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AirAsia & Malaysia Airlines
Transcript of AirAsia & Malaysia Airlines
Will MAS and AirAsia Compete or Collaborate?
AirAsia & Malaysia Airlines
#Malaysian low-cost airline
#DRB-HICOM, Tony Fernandes
#Flag carrier of Malaysia
MAS & Air Asia are both passenger airlines,
MAS currently own 20 Airbus and 70 Boeing for domestic and international flight.
MAS carry nearly 50000 passengers daily to 100 destinations worldwide.
AirAsia own 75 aircraft, flies to 61 destinations by operating 400 flights daily.
These shows how this two big companies dominate the airline market and how they place themselves in oligopoly market.
Nash equilibrium formed when both of them cooperate.
Since the outcome is better off when they cooperate, both companies have a dominant strategic to cooperate.
In 9 August 2011, MAS & AirAsia entered into a Comprehensive Collaboration Framework (CCF) that would include a collaboration agreement to explore opportunities on a broad range areas.
The collaboration between MAS and AirAsia will focus on providing full-service long and short-haul flight services while the later concentrate on low-cost, no extra flight services (for example, luggage, and insurance services will be extra charge, no food on board, and no pets allow on board).
Collaboration of two companies may result in monopoly, or anti-competitive behavior in the airline industry, less frequent flights, limited travel options.
In fact, the airlines will continue to face competition from each other and from other airlines in the market.
Consumer will still have sufficient option to fly with other airlines.
Major airline industry competition include:
i. Global alliance
ii. Tariff coordination
iv. Airport capacity
v. Slot allocation
vi. Predatory pricing
MAS shows a fall of share price from RM1.60 per share (August, 2011) to RM1.17 (May, 2012), decline for AirAsia’s from RM3.95 to RM3.58 at the end of the collaboration.
Price chart did not reflect positively to the collaboration, which mean this collaboration failed to reach its objective.
"In May 2012, CCF was terminated. Malaysia Competition Commission (“MyCC”) found that MAS and AirAsia had infringed section 4(2)(b) of the Competition Act 2010 by agreeing to share markets within the air transport services sector in Malaysia under the Collaboration Agreement, which MyCC considered as anti-competitive. MAS and AirAsia was fines RM10million each for distorted the swap agreement."
Result from Game Theory varies from the Reality
there are some factors that lead to the output decision making by
Output decision 1 -Service Provided
MAS that act as a semi-government organization focuses on providing high-class service to enable it to emerge as world class national flag aircraft carrier.
MAS provides excellent and luxury services for it customers .
AirAsia focuses on promoting its low cost or budget airline.
. AirAsia also provides no-frills services in order to keep the cost as low as possible.
Output Decision 2 - route's distance
MAS the dominant strategy is through the output decision for long distance route flying.
Dominant strategy for AirAsia is to provide a short distance route
Due to the collusion, both firm able to receive high profit in their dominant strategy.
AirAsia tend to focus on short route to a certain destination in order to reduce operating cost.
Output decision 3- Targeted customer
AirAsia has practiced cost leadership strategies
MAS involved in business transformation plan
AirAsia segments the market and serves the low income group.
MAS serve the high income group through market segmentation strategic.
- Set view of consumer: budget flight that is more affordable
- Reduce MAS share for short haul price
- Introduce Firefly (low cost flight)
- MAS become luxury service
- MAS conquer market by serving both luxury and budget market to the customer
- high price elasticity of demand
- during promotion, price decrease, quantity demanded will increase a lot
- low price elasticity of demand
- luxury service
- price increase a lot, demand decrease a little
- target consumer who are not price sensitive
AirAsia > low price
MAS > high price
MAS and AirAsia are large firms so both of these firms have the ability to control over their price in order to maximize their profits
sell tickets to allow customers to travel via airplane and providing air line services to the customers.
MAS and the AirAsia collaboration enables both of these big firms to offer wider destinations, therefore attracting more passenger volume
Until now, MAS and AirAsia do not file a lawsuit against each other.
But we want to investigate the consequences if they do so in future