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MAS Business Turnaround Plan Analysis



Introduction

The case study under investigation deals with the airplane monopoly situated in Malaysia and which is, actually, a government owned business venture. The company became a privatized corporation in 1994 as a result of the following scenario: Tajudin Ramli through Naluri Berhad purchased the Bank Negara Malaysia’s 32% controlling stake. It was evidently the beginning of a new era for the company. Next three years turned out to be very profitable and successful for MAS. However, the year 1998 introduced not only the global Asian financial crisis, but sufficient losses for MAS as well.

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As a consequence, MAS had to involve debt based policy in order to improve the company’s functioning. Nevertheless, the financial situation was not a simple one and required more time to be improved. Therefore, the company expected that their new Chief Executive Officer, Idris Jala, would perform a miracle and help MAS survive with consequent thriving perspectives. Hence, the major point of concern the current paper presents is the sequence of the steps included in the course of a turnaround plan for the next two years introduced in 2006.

Analysis

As far as the authors of the case study maintain, the function of the new CEO was as follows: “to resolve issues affecting the company’s cash flow to enable it to meet its fuel bills and operation requirements by April 2006” (Norhashim, Nashim, & Helmi, n.d.). Therefore, one may evaluate the efficiency of the turnaround plan, which was designed to be implemented in the next two years, by analyzing how successfully the company achieved its set goal.

The initial look at the plan presents certain amount of controversial points. On the one hand, the plan is not a failure in such a case as it is actually impossible to predict all potential outcomes with perfect accuracy, especially when it concerns money and revival of a previously successful corporation. The task is rather controversial and complicated itself. Therefore, it is necessary to analyze the policy of the presented plan more profoundly and attentively.

One of the most evidently controversial and miscellaneous points of the whole plan is the sale of the real estate of the Malaysian Airlines Headquarters in Jalan Raja Chulan. This venture was regarded as a certain step back in the process of corporate development and current revival. However, the venture may be considered also in quite another way. The profit of the sale venture apparently became a sufficient basis for further successful development of the corporation. It contributed to the overall improvement as well as to the implementation of a new turnaround plan. The evidence of this business venture’s success may be considered the record of the profit that has been posted by the company in the following two years, that is, in the period of implementation of the turnaround plan and a certain period of time afterwards. The cash flow analysis proves this stance.

“The BTP1 identified key challenges that MAS had to address at both firm and industry levels” (Norhashim, Nashim, & Helmi, n.d.). Such a kind of approach provided excellent opportunities for the executive branch of the corporate staff to perform the turnaround activity more efficiently and consistently as it covered both spheres – the industry process and the firm management.

  • The first challenge concerned the sufficient reduction of the development rates in the course of activity of global Revenue Passenger Kilometre (RPK). The concern was proper and timely as far as the rival companies presented quite decent alternatives to MAS offers and posed a serious threat to the currently available, as well as potential, clients of the company. Moreover, the factor of dramatically increasing costs was also presented in the reports. Therefore, the company not only had to manage to retain the same prices for the services, but also to improve services and make them more appealing to the customers in order to stay competitive in the market, and respond properly to the current market demands and meet the key needs and preferences of the clients.

The efficient technology regarding the described challenge would be the rapid implementation of the innovative strategy to solve the problem. For example, extra services or VIP membership would attract attention and as well position MAS as a stable, successful and customers oriented corporation.

  • The second challenge concerned the process of redesign and reconsideration of the essence of the key tasks performance in the course of MAS functioning. The alterations in the course of corporate activity comprised sufficient reduction in the corporate staff, whereas productivity rates were expected to present the growth tendency. The company planned to solve the dilemma by means of unity of working hours of temporary, part time and full time corporate staff.
  • The third crucial challenge included the conception and proper comprehension of the product design presented by MAS. The firm shifted emphasis from the priority of meeting the needs of the customers to the point of profitability and appropriateness of every aspect of the product design to the overall MAS revenue policy.
  • Another challenge involved the evidently better organized and more competitive rival companies from Europe and Australia. They tended to enjoy more advanced and less costly business. Therefore, the aforementioned challenge appeared to be the perfect opportunity for MAS to become better both in providing high quality services and in supplying the customers with the product line of a more advanced level.
  • Other essential challenges comprised pricing policy, which tended to be not sufficient enough, urgent necessity of reinvestment of solid capital into maintenance and purchase of new aircrafts, and the relatively limited and small market.

