The Association of South Eastern Asian Nations (ASEAN) is set to enforce an Open Skies policy beginning 2015 in the spirit of integration. The motive of the integration is to liberalize the air travel industry in order to infuse greater productivity, as well as influence flexibility for the member states’ airlines.
While the customers are poised to reap maximally from the intended move, industry players face threatening marketing challenges that could see some of them being edged out of business due to heightened competition.
The Open Skies policy will abolish market protection currently being enjoyed by individual airlines, while setting the environment for greater competition. One such player is the Malaysian flag carrier, the Malaysian Airlines System (MAS). This paper seeks to analyze the MAS’s position in the face of the new policy by carrying out an extensive competitors’ analysis and evaluating the appropriate market strategies that could be employed.
The major industry players in the ASEAN air travel market include Singapore Airlines, Thai Airways, and Garuda Indonesia.
Objectives and strategies
Singapore Airlines’ most integral strategy has been focusing on achieving excellence in customer experience and in-flight service (Singapore Airlines, 2008). This has seen the company develop itself into an industry trend-setter through adopting unique business practices. As the Singapore Airlines (2008) points out, the airliner became the first to introduce free drinks, complimentary headsets for passengers, as well as introduce meals cooked by gourmet chefs.
The company invests a significant part of its resources in implementing in-flight entertainment system. The system is aimed at improving customer experience of its passengers. In the 1990’s, the efforts saw the airliner invest heavily on the installation of KrisWorld movies, KrisWorld television, KrisWorld games, KrisWorld PC, and KrisWorld communication (Singapore Airlines, 2008).
Singapore Airlines is geographically diversified in terms of its spread and outreach, a position that enables it to mitigate its business risks. The airline’s operations cover quite a significant geographical area, including East Asia, South West Pacific, Europe, Africa, as well as West Asia, and the Americas (Company Profile, 2013).
In total, the company’s routes cover up to 63 cities across the world, with Silk Air serving up to 39 cities across 12 countries as the airline’s subsidiary. Approximately 17.2 million passengers were carried by the company in the financial year ended 2012. During this period, the East Asia segment accounted for 37.1% in total revenues, South West Pacific market 12.1%, and Europe accounted for 11%.
Other regions, including Americas accounted for 5.8% while both Africa and West Asia markets contributed a combined average of 3.6% of the total revenues (Company Profile 2013). This diversification that results in revenue base that is evenly spread provides a surety for the company, making it non-reliant on any single geographic market.
The group also boasts of specialized services divisions. This makes it diversify the related business risks while also providing stability (Company Profile 2013). The specialization areas include airline operations, engineering services, and cargo operations among other groups of business activity. Airlines operations specifically focus on passenger transportation and are carried out by Singapore Airlines and the company’s subsidiaries Scoot and Silk Air.
The engineering services, on the other hand, concentrate on airframe maintenance together with overhaul service provision. Its other activities include manufacturing of aircraft cabin equipment and training of pilots (Company Profile 2013).
The group maintains a young aircraft fleet totaling 133 aircrafts, with 120 of them comprising of passenger aircrafts. Another 13 aircrafts are specifically freighters. On average, the passenger fleet operated by Singapore Airlines is only six years and two months old, while the cargo fleet has an average of 11 years and three months.
The company is currently taking delivery of new fleet, mainly the Airbus A380 and A 330 as part of its young fleet policy. The young fleet is of advantage to the airliner as it enables it to maintain low costs, while reducing the security issues that come with the fleet performance (Company Profile, 2013).
According to the Company Profile (2013), Singapore Airlines faces a myriad of legal investigations particularly in the US, Australia, European Union, South Korea, and Canada among other jurisdictions over the determination of its surcharges and rates.
Part of the accusations leveled against the airliner saw it commit itself to pay $2.8 million to the South African Competition Commission as administrative penalty in 2012. This, together with multiple other penalty costs being slapped on the company could potentially affect the financial, as well as overall position of the group.
Singapore Airlines’ objective and strategy of investing heavily in the areas of passenger comfort has particularly provided it with greater business advantage. Equally, its geographical diversification that has seen the airliner establish its market in all the global regions requires extensive funds and capital, which may be difficult to get over a short period.
It would not be feasible for Malaysia Airline System (MAS) to attack the company directly in terms of business. Raising the significant capital required by MAS to challenge Singapore Airlines’ position at present is not possible with the high-risk business that is the air transport.
