistics: Streamline baggage handling and improve on-time performance.
- Marketing & Sales: Develop targeted marketing campaigns and leverage digital channels.
- Service: Enhance customer service and offer personalized experiences.
d) Business Model Innovation:
Malaysia Airlines needs to explore business model innovation to compete effectively:
- Hybrid Model: Offer a mix of full-service and low-cost options to cater to diverse customer needs.
- Value-Based Pricing: Implement dynamic pricing strategies based on demand and customer preferences.
- Digital Transformation: Leverage technology to enhance customer experience, optimize operations, and reduce costs.
4. Recommendations
1. Digital Transformation:
- Invest in technology: Implement advanced IT systems for booking, check-in, and customer service.
- Data Analytics: Utilize data to optimize pricing, route planning, and customer targeting.
- Mobile App Development: Enhance the mobile app with features like personalized recommendations, real-time updates, and mobile check-in.
- Social Media Engagement: Utilize social media platforms to build brand awareness, engage with customers, and address complaints.
2. Cost Optimization:
- Streamline Operations: Implement lean management principles to reduce waste and improve efficiency.
- Negotiate Supplier Contracts: Secure favorable pricing and payment terms with suppliers.
- Fleet Optimization: Consider aircraft types and configurations that balance capacity with fuel efficiency.
- Outsourcing: Explore outsourcing opportunities for non-core functions to reduce overhead.
3. Niche Market Development:
- Focus on Specific Segments: Target specific customer segments like business travelers, luxury travelers, or families.
- Develop Specialized Products: Offer tailored services and amenities to meet the needs of niche markets.
- Strategic Partnerships: Collaborate with hotels, travel agencies, and other service providers to offer bundled packages.
4. Strategic Alliances:
- Joint Ventures: Explore joint ventures with other airlines to expand reach and share resources.
- Code-Sharing Agreements: Partner with airlines in complementary markets to offer more flight options.
- Loyalty Program Partnerships: Collaborate with other loyalty programs to offer enhanced benefits and rewards.
5. Basis of Recommendations
These recommendations are based on:
- Core Competencies and Consistency with Mission: Leveraging technology and focusing on specific market segments aligns with Malaysia Airlines' core competencies and commitment to providing high-quality service.
- External Customers and Internal Clients: The recommendations address the needs of diverse customer segments while improving the efficiency and satisfaction of internal stakeholders.
- Competitors: The recommendations aim to differentiate Malaysia Airlines from competitors by offering a unique combination of value, service, and technology.
- Attractiveness: The recommendations are expected to improve financial performance through cost optimization, revenue growth, and enhanced customer loyalty.
6. Conclusion
Malaysia Airlines needs to embrace a strategic transformation to remain competitive in the evolving airline industry. By leveraging technology and analytics, focusing on niche market development, and building strategic alliances, Malaysia Airlines can redefine its value proposition, optimize its operations, and achieve sustainable growth.
7. Discussion
Other alternatives not selected include:
- Merging with AirAsia: While this could create a dominant player, it might compromise Malaysia Airlines' brand identity and face regulatory challenges.
- Focusing solely on full-service: This strategy would likely lead to continued market share erosion in the face of growing competition from low-cost carriers.
Key Risks and Assumptions:
- Technology Adoption: Success depends on the effective implementation and integration of new technologies.
- Market Acceptance: Niche market strategies require careful market research and customer understanding.
- Strategic Partnerships: Successful partnerships require careful selection and effective collaboration.
8. Next Steps
- Develop a detailed strategic plan: Outline specific initiatives, timelines, and resource allocation.
- Invest in technology infrastructure: Upgrade IT systems and implement data analytics tools.
- Develop targeted marketing campaigns: Promote new products and services to specific customer segments.
- Build strategic partnerships: Identify and negotiate with potential partners.
- Monitor performance and adjust strategies: Continuously evaluate the effectiveness of the transformation and make necessary adjustments.
By taking these steps, Malaysia Airlines can position itself for success in the dynamic and competitive airline industry.
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Case Description
The case provides an opportunity to formulate a late entrant's response to the competitive dynamics set in motion by its repositioning as a low-cost airline. It presents the dilemma before Tony Fernandes-the chief executive officer of AirAsia Sdn Bhd (AAB)-about how he should respond to the competitive retaliation from Malaysia Airlines (MA), the incumbent national carrier of Malaysia. Fernandes entered the Malaysian aviation industry in December 2001 by acquiring an ailing AAB. After acquiring the airline, he repositioned it as a "low-fare, no-frills" airline with the tagline "Now everyone can fly". He focused on all possible avenues to reduce the operations and maintenance costs and maximise the capacity utilisation of the planes. The initiatives yielded results, and AAB became debt-free within eight months of its renewed operations and reported a monthly cash flow of RM 18 million. With the utilisation of 4,000 seats daily and a passenger load factor of 70%, the airline repaid the loan of RM 100 million and earned a monthly profit of RM 2 million. In August 2002, MA retaliated by announcing its super saver offer that provided a full-service flight experience at 50% of the original fare. The tariff reduction resulted in a drop of 40% in AAB's bookings and threatened its survival. Fernandes had to respond to the new development.
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