Therefore, it is obvious that the quantity and the significance of the challenges are sufficient and need consistent, effective and relevant solution. As a consequence, the turnaround plan is expected to solve all the problems and controversial issues and set up new perspectives for further development and improvement of MAS Corporation.

Idris Jala appeared to be just what MAS Company needed at that time. It is necessary to admit that the CEO predetermines the level of productivity and efficiency of the working process of the majority of the corporate staff in the company. Therefore, there is no wonder that the satrategies and methods which have been presented by Idris Jala managed to provide excellent motivation and an absolutely proper way for effective change, gradual development and subsequent improvement of the overall corporate performance.

  1. The CEO was brave enough to face and acknowledge the truth. As a consequence, Idris was ready to deal with it and alter it. Hence, the CEO announced the level of unprofitability of the routes MAS Company served in 2005 reached 60% level. The vivid sample was route Kuala Lumpur-Manchester. It was the evidence that an immediate and efficient turnaround was necessary. The comprehension of the notion of MAS business venture’ profitability presented by Idris Jala sufficiently differs from an average and traditionally accepted one. It appears to be good and efficient. The reason is the inner essence of the notion of profitability and its perspective – both actual and potential. As a rule, the level of efficiency and profitability of any corporation similar to MAS is regarded as the quantity of booked seats per flight/per day/per year, etc.

The CEO presented an absolutely new vision and innovative approach to the issue. He underlined that the notion of profitability comprises first of all the relevant conception of the proper pricing policy. Idris Jala identified the concept of “yield”, or profit, and presented it as the revenue per revenue passenger kilometre (RRPK). This action was exactly what MAS needed at that point –innovation and the strong determinate leader. Therefore, this activity may be regarded as efficient and relevant in terms of the established goals. It provides not only a proper and effective solution for the currently detected and presented problems, but also supplies the authorities of the company with consistent and relevant perspective for the future activity in the same direction that guarantees success and profitability. That is the key reason the strategy is to be regarded as properly selected and well organized.

  1. One more effective step in the course of implementation of the turnaround plan. The policy may not be regarded as absolutely good. This step is quite miscellaneous as it comprises sharp difference in comparison with the traditional approach the MAS staff together with the customers used to experience. Therefore, it requires consistency and relevant performance. Otherwise, the innovative approach may become a complete failure.

The first impression after the conception of the presented strategy’s essence is that the company will spend too much efforts and resources – both human and financial – in order to properly, timely and efficiently implement it. The reason is unusual approach and high risks. On the other hand, the changes and alternative approaches as well as innovative methods are obligatory to provide proper development and sufficient improvement of any contemporary organization. Hence, one should analyze and consider the appropriateness and level of relevance of the described strategy beforehand.

  1. Idris Jala managed to establish such a policy that the question of proper and profitable performance is not a problem anymore. This step appears to be really good and promising. It is the evident proof of efficient and consistent management. However, in case of more rigid staff, such an approach may lead to destructive consequences. Hence, it is not a universally appropriate and acceptable policy.
  2. There exists an even more controversial and topical issue in the whole course of the turnaround plan and its subsequent implementation. It is the sufficient increase of domestic pricing policy by MAS Corporation. It is not a good policy in terms of ensuring customer satisfaction; in addition, it poses high risks and involves an inappropriate following of the rival corporate policy.