Objectives and strategies
Thai Airways’ main objective is to establish itself as the first choice carrier that also provides Thai touches to its passengers (Annual Report, 2010). Part of the strategies employed to achieve this objective is total focus on customer service in order to achieve service quality. The airliner has worked on a strategy to intertwine Thailand’s uniqueness in terms of Meeting, Incentive, Convention, as well as Exhibition (the MICE market) with its services.
The company has extended its focus to establish itself as the leading choice carrier to the rest of the South East Asian region, especially during times when seasons are low. The groups of MICE can be carried on direct flights in an arrangement that has seen the company and its Star Alliance partners form a global network. This provides for frequent flyer programs from at least 70 destinations spread across 5 continents (Annual Report, 2010).
The company has also focused on establishing itself as a premium service network. It mainly targets products of the Royal Orchid Holidays, where arrangements are also done in coordinating meetings, as well as providing tailored customer packages. The airliner services that are custom-made to achieve this objective include exclusive trips to unusual locations that are considered to be exotic and with boutique type accommodation (Annual Report, 2010).
Thai Airways has established itself in the air travel industry as a low cost leader in terms of its pricing and overall rates. This has seen the company attract a huge customer base as clients seek to benefit from its fair costs (Annual Report, 2010). The company has particularly put greater focus, as well as significant investment in innovation control aiming at the issue of cost. This has seen the company address the aspect of cost effectively.
The company has embraced technology in a more effective way, a move that has seen it record significant growth in the online sector. The company partnered with Amadeus, which is a global technology firm, to launch e-Merchandise that particularly targeted five important markets. This saw its online bookings grow significantly, enabling the company to expand its customer base and revenue (Annual Report, 2010).
The airliner has geographically diversified its international routes and currently operates up to 563 international flights every week (Annual Report, 2010). The global regions served by the company include Asia Pacific, whose northern region routes comprise of Hong Kong, Japan, South Korea, Philippines, and China. The southern route comprises of Singapore, Malaysia, and Indonesia, while other important destinations include India, Pakistan, Dubai, and Indonesia among other countries.
Apart from the Asia Pacific region, the company also operates in North America, Europe, Africa, together with Australia and New Zealand. This expanded international market provides strength to the company as it enables it to minimize the business risk that would result from depending on a narrow geographical focus (Annual Report, 2010).
The company has partnered with Star Alliance in a move that has strategically helped both companies to strengthen their market positions and operations. The cooperation has particularly increased the number of destinations that are covered by both players, thus also helping to increase revenue for both companies (Annual Report, 2010).
The financial position of the company is less stable owing to the external business environment that is beyond the control of management, but which continues to pose a threat to the company. In 2009, for instance, estimates indicated operating loss for the company mainly due to foreign exchange loss of about Bt4 billion. This condition was worsened by the international debt held by Thailand, with 49 percent of the amount being in euros and a further 13 percent in yen (“Thailand: Analysts estimate Thai airways international’s net loss for 2008,” 2009).
The political situation in the country also continues to pose a challenge to the business operations of the company. According to Setthasiriphaiboon (2010), the shaky political situation that followed the ousting of the then Prime Minister Thaksin Shinawatra worsened the business situation of the company. Any such political developments in the future could see the company record losses as a result of waning investor confidence.
MAS can attack the business challenge and strategy posed by Thai Airways. Although the airliner is recording profits, its profit margin is not superior. Thus, MAS can challenge this by raising capital to compete with the company, particularly in terms of establishing highly competitive business strategies.
Customization of Thai Airways to mainly focus on providing services with a Thai touch narrows down its ability to attract a global clientele. Most customers from other global regions other than the South East Asia might find such customized services as leaving them out. This, therefore, offers a perfect opportunity for MAS to challenge Thai Airways by providing services with a more global feel that is capable of attracting more customers.
Objectives and strategies
Garuda Indonesia has mainly focused on a market expansion strategy in order to enhance profit maximization. The company is focusing on reviving its old travel routes that had been abandoned in the past to increase its customer base and enhance its profit position. Some of the new routes include Melbourne to Denpasar, Perth to Jakarta, and Brisbane to Denpasar (eGlobal Travel Media 2013).
The company is also expanding its fleet in line with the expansion strategy. In 2012, the company acquired 22 new aircrafts, including Airbus A330-200, Boeing 737-800 Next Generation, as well as Airbus A320, and Bombardier CRJ-1000 NextGen. The expansion program has seen the company’s fleet of aircrafts that are currently in operation rise to 106 (eGlobal Travel Media 2013).
