Porter's Five Forces Analysis: Malaysian Airlines

Better Essays
Every business has their own strategies to increase the sustainability of their business over the long run with the purpose of maximizing the shareholders’ wealth. There are many ideologies and strategies being implemented with the purpose of generating long term profitability of the organization. Michael E. Porter has designed and developed the Five Forces framework to help the companies to assess the nature of an industry’s effectiveness and also the organization strategies. With the framework which is developed by him, it allows an organization to identify and analyse the opportunities that is crucial in determining the effectiveness of an industry. Porter has categorized the five main competitive forces which can affect the industries …show more content…
Profitable markets will attract new entrants because of the high yield return. The threat of new entrants into the markets has made some significant changes due to their increased experience in the industry. This significant changes include the increase in the seating capacity of the passengers and the reduction of prices for all available routes. Malaysian Airlines has made losses in their market share mainly to Air Asia because of Air Asia’s concept of low cost airline (Shah and Mr. Bhavin, J., 2008). As a result, this has increased the demand for Air Asia’s flights due to their increase in flight frequencies. To counter attack this, Malaysian Airlines has launched their Fly as their low-cost carrier. By doing this, Malaysian Airlines has strived with new competitors and has also gained market share which is being controlled by their competitors. However, the threat of new entrant is still considered to be reasonably weak due to the high capital requirements and high investments needed which happens to be the major barriers for new entrants to enter the airline industry (Evans and Nigel, …show more content…
It may also be described as the market inputs in which airlines will have partnership with suppliers that supply the raw materials which are used to carry out the operational activities of the airline company. Fuel suppliers, aircraft engines and maintenance, and manufacturers of aircrafts are the suppliers of the airline industry. Other than aircrafts and aircrafts maintenance, other services are including ticket sales and reservation, air traffic control, ground control services and other aviation services. Airline industry will face the fuel price fluctuation in which the fuel prices will increase and decrease dramatically due to the unstable condition of the nation’s economy. In Malaysia, the government will make a budget and subsidy the fuel in order to reduce the burden of the consumers. Besides that, recently the government of Malaysia has removed these subsidies for fuel which has increased the costs for the airline companies to bear. Malaysian airlines had to make agreements with several international fuel suppliers to have some discounts on the average base price of oil. Due to high switching cost, Malaysian Airlines also acquired the aircraft where the engines suppliers also supported the provision on spare part related to flight operations to optimize the market share of the

Related Documents

  • Decent Essays

    On the other hand, Singapore Airlines also has the opportunity to take as well. In the 21st Century, the air travel has become more convenient than any other times in the past. As the air travel business continues to grow, there would be increasing amount of demand, thus expect a further expansion of air routes around the world. Singapore Airlines has been proactive, at the same time, they were also reactive on handling their threats and opportunities. When they faced the rise of competitors as an issue, they have started to introduce new features to survive in the market, which includes the introduction of premium economy class, 5-2.…

    • 1363 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    These new parameters add to the previous competitive model from Flores-Fillol research (2009) in a sense to improve the airline product as perceived by passengers and they are: stochastic delay, load factor and route length. Stochastic delay measures the passenger delay in time caused by inability to book the seat on the preferred flight, due to all seats are filled. By introducing this parameter, it is possible to manage seat accessibility by controlling load factor and have direct influence on the service quality. The higher the average load factor on a flight is, the lower the seat accessibility is likely to be. Therefore, there would be more of passengers wanting, but unable to book a desired flight, that results in revenue loss for an airline.…

    • 2131 Words
    • 9 Pages
    Decent Essays
  • Decent Essays

    However the rivalry between competitors is high and the current negotiating power of suppliers is variable, and, in general terms, medium / high. 3 Strategic Groups In the airline industry two main strategic groups stand up, flag airliners and Low-cost airliners. The Flag Airliners group is characterized by the Network or Hub-and-Spoke business model. The Hub and Spoke system allows the airlines to maximize passenger occupation on each flight by offering connections to both domestic and international destinations by using their own Hub (airports used as a distribution centre for air traffic). This more complicated route system provides customers with a much larger number of route option, which in turn maximizes revenue opportunities.…

    • 1720 Words
    • 7 Pages
    Decent Essays
  • Decent Essays

    There are more no-frills airlines may take off in Air Asia to meet increasing consumer demand following the success story of Malaysia’s budget carrier Air Asia. Singapore Airlines plans to launch a budget carrier because they see the success of Air Asia airlines that use low cost operations. They know how big the market is and how good the opportunity is in Asia. The Air Asia also faced certain rates like airport departures, security charges and landing charges are beyond the control of airline operators. These costs that have been mention is a serious threat towards the airlines that intention to maintain their low costs strategy.…

    • 1263 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    Passengers who use air travel for tourism are more likely to be sensitive to the cost of travel than those who travel for business purposes because tourism is a luxury, however; this does not mean business travelers are insensitive to changes in airfare prices. Therefore, low cost operators have become favorable with frequent fliers. As you can see in the graph, business travel has also expanded the demand for air travel because more companies are investing internationally (The Airline Industry, 2016). International trade has contributed…

    • 916 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    The legislation caused many companies to enter the airline industry especially when the airline business was considered very profitable. With new entrants into the airline industry, there was a significant reduction in the airfares. The decrease in the airfares was mainly attributed to the new deregulation act of 1978. The legislation encouraged competition in the airline industry. As a result, there was new competition financial impact in the airline industry.…

    • 1083 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    The number of competitors and their capabilities has become the main driver of competitive rivalry in the market. The market attractiveness will decrease when there are many competitors offering similar products and services. The entry of low cost carriers have increased the competitive level in airline industry. Besides, the tight regulation of the airline industry whereby safety become paramount leading to high operating cost. The competitive rivalry seems to be in the mature stage of business cycle.…

    • 1270 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    Travel analysis and trends A good analysis and understanding of the travel features and trends of the passengers is very important to build up a successful business model for airlines. In the following, we will try to discuss this topic from the aspects of elasticity of passenger demand, popular destinations, mode of transport and the booking patterns. 1. Elasticity of Passenger Demand At the present time, the competition in the air travel industry is becoming more and more intense. The passenger is more price sensitive in the worldwide.…

    • 1638 Words
    • 7 Pages
    Decent Essays
  • Decent Essays

    PEST Analysis Of Air Asia

    • 1987 Words
    • 8 Pages

    Threat of terrorism, people is afraid to fly after the September 11 terrorist attacks incident. Economic Opportunities: Although, economic downturns (e.g. global financial crisis) would result in a downturn in the industry, it can prove to be an opportunity for AirAsia. For example, as a result of the global economic downturn (i.e. worldwide stock market plunge), aircraft leasing costs were reduced by about 40%; creating an environment with lesser competition and enabled AirAsia to lease their aircraft at a cheaper rate (leading to cheaper ticket prices for customers).…

    • 1987 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    After a drop in fuel prices in 2009 the cost of fuel has drastically increased. While there is nothing they can do about the cost of fuel, they can look to exchange older plane and planes used on longer routes with new more fuel efficient plans. Another thing they can do is try to pick their routes based on revenue and fuel consumption. While this is not the only thing they need to worry about when picking their routes, it should definitely be a big part of their consideration. Porters Five Forces Threat of new entrants The threat of new entrants is currently low.…

    • 2600 Words
    • 11 Pages
    Decent Essays