This step is a very alarming and threatening one. The customers usually react quite negatively in case similar alterations are introduced. It happens especially often when the company appeared to be relatively stable for a long time, and then suddenly began the process of alterations and adjustments in the course of corporate policy as well as in the course of service supply. The situation with Malaysian Airlines is obviously of this type. Such a policy has been introduced for the first time in the period of 13 years. It was a very radical and risky step to take in the course of the implementation of the turnaround plan. Therefore, the company authorities should discuss the domestic policy of increase in pricing more specifically and analyze it more profoundly.

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The reason to implement such a radical policy into practice was the low rates of profitability MAS Corporation tended to display in the recent period. It was a threat not only to the status of MAS, but its overall activity as a company in the future as well. Therefore, the corporate authority decided to borrow the strategy to deal with the low yield evidence from the rival company, Air Asia. This is the most controversial point in the whole case. It is rather risky to copy the strategy of the direct contender in the sphere of professional activity. Moreover, the risk is even higher in case the strategy is alien to the company and its previously traditional policy.

Therefore, the MAS authorities received consent from the government before the new strategy implementation. Afterwards, the so called Administration Fee was introduced. The policy turned out to be fluent and gradual in general and, consequently, turned out to be efficient as the final outcome of the turnaround program appeared to be positive and profitable. The only aspect that should be obligatory taken into account in case of implementing the similar policy in terms of any plan targeted at the improvement of the rates of corporate profitability is that the policy requires gradual schedule. The schedule is supposed to include a preliminary stage, actual introduction of the policy, analysis of current ramifications and subsequent adjustment of the existing system.

  1. The next crucial adjustment in the course of alterations’ process within the MAS Corporation is very good and efficient. It comprises the phenomenon of cost reduction in terms of key aspects of the MAS Company’s activity. The controversy here is in the fact that sufficient cost reduction in the crucial and essential parts of the business activity of the company in case of low yield leads, as a rule, only to the lower level of efficiency and emergency of new problems and dilemmas concerning such significant issues as quality of the produced items or provided services, level and rates of productivity and competitiveness in terms of active and effective development of the rival companies.

The most amazing aspect of the whole policy implementation process is that even this improvement worked positively and quite effectively. The smart and innovative approach to the improvement of details in the airplane as well as in the schedule and timetable of the flights sufficiently contributed to the adjustment process and resulted in reducing expenditure and saving costs. One more nuance of the analyzed strategy implementation deals with the comprehension and acceptance of the strategy by the customers. In case they seem to be too reluctant to adhere to the alterations, they may consequently move to other rival companies. It is the biggest loss for the corporation. Therefore, all the adjustments are to be framed in the customer oriented and positive approach.

  1. One more crucial aspect of BTP1 implementation is the perspective to develop and improve the network of the MAS Corporation. This decision is a rather good and promising one. According to Norhashim, Nashim & Helmi (n.d.), the CEO stated it to be a serious error of the corporate policy not to become the member of a global airline alliance. This fact sufficiently lowers the status and reputation of the company as well as the level of its competitiveness as far as the majority of the rival companies are already the representatives of the global airline alliance. Therefore, the following decision was made: “to change MAS’ strategy from a ‘point to point’ carrier to a ‘hub and spoke’ strategy.

To do this, MAS had to adopt regional alliances, such as how KLM (Northern Europe), Alitalia (Southern Europe), Virgin Blue (Australia) and South African Airways (SAA) had done” (Norhashim, Nashim, & Helmi, n.d.). The positive aspect is that the MAS Corporation tends to learn by means of others’ proper and efficient decisions. The negative side of this strategy is that it is necessary to take risks and to be brave and confident enough to introduce own innovations and extraordinary solutions. The MAS Corporation obviously lacks such a capability.

Therefore, it is quite significant that the MAS authorities managed to accept and succeeded in the implementation of the strategies which had been previously tested by other companies and subsequently turned out to be successful and efficient. However, the same theory is never good in the same way for two different systems in different companies. Hence, the company is to be more specific and accurate in selection of strategies in the course of future development.