The Indonesian airliner has an extensive distribution network that plays a critical role in strengthening its business position. Its existing network provides it with a strong position in the sense that the airliner distributes its business risk over the numerous air routes as opposed to a position where it would only be relying on a narrow network (Darmawan, 2012).
Garuda Indonesia boasts of a large domestic market owing to the huge population of the country (Darmawan, 2012). This implies that the company can still rely on the domestic market in instances where the international market becomes highly competitive and profit margins become minimal.
With the growing economy of the country, the domestic market proves to be of significant value to the airliner more than the international market may offer because of the growing competition from other regional players.
There are too many taxes charged by the Indonesian government. The taxes pose as a great threat to the company’s business position. High taxation implies that profit margins for the company are lowered, while the overall price rates are high in order to cater for the taxation. This discourages passengers, particularly those traveling to international destinations, from choosing the carrier over other competitive rates in the market (Darmawan, 2012).
The company has a lower profitability rate that has mainly been influenced by its poor business performance in the past (Darmawan, 2012). The company has maintained a low market share that goes a long way into affecting its profit margins due to increased competition both in the domestic and international markets.
Overly, Garuda Indonesia has registered dismal performance in the important business areas of research and development. Although the airliner is recovering from a poor past, it has not been able to invest significantly in research and development. This position is further worsened by its poor profitability that does not avail enough financial resources for sustaining research and development (Darmawan, 2012).
It is practical for MAS to attack Garuda Indonesia. The Indonesian flag carrier is only reviving its operations and services after years of poor business performance. The fact that the country highly taxes the air travel industry implies that achieving profit maximization for the company is still a difficult achievement.
This leaves the company vulnerable to competition, particularly because it lacks adequate funds to sustain research and development programs for its operations. With proper investment plans, MAS can compete effectively with Garuda Indonesia and outdo it in the long run.
Evaluation of Market Strategies to Employ
Launch new products
MAS should consider expanding its sales volume as a critical objective of the organization. The company should launch new travel destinations for the lucrative routes that it is currently not serving. It should also consider launching new products other than the air transport business, including introducing services such as online shopping for its customers in order to expand its revenue base.
Introducing new products and services will help the company strengthen its profit position and be better placed to raise additional funds (Gielens, 2012).
These funds can in turn be used to sustain business research and development. R&D will guarantee the company quality and unique services to its customers. MAS will achieve market leadership position and be able to compete effectively with its main rivals in the ASEAN region once the Open Skies policy comes into effect if it offers quality services and products.
It will be sustainable for MAS to compete with its regional rivals on the basis of price due to increased revenues and profitability. Any fairness in pricing would see the company perfectly attract more passengers than many of its rivals due to the air transport industry being relatively expensive (Gielens, 2012).
Implement a program on public relations
Relating well with the customers will enable MAS to build important customer awareness, which is critical in building customer loyalty and return purchase (Henisz, & Zelner, 2012). A public relations program will also enable MAS to understand customer requirements and demands more closely, making it possible for the firm to develop customized products and services.
The ASEAN market is elaborate in terms of its customer composition, and it is important that the company segments it even further in order to come up with more customized products and services. This level of customization will only be achieved through a well established public relations program that focuses on understanding customers well.
Invest in advertising
Advertising should be the core focus of the company to create further awareness within the market. There will be more players invading the markets when the Open Sky policy comes into effect. These are markets that have hitherto been considered as exclusive to certain airlines. Extensive advertising will be an important market strategy that will enable MAS to appeal to a wide cross-section of the ASEAN market. This will increase MAS’s chances of maximizing on its revenues and profit.
Advertising will enable potential customers to ascertain the kind of services offered by MAS and compare them with other competitors before making their own informed choices (Janawade, 2013). It is inevitable that MAS will be a serious competitor within the region and attract a huge number of customers due to increased services and enhanced public relations program.
The ASEAN region is expected to witness increased market competition in the air travel industry with the expected ratification of the Open Sky Policy in the year 2015. The region has several players in the industry, including Singapore Airlines, Thai Airways, and Garuda Indonesia. These companies will offer stiff competition to Malaysian Airlines System given their various strong points in several areas.
Singapore Airlines boasts of a wide geographical coverage and a strong leadership in in-flight entertainment. Thai Airways, on the other hand, is a low cost carrier that appeals to many travelers. MAS should consider challenging both Thai Airways and Garuda Indonesia because of their relatively weak financial positions.
MAS should consider adopting three critical marketing strategies that include launching new products and services, focusing on building customer relations, and investing in extensive advertising. These strategies will see the company expand its revenue and profit base, while appealing and maintaining its customers for long.
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