Airline Industry in Malaysia - Incidence of Mh 370

Introduction

From the article, we know that the incidence of MH 370 had raised a negative impact on Malaysia tourism’s sector. Malaysia is facing a potential loss of up to RM4.2 billion in tourism revenue .The fallout of MH 370 had resulted in dissatisfied of customers especially customers from China. Customers lost their confidence to travel by MAS.

The effort of finding the missing airplane had increased the cost of the MAS’s company. The costs of the international search efforts so far are estimated in the range of around $50 million. This had made MAS incurred a big loss because the revenue earn cannot cover the cost. Since MAS is managed by government, this will make the government income decrease and lead to decreasing in GDP of our country.

Fortunately, these will not a long-term condition for MAS. MAS is trying their best to pick back the confidence of customers and do promotion heavily.

Discussion

Demand

Airline industry in Malaysia faces a big problem after the incidence of MH 370. Consumers lost their confidence to Malaysia Airline (MAS). They try to find substitution of other airlines instead of MAS. The demand of the airline service for MAS declines seriously. MAS faces more financial battering after this incidence. From the equation Profit/Loss = Total Revenue – Total Cost, we know that their revenue may can’t cover their cost and they will face a big loss. The declining of quantity demanded and quantity supplied for MAS’s service will influence their stock market.

Types of Market

MAS fall under the oligopoly market. The oligopoly market has only a few sellers when compare to perfect competitive market. For example, in Malaysia, we know that there are only a few airline companies such as AirAsia, Berjaya Air and Firefly. In oligopoly, each airline company has some pricing power, but they are not able to set the prices whatever they want. This is because when one of the airline companies set a higher price, consumer will find a substitution and change their service demanded to other’s airline company which has a lower price. We can say that each company affects the market but is also affected by other companies in the market. They need to observe the price change or the promotion offered of other competitor and make necessary adjustment. For example, they will do their best in the service provided to the customer to win the competitive advantage from others.

Moreover, just like airline business, oligopolies are industries where normally has extremely high set-up cost, so people will not easily enter the market. Not only the high set-up cost, the supplier in oligopoly market will need to compete with other competitors.  This prove that there are barriers to entry the oligopoly market.

Another characteristic is that airline companies engage in price wars. When one of the airline companies decides to cut the price of a ticket, the other company will usually cut their price as well. This happen because some company is trying to hold a large percentage of the market, and the other companies imitate and lower down their price to not lose market share. Thus, we can conclude that airline companies which fall under oligopoly market are interdependent of each other. Each airline company must take the potential reaction of its closest rivals into account when making its own decisions. They will affect and influence each other.