1. Introduction

Literature review

Methodology

Results

ASEAN Single Aviation Market - One Sky, One Region

ASEAN Single Aviation Market (ASEAN-SAM) is an aviation open sky policy to develop a single aviation market among ASEAN nations in Southeast Asia initiated in 2015. The ASEAN Air Transport Working Group made the policy proposal, supported and endorsed by ASEAN nations. The ASEAN-SAM is deemed instrumental in accelerating the economic development of the region.

The ASEAN-SAM initiative forms part of the vital component of the ASEAN Economy Community (AEC) blueprint 2025, which is coherent with the vision and goals of the Master Plan on ASEAN Connectivity (MPAC). It enhances economic connectivity involving various sectors: transport, telecommunication and energy. It creates an integrated economic region to maximize their contribution to improving the overall competitiveness of ASEAN and strengthening soft and hard networks in the area (AEC, 2016).

The ASEAN-SAM is expected to maximize the liberation of air travel between ASEAN member nations and enable ASEAN nations. Airlines operating in the region benefit from the positive growth in global air travelling by promoting tourism, trade, investment, and service flows between member nations.

In 2017, via the adoption of the Air Traffic Management Master Plan, the region furthered its collaborations to facilitate the movement of aircraft and airspace capacity across the member countries, which aims to reduce delays and operational costs for the airlines. The initiative sees the gradual removal of ownership restrictions in air transport services and the harmonization of regulatory requirements for technical personnel and flight crews.

The National Transport Policy (NTP) and National Aviation Strategic Plan (NASP)

In 2019, the Malaysia Transport Ministry announced the National Transport Policy to address the needs driven by rapid transport sector growth and Malaysia's position as a transport hub for the Southeast Asia region. The NTP was developed with the objectives:

• Create a conducive ecosystem for the transport industry to enhance productivity and competitiveness
• Facilitate seamless movement of goods to boost trading activities & ease of doing business
• Provide mobility that meets the expectations of people and promotes inclusivity
• Increase modal share for public transport
• Deliver an intelligent, safe and secure transport system
• Ensure efficient & sustainable use of resources & minimize environmental pollution

For the nation's aviation outlook, the government projected the annual growth in passengers in three primary airports, namely KLIA (4.1%), Penang International Airport (6.1%) and Kota Kinabalu International Airport (5.5%). The policy also identified eight critical future trends and five policy thrusts (Figure 4).

It recognizes the importance of the aviation industry's impact on the nation's economic growth. The transport ministry announced the development of the National Airports Strategic Plan (NASP) to facilitate the future blueprint for the government in decision-making for airport developments in Malaysia. The NASP outlines the long-term strategic plan to develop an efficient and competitive airport system, emphasize the continuity with the transportation network and enhance connectivity between the various transport modes in Malaysia. The NASP is expected to be revealed by the end of 2020.

Figure 5. Malaysia Arrival and Receipts 2019. Source: MOTAC (2020)

Figure 5. Malaysia Arrival and Receipts 2019. Source: MOTAC (2020)

The Impact of COVID-19 on the Global and Malaysia Aviation Industry

The impact of the COVID-19 pandemic on the global economy is significant. The effect of the worldwide stock market and oil price crashes has put the global economy into recession mode. The decline marked the highest setback since the 2008 Global Financial Crisis. Global lockdowns by many nations to contain the spread of the pandemic in the world has led to economic contractions. The second quarter of 2020 saw more than 2/3 of the worldwide flights grounded. The aviation industry estimated cash burn to be over USD60 billion in the second quarter alone due to the significant contraction of Revenue Passenger Kilometers (RPKs). Many airlines are struggling for survival due to cash flow issues. Estimated 25 million jobs supported by air transport worldwide are at risk due to the pandemic.

Figure 6. IATA (2020)

Figure 6. IATA (2020)

Malaysia's Gross Domestic Product (GDP) growth is projected between -2% to 0.5% in 2020 against a highly volatile global economic outlook due mainly to the COVID-19 pandemic (BNM, 2020). Malaysia's economy suffered the same fate due to low global demand, supply chain disruption, low tourism receipts and lower domestic income due to the domestic containment measures, namely Movement Control Order (MCO), since Mid-March 2020.

Figure 7. Highlights of Malaysia's Economy Outlook 2020. Source: BNM (2020)

Figure 7. Highlights of Malaysia's Economy Outlook 2020. Source: BNM (2020)

The ongoing COVID-19 pandemic has significantly impacted global economic growth prospects, with the outlook heavily contingent on countries' ability to contain the pandemic over the remainder of the year successfully. The International Monetary Fund (IMF) is anticipating a recession impact in 2020 that is equivalent to the 2009 global financial crisis and is projecting a recovery in 2021. According to Bank Negara Malaysia (BNM), Malaysia's domestic growth is expected to remain susceptible to a recurrence of commodity supply shocks. It continued low commodity prices, wh

The federal government has implemented various economic stimulus measures (Figure 8), and several state governments have implemented additional measures to reduce the impact of the pandemic-driven recession.