  1. The launch of the new line of low-cost community airline services deserves separate analysis. This policy is good and appropriate as well. This strategy is topical and appeared to be profitable as the audience received what was necessary and anticipated. Therefore, the company managed not only to meet the needs and wishes of the target audience, but also to introduce a new airline it could afford at that period of time as it did not require significant financial and human resources.

As a rule, all successful projects are expected to proceed further on. The same happened to the turnaround plan for the MAS Corporation. It was necessary as the first part of the Business Turnaround Plan appeared to be successful and clearly outlined the perspectives of future development and areas of obligatory improvement for the Malaysian Airlines Corporation. If the company delays the continuation of the process of adjustments and alterations, the majority of positive ramifications and consistent stages of proper development initiated in the course of BTP1 implementation will become a complete waste of time, efforts and resources for the company. Therefore, the corporate CEO acted properly and professionally under the circumstances of partial recovery and threat of risky ventures which have been undertaken eventually along with the perspectives for further growth and improvement in case of proper management and regulation of the system performance.

The second part of the Business Turnaround Plan (BTP) comprised the time period from 2008 to 2012. The time was selected properly as the first part of the BTP comprised only 2 years. The extension of the longevity of the plan implementation points at more global perspectives the MAS Corporation was facing. Besides, it as well may be regarded as a proof that the analysis and conclusions which have been performed on the basis of the BTP1 results presented sufficient background for further improvement and development of the company and its services.

The perspectives and goals the authorities of the corporation set up for the course of the second Business Turnaround Plan are vivid examples of the high level of efficiency the MAS Corporation tended to display in the current course of time. Such an approach is as well very crucial as it reveals the capability of the company to be a true and strong leader.

One more point, according to the authors of the case study, has altered sufficiently. It was the focus of the company that changed from the “business-focused” type to the “leisure-focused and business-interested” one. The difference of the focuses reveals the diversity in the level of performance and reputation of a new model the MAS Corporation was gradually acquiring and implementing. The business focused model of business performance appeared to be too narrow and slightly inefficient. Therefore, the focus on leisure mode and business-interested priority reveals the adjustment in the essence of the corporate policy and business performing vision.

The CEO presented the following solid and consistent stance: all the efforts should be targeted directly at the process of improvement of the aircraft turnaround time by several minutes; and the presentation of the customer with such a comfortable and even innovative facility as meal box is expected to lead to the sufficient level of increase in the future profitability rates. The most astounding aspect in the whole policy of development, adjustment and implementation in practice appears to be the capability to profit from details and nuances. There were certain crucial and basic changes (for example, the increase in domestic pricing policy), but certain percent of revenue was achieved by means of little and gradual alterations. It presents the high level of proficiency and consistency in the approach to the Malaysian Airlines Corporation policy improvement.

Moreover, the pricing policy has been transformed as well. It used to set a fixed price with standard packages previously, whereas in 2008 and further on the pricing policy approached the level of “affordable standard packages with fees for optional services. MAS also reconfigured the design of its fleet to increase density in its economy cabins and to reduce the size of premium cabins in order to lower costs per seat while maintaining a threshold comfort level” (Norhashim, Nashim, & Helmi, n.d.). The changes MAS presented in the course of the second part of BTP are obviously more “original”, independent and customer oriented in comparison with the strategy selection in the course of BTPII. The plan demonstrates the next stage of development and competitiveness level the MAS Corporation managed to acquire in the course of adjustments of the system.

One more significant aspect of the whole approach the Malaysian Airlines Company presented in the process of struggling for success and profitability is the permanent display of consistency and relevance in its activity. These phenomena tend to demonstrate the level of proficiency and the appropriateness of the selected steps in the course of improvement. Moreover, the consistent approach reveals the experience and the proper conclusions which have been taken from it by the company authorities. Actually, the most essential aspect is that these conclusions have been taken not from the overall experience (although it is important for the final outcome of any project as well), but directly from the experience of implementation of the first part of the Business Turnaround Plan of the Malaysian Airlines Company.

