By: Iliyas Ismail
Introduction
The world aviation industry is growing significantly
in many parts around the world. In Malaysia, the aviation industry looks
promising, with many new entrants into the market in the past several years,
showing a high demand for services, and also offering more choices for
passengers to travel by air thus increasing further the demand and lowering the
cost due to competition.
The year 2020 would have marked the year for the
country to have attain the status of developed country. Although it is rather
questionable if the country could attain this status by the time, this study
would like to analyse how much would the country’s aviation industry have
achieved in 2020 and in particular, how much it has grown in this decade.
There are many industry players in the country, the
legacy carrier Malaysia Airlines Berhad, with its various subsidiaries
including Firefly and Maswings, and other players including Air Asia, Malindo
Air, the now defunct Rayani Air and the planned carrier Flymojo.
Many analysts have predicted that the industry is set to
grow in the next four years leading up to 2020. The paper will look into the
pace leading up to that.
Research questions and aim
The primary aim of this research is to find out the
current condition of the Malaysian aviation market.
The research questions for this study is:
1) What is the current condition of the Malaysian
aviation industry?
2) Will it be geared towards the 2020 aim of Malaysia
to be a developed nation?
Objectives
1) Conduct
a focused literature review that examines the aviation industry of the country
and the region
2) Produce
a reliable research strategy to address the research questions
3) Present
the findings within the context of the literature review
Literature review
The Malaysian aviation industry is set for growth in
the years between 2017-2020 by 10.3% every year in terms of US dollars (The
Star, 2016). The regional market shows that it is favourable towards the
country’s vision of growth with the IHS world industry forecasting that the
Asia Pacific will see a growth of 9.2% between the years 2016-2020 (The New
Straits Times, 2016).
The competition between legacy carriers, i.e. national
carriers, and the low-cost airlines (LCCs) have seen produced a vibrant market,
and often caused a huge challenge for legacy carriers to compete. The example
of Malaysia Airlines vs Air Asia is a case in point, with Malaysia Airlines
facing many obstacles such as recurring operational losses with the addition of
many new competing entries. The entry of LCCs often increase the traffic volume
and reduce the ticketing price in the market (Morrison, 2001).
The LCC trend in Malaysia follows a similar trend in
other parts of the world, which is stimulating market growth, and leading to
the opening of the second Kuala Lumpur International Airport (KLIA) terminal
for the hub of low cost carriers in the country. This reflects the trend of
today’s LCCs where carriers are increasingly choosing to use primary airport
hubs instead of secondary ones.
The total number of passengers in all the airports in
the country shows a constant increase every year.
(Source: Ministry of Transport Malaysia)
The company’s national carrier has been experiencing
several losses since 2010, after the company was turned around as making
profits between the years 2005-2009. The unsustainability of such crisis,
driven by the fuel price hike during the time, stiff competition and a large
number of staff prompted the company to rebrand itself in 2014.
Methodology
Saunders et
al (2011) presented a methodology as a general plan on how to conduct a
research. The presentation of the methodology for this study would involve the
research onion as presented by Saunders et al.
The research philosophy is one of positivism, which is namely,
the researcher will gather data using an approach of science and make
predictions on how things are going to play out, formulating a general law
based on the pattern observed. This is
contrasted by the interpretivist approach which does not seek to present a
general law, instead trying to understand a situation based on a given context.
For this study, the author has opted for a positivist approach.
Research approach
A research
approach can be either inductive or deductive. The inductive approach refers to
the researcher proceeding to collect data first and experiencing the situation
before promulgating a theory, and often times in the form of a conceptual
framework, and other times in the form of a statement.
This is
contrasted with the second approach of deductive, where the researcher coming
up with a hypothesis and having the hypothesis undergo several tests before
determining if the hypothesis is a valid one, or it needs to be revised and
modified. In order to meet the objectives of this study, an inductive approach
seems to be more suited as it requires collecting data first, before coming up
with a theory.
Research strategy
Saunders et.
Al. (2012) explains a case study as a research topic or phenomenon within its
context or within a number of real life contexts. A case study can either be a
single case or multiple-case designed. The multiple case is chosen for this
study as it involves the aviation market within a country which involves many
parties. The companies are chosen and discussed briefly in accordance to the
limited nature of this research.
Time
Horizon
Time horizon
can either be longitudinal referring to the study of the same group within a
period of time or cross-sectional, the study of various groups within one time.
With the time constraints, this study employs a longitudinal time horizon
approach.
Limitations of study
The limits
of this study includes time constraint on the part of the researcher and the
conduct of this paper’s study. This limit results in a limited analysis as what
time permits.
Findings
and analaysis
While it is seen that the national
carrier had to rebrand, as mentioned, other airlines are continually driving
the growth of the aviation market. For the years before the decision to
rebrand, Malaysia Airlines
(Source:
Malaysia Airlines Annual Report, 2013)
For the years during and after the
rebranding to Malaysia Airlines Berhad, the online version of the annual report
could not be traced, however, we can see the company has incurred a higher loss
for the year 2013 compared to the previous year of 2012.
The operating ratio of the group is
calculated as thus:
Operating revenue x (100)/Operating
expenditure = 14,548,164 x 100/15,683,736
= 92.759%
Which because it is below the 100%
mark, shows that the company’s expenses is higher than its revenues.
For the competitor Air Asia, as
recent as the third quarter of the year 2016, the company has recorded a growth
of 35%, which translates as 1.22 million passengers (The Star, 2016).
(Source: Air
Asia Annual Report 2015)
The
operating ratio of the company for the same year of 2013, is calculated as
Operating revenue x (100)/Operating
expenditure = 5112000 x 100/4249000
= 120.3%
And it is observed that thir net
profit has increased for the year 2015, and they have continuosly incurred
profits for the years 2011- 2015. With entrants of many low-cost carriers
including Malindo Air, the aviation market in the country will only see further
increase in passenger traffic until 2020.
Malaysia Airlines as a company, will
need to perform better for the years to come and it should no longer expect a
government bailout that will only use up the capital that could be used for
other sector developments. After the rebranding which includes a reduction in
the 20, 000 power workforce the company could be expected to further grow the
aviation market in the country.
Malaysia is
recorded to have be the strongest in the South East Asian region in terms of
growth, and helped by the decline in oil prices.
References
1) AirAsia X records 35% passenger growth in Q3,
The Star, 31st October, 2016, accessed 21/11/2016. http://www.thestar.com.my/business/business-news/2016/10/31/airasia-x-records-35pc-passenger-growth-in-q3/
2) Malaysia's aviation sector set to
soar, New Straits Times, http://www.nst.com.my/news/2016/02/127700/malaysias-aviation-sector-set-soar
3)
Jayaraman, P, Malaysia’s Commercial Aviation Market set to Grow in South East
Asia, The Malaysian Reserve, 16th February, 2016, accessed
22/11/2016, http://www.themalaysianreserve.com/new/story/malaysia%E2%80%99s-commercial-aviation-market-set-grow-se-asia
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