MAVCOM projected its 2020 passenger traffic forecast between -36.2% to -38.1% Year-on-Year (YoY), which translates to 67.7millions to 69.7millions passengers (2019:109.2millions passengers), due to the impact COVID-19 pandemic. MAVCOM estimated the revenue-at-risk for Malaysian carriers and aerodrome operators at RM7.2bn in 2020. International Air Transport Association (IATA) estimated the global airline industry to lose USD252.0bn in revenue and face a liquidity crisis in 2020. The Centre for Aviation (CAPA) predicted bankruptcy among airlines by mid-2020. The financial situation of airlines will be worsened by lower passenger demand due to fears of air travel, leading to reduced flight frequencies or cancelling services. Travel bans for pandemic containment will affect Malaysia's air connectivity to various destinations, such as Australia, China, and India.

MAHB Key Challenges: From the Past, at the Present and Into the Future

1. 

Cross-Subsidizing Model: Inefficiency on Value Maximization

MAHB monopolistic airport operates concession. It is because of the perception that airport operators mostly have monopolistic control. It is over key infrastructure gateways to particular geographic locations. As such, investors can directly tap into the stability of a virtual public transportation network and the economic growth of a given region. Besides, investors gain access to the expected boost from population increases due to their correlation with increased flight travel. While all the facts mentioned above are reasonably valid, the MAHB concession may not seem straightforward due to the cross-subsidizing model since 1992. According to MAHB, over 75% of the 39 airports under its management are non-profit. It leads to the non-optimization of MAHB's full earning potential as profit-making airports subsidize those loss-making airports.

2. 

Safety and Security Risk: Drug Trafficking and Kim Jong-Nam's Assassination

Since the 9-11 incident, the Airport's safety and security measures have been tightened tremendously in anti-terrorism efforts. The aftermath saw the implementation of facial recognition surveillance systems, biometrics fingerprints and multi-tier security checkpoints at both arrivals and departures. These additional measures affect the efficiency level of passenger clearing time. While MAHB recognized safety and security as top priorities of its performance, recent incidents at KLIA raised concerns about MAHB's competencies to address the issue.

In 2017, a North Korean was attacked and murdered with a V.X. nerve agent at Kuala Lumpur International Airport in daylight. Four North Korean suspects left the Airport shortly after the assassination and reached Pyongyang without being arrested. In 2019, the Malaysian Royal Police Force acknowledged the increase in drug trafficking activities in recent years and involved seizures of hundreds of millions of ringgit worth of drugs involving flight crews and Malaysian citizens. These incidents raised public concerns about MAHB's vigilance in managing safety and security matters. These weaknesses may have contributed to the downgrade of CAAM's rating.

3. 

Lack Sense of Crisis on Technology Debt: KLIA System Failure Crisis 2019

The Airport ecosystem is comparable to a miniaturized version of a country. At any point, multi-dimensional activities are taking place in real-time, from air traffic management to retail operations within the Airport. Operating an airport requires deploying various highly integrated yet complex management systems. The effectiveness and efficiency of these systems are instrumental in ensuring smooth operations of the entire airport functions (Jaffer & Timbrell, 2014). Disruptions of these systems can be potentially catastrophic, which leads to financial losses.

On 21^st August 2019, KLIA experienced an unprecedented system disruption when it is Total Airport Management System (TAMS) crashed at both terminals in KLIA. Affected the failure affected check-in counters, flight information display systems (FIDS), baggage handling, airport mobile app, as well as payment systems which rely on its networks. The event's impact was devastating, with flight delays and multiple systems malfunctions, from immigration processing to retail credit card transactions, which lasted for days. Airports are part of the nation's critical infrastructure. The incident exposed the Cyber-vulnerabilities of MAHBs in both preventive and proactive measures on emergencies and the need for MAHB to evaluate its exposure to technology debts which in this case is the inability to backup and restore the system on a timely basis.

4. 

ISGIA, Turkey - The Elephant in the Room: Constraints for Domestic Needs

MAHB inspiration for expanding overseas can be traced back to 2008 when it successfully won the bid for a 20 years concession on ISGIA Turkey. The request is consistent with the group's direction to expand into foreign markets as an alternative source of income growth and mitigate its dependence risk on the domestic market. Istanbul, one of Europe's busiest and most rapid growth air travel hubs, presents an excellent opportunity for MAHB and the strategic potential of bridging the spillover effects of air traffic, linking Europe, the Middle East and Malaysia.