Furthermore, the company faced one more serious and demanding challenge in the course of the implementation of the second part of the Business Turnaround Plan. It was the sufficient increase in the current pricing policy concerning fuel. As a direct consequence of this outer alteration, MAS had to develop, introduce and implement a new fuel strategy targeted at proper and efficient management of volatile fuel prices. “In the first quarter of 2009, MAS reported a loss of RM695 million. This was followed by a profit in the second quarter of RM876 million.

However, in MAS’ third quarter of 2009 report, while oil prices had begun to stabilise, the company reported another loss. The bulk of the RM299.6 million net loss comprised of a derivative loss of RM202 million” (Norhashim, Nashim, & Helmi n.d.). Some investigators of the theory of efficient and long lasting improvement tend to present it as the sequence of failures and successes in the course of new strategies and policies implementation. Such a sequence tends to demonstrate the course of development the company undergoes, and as well the level of potential adjustment it tends to be targeted at and both capable of achieving.

Actually, in the course of accurate analysis and comparison of both losses of the MAS Company and its subsequent revenue, it is quite evident that the corporation tended to present a certain rate of development, if not sheer improvement. No kind of development happens without losses, breakdowns or dilemmas. All of them need proper, timely and relevant solution. The way the company manages the process of solution of the arising problems, threats and challenges, as well the subsequent ramifications and results of the management, are key characteristic features of the level of success and efficiency of the whole strategy the company implements.

The final outcome of the second part of the Business Turnaround Plan MAS had implemented revealed its capability to alter, develop and improve. These aspects of the corporate performance tend to demonstrate the basis for success and profitability of the company.

Suggestions of the Chief Executive Officer to Improve the Situation

If I were the CEO of the Malaysian Airlines Corporation, I would recommend not to take such high stakes risks anymore in the course of improvement. It is enough to implement several risky projects, but it is not a good tendency to make it a tradition.

Furthermore, as the CEO, I would recommend increasing the management branch of the company in order to enhance the efficiency of monitoring and leading aspects of the corporate activity. This alteration will contribute to the growth of corporate responsibility, overall productivity and challenging environment among the staff.

One more alteration I would introduce as the MAS CEO is the new advertisement campaign. The campaign should not be too costly or inappropriately huge. It should attract more middle class customers and inform those who stay reluctant to use the MAS service about the company’s offerings and prerogatives. The advertising campaign is to be of informative, not overly promoting and annoying nature. It should demonstrate the company’s confidence along with evidence of the results of the activity in the sphere of its services and, at the same time, advertise affordable flights.

One more essential aspect of my vision of improvement is apparent opposing of the Malaysian Airlines Corporation to the rival companies and their policies and strategies. For example, the MAS Company followed the policy of one of its opponents and increased prices according to one of its basic strategies targeted at the improvement of its profitability. Therefore, it is appropriate to introduce a quite opposite strategy in order to diversify its activities. The customers appreciate innovative and individual approaches. These aspects are the milestones to follow in the course of creating the new policy to oppose the rival corporations. The company is to be different and unique in order to succeed.

All the aforementioned suggestions need proper analysis, comparison and calculation before starting the process of development.

Conclusion

The previous successful experience and the high level of aspiration of the MAS Corporation contributed to the positive and efficient outcome of the two parts of the Business Turnaround Plan implementation. Moreover, proper motivation and accurate following of all the elements and prescriptions of the BTP promoted the final results.

Thus, MAS presents the vivid and persuasive sample of consistent, relevant and timely development and subsequent efficient and perspective improvement. Moreover, the case study demonstrates that no turnaround plan implementation is actually possible without certain complications, controversial issues and dilemmas. They are not to be regarded as drawbacks, but as additional motivation to evolve and improve the whole system. Hence, the MAS Corporation involved correctly and relevantly chosen strategies and methods of development. Furthermore, they were properly and professionally implemented.

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