However, the reality is far from the truth. While ISGIA has achieved commendable passenger growth since 2008 (Exhibit 10.0), it remains a struggle with its ability to achieve profitability, especially after MAHB acquire a 100% stake in ISGIA (Exhibit 11.0). It is mainly associated with the high depreciation and amortization of the concession investment premium. The uncertainties become more alarming with the opening of Istanbul Airport (I.A.), which is within 70 kilometres away from ISGIA, in October 2018, replacing Istanbul Atatürk Airport, the fifth busiest Airport in the world before decommissioning. With a master plan of six runways, and four terminals capable of handling 200 million passengers per annum (Exhibit 12.0), I.A. is deemed to become the largest Airport in the world upon its completion by 2027. With ten remaining years left of the concession, it is questionable now on ISGIA's ability to achieve its expected return on investment.

Figure 10. ISGIA Passenger Statistics 2008-2019. Source: ISGIA corporate website (2020).

Figure 10. ISGIA Passenger Statistics 2008-2019. Source: ISGIA corporate website (2020).

Figure 11. MAHB Oversea Airport Operation Profit Trend 2015 – 2019. Source: MAHB Quarterly Results (2015-2019); Author generated (2020)

Figure 11. MAHB Oversea Airport Operation Profit Trend 2015 – 2019. Source: MAHB Quarterly Results (2015-2019); Author generated (2020)

Figure 12. World Airport Ranking by passenger capacity. Comparison of Istanbul Airport to its rivals in terms of Passenger Capacity. Source: The Guardian (2019)

Figure 12. World Airport Ranking by passenger capacity. Comparison of Istanbul Airport to its rivals in terms of Passenger Capacity. Source: The Guardian (2019)

While MAHB overseas is facing stiff competition ahead, its domestic airport network has a different set of challenges that need to be addressed. Based on MAVCOM's analysis, Senai, Kuching, KLIA Terminal 1, Penang, and Tawau are identified to be in the 'sweating' airports category, which experiences a utilization rate of above 100% and a positive CAGR (Figure 13). These airports must enhance operational efficiencies, optimize flight schedules, and expand airport infrastructure to address the congestion issue. Failure to address congestion may result in passenger flight delays and increased costs for airports and airlines.

These scenarios suggest the need for MAHB for its domestic capacity expansion to capture revenue growth. Some of these airports have experience congestion over the years, translating to complaints over their service level. Based on MAHB's financial performance, high finance costs form a substantial portion of the revenue, which is between 14% to 19% (Exhibit 14.0). However, it is surprising to note more than 2/3 of the finance costs are associated with oversea operations. The COVID-19 impact might adversely affect MAHB's credit rating and ability to service its financial obligations.

Figure 14. MAHB Financial Highlights Trend 2015-2019. Source: MAHB, Annual Report 2015-2019

Figure 14. MAHB Financial Highlights Trend 2015-2019. Source: MAHB, Annual Report 2015-2019

5. 

Potential Impact of NTP and NASP on MAHB Business Outlook

Under the National Transport Policy, strong emphasis on increasing the share of public and green transportation systems. In general, Malaysia will continue to build and upgrade the transport systems via road and rail network development to support the mobility of people and goods, while ports and airports such as KLIA and Port Klang support business and trade activities. Mega rail projects such as ECRL and High-Speed Rail (HSR), and the Pan Borneo Highway network will potentially affect the mode of travel trend moving forward, especially the domestic segment, due to the improvement of the efficiency of travel. These effects will likely impact domestic aviation travel growth in the future.

The up-and-coming NASP will potentially change the landscape of airport development. The new aviation policy will foresee the government's direction to develop a more efficient and competitive airport system via integration with the various transportation network and enhance its connectivity in Malaysia. Potential consolidations of non-performing airport networks and the ending of airport operator monopoly will potentially impact the MAHB outlook in the future.

6. 

Competition for ASEAN Regional Aviation Transit Hub

With globalization and the rapid growth of the low-cost aviation industry, aviation is expected to see continuous development. While the ASEAN-SAM initiative that enables further liberation of air travel between ASEAN member nations presents positive opportunities, at the same time foresees an increase in competition for the regional aviation transit hub. Regional competitors are continuously upgrading their facilities to compete as the regional gateway. MAHB's business outlook will depend on its ability to compete effectively with these regional competitors.

Figure 15 indicates the benchmark of the regional rivals to MAHB's KLIA and the airport operator's performance. Based on the analysis, competitive aeronautical and passenger charges do not appear to be a critical advantage to KLIA despite being one of the lowest in the world.

Discussions

Profitability and Role on National Agenda - Too Much to Ask for Both?

MAHB Value Creation Model is inclined to a strategic planning framework of a hybrid approach which integrates both the Industrial Organization (I/O) Economic (external perspective) and Resource-based Model (internal view). While there is nothing wrong with having a strategy framework that captures the best of both worlds, the issue of MAHB is not the framework itself but the gap between the reality of the market dynamics and the perspective MAHB has chosen to interpret them. Exhibit 16.0 present an alternative SWOT analysis from a strategic thinking perspective.

Figure 16. MAHB SWOT Analysis – An Alternate Perspective. Source: Author generated (2023).

Figure 16. MAHB SWOT Analysis – An Alternate Perspective. Source: Author generated (2023).

The role of organizational culture is one of the critical factors that influence the course of the strategic planning process. The fact is that MAHB is a government-linked company (GLC) that inherited the business because of the government's privatization exercise coupled with the monopolistic business model. MAHB's corporate culture remains bureaucratic-centric, political affiliation oriented, and somewhat lacks accountability based on the various incidents discussed in the case study. Management leadership and commitment are essential for effective strategic planning and implementation (Mintzberg, 1994), (Taylor, de Lourdes Machado, & Peterson, 2008). Of course, this notion assumes that the top management leadership possess the strategic foresight, the necessary industrial experience, and the competencies to steer the strategic planning process. The absence or lack of essential leadership and competencies makes the strategic planning exercise not only regressive, at worst, leading the organization in the opposite direction.

Thus, the issues can be summarised into two perspectives of the MAHB strategic management process 1) the lack of strategic thinking and leadership, which sees the misinterpretation of the business dynamics that leads to the inability to formulate the appropriate strategies, and 2) the lack of strategic change management. MAHB needs to review its strategy as illustrated in its value creation model, reprioritization to focus on essential fundamentals and realign its market strategy with natural market dynamics and clear business directions and objectives. A priority for MAHB strategic culture reform is necessary to facilitate the required strategy for change to shape a resilient and accountable for its future performance (Denison, 1990).

Human capital has been recognized as of the critical assets of a firm, especially in the service-oriented sector (Namasivayam & Denizci, 2006). The Airport is the country's first impression point for foreign travellers. Some of the most successful companies attribute their successes to exceptional values. The innovations of their people from the middle-lower level of the organization. The research and development of the frontline staff that interacts with its customers. Besides, the team performs functional tasks that translate to customers' experience. In that context, these people will be in the best position to identify the improvement area that enables them to perform their tasks more effectively and efficiently. In the MAHB value creation model, it scored 74% on its employee engagement scorecard. It indicates room for improvement, suggesting an inclusive culture that encourages innovation and ownership will improve its strategic planning process and reduce the resistance to change.

One of the prerequisites of an effective strategy is a clear vision, business direction and goals indicators (Taiwo, Lawal & Agwu, 2016). As a publicly listed company, MAHB's primary goal to its shareholder is to maximize its investment value, i.e. maximize its profitability. In the case of MAHB, the provision of aerodrome-related services for 39 airports in Malaysia accounted for more than 3/4 of its total FY2019 pre-tax earnings after considering the social obligation effect of cross-subsidizing the non-profit-making airports. The ability to revamp the cross-subsidizing model will potentially enhance MAHB earnings positively.

This case study supports Sinnaiah, Adam & Mahadi (2023) that strategic management and decision-making approaches are crucial for determining the performance of an organization. This paper emphasizes the significance of decision-making styles and constructs a framework for strategic management by analyzing existing literature on strategic management.

The results support Chao et al. (2017) that rapid technological and economic growth has resulted in excessive energy consumption and Co2 emissions, polluting the environment and eroding natural ecology. Airports around the globe are placing a greater emphasis on environmental management. Regular maintenance was considered the most efficient and straightforward method for conserving energy in air conditioning systems. Respondents indicated that increasing regulation and control would be the most effective measure for lighting systems while selecting appropriate light fixtures would be the simplest to implement. It is necessary for developing airports to implement energy conservation strategies.

According to Namazi & Rezaei (2023), the researchers recommend further study that the participation of all managers could reduce budgetary slack. It also increases it; strategic management accounting systems and affective organizational commitment function as mediating factors, whereas autonomous budget motivation cannot play this role. In addition, only the strategic management accounting system substantially impacts budgetary slack for higher-level managers. The evidence regarding middle managers confirms the significant effect of the mediating function of strategic management accounting systems, and only affective organizational commitment reduces budgetary slack for operating managers. Consequently, management levels postulate a significant contingency effect on budgetary slack-affecting constructs. By identifying the mediator variables, this research extends the budgetary slack theory and provides empirical evidence for each public health and medical services management level.

Conclusions and recommendations

2) 

The need to revamp the cross-subsidizing model - Overlapping Aerodrome of airports – consolidation of airports network for operational efficiency

3) 

The review of the viability of oversea operation – A crossroad decision

4) 

Strategic partnership on Airport of the future – multiple strategic gateways competitive strategy & urban development model

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