PGBM 03 OPERATIONS MANAGEMENT
Executive Summary The poor performance trends which happened in the operation of Malaysia Airline System Berhad (MAS) since year 2011 had enforced the necessity for their management to engage the external expertise to conduct a study by critically review their current operational strategies which applied. Besides, management also requested to examine the discrepancy between their operation’s framework with current market’s expectation in order for their implementation of future improvement policies. The analysis started with the introduction of MAS, follow by recognizing MAS current framework which applied, identifying both internal and external customers of MAS, analyzing their competitive advantages, verifying gaps which happened and finally summed up and providing together with logical recommendations. This report been completed by using secondary data and quantitative data analysis. Report also been furnished with application of related operation management models (Hills Model, SERVQUAL Model, Service Package Model) and theories (SWOT Analysis, Order Qualifying and Order Winning etc) to support the assumptions made in the report. MAS as one of the largest air transportation service provider had shown their capability in long term monopolize both local and global aviation market through top quality service provided. However, the liberalization of airline industry had made changes on the demand of airline service. The increases in requirement of low cost airline service had seems to affect MAS’s position in domestic airline market and the aircraft accidents happened can be said to further weakened MAS’s operation due with lost of trustworthiness by stakeholders and customers. These may be categorized as the main causes which caused gaps occur between their strategies and market demand. Therefore, there is necessary for MAS to enforce adjustment actions for securing their position in aviation market.
The poor performance trends which happened in the operation of Malaysia Airline System Berhad (MAS) since year 2011 had enforced the necessity for their management to engage the external expertise to conduct a study by critically review their current operational strategies which applied. Moreover, consultants been requested to examine the gaps which had discrepant their operation’s framework with current market’s expectation in order for their implementation of future improvement policies which will enhance operation effectiveness. The analysis consist of an introduction of MAS as the beginning of the report , follow by recognizing MAS current framework which applied, further with identifying both internal and external customers of MAS, analyzing their competitive advantages, verifying gaps which happened and finally summed up and providing together with logical recommendations. 1.1 BACKGOUND OF MAS
MAS as one of the company governed by Malaysia was founded in year 1947 (Ess Ess, 2011). It is one of the subsidiary company under Malaysia Aviation Group (MAG) which further been privatized by Khazanah Nasional Berhad in year 2014.
A well performed transportation service provider may defined as a carrier who able to deliver either human, animals or tangible product from an existing venue to their final destination (Osazuwa, 2015). This had been shown by MAS as figure 1.1-1 presented below. MAS had co-operation relationship with Firefly, MASwings and MAS Kargo to provide various delivery services besides transfer customers to their preferred location. On the other hand, MAB Academy play their role to train crews by furnished them with updated knowledges and skills. This is to ensure long term service quality being maintained.
MAS had set their main objective to become the leader in aviation industry. They believed this may be achieve through continuously enhance their ability to deliver services with high quality. Besides, this will further enhance their efficiency in generating greater income. Furthermore, this will allow them to become the profitable airline and contributed toward economic growth. However, these aims also required them to continuously focus on efforts to innovate their offered services for variable expectations fulfilment in the market.
1.2 THE FAILURE OF MAS
MAS had proved their capability to lead the aviation market in the past. However, they started to face poor performance trend since year 2011 had further affected national’s financial capacity in securing them.
Figure 1.2-1 shown the circumstances where MAS faced huge loss in both year 2011 and 2014. These raised the need for management to appoint external consultant to conduct crucial review towards their strategies applied and considered the necessity to make relevant changes which parallel to current market demand.
2 THE CURRENT OPERATION STRATEGIES APPLIED BY MAS In order to identify the causes that resulted in the circumstances of poor performance happened in MAS’s operation which started since year 2011, their current operation strategies
had been studied. Hills models which been defined as the guide which described of relationship between an organization’s aims (to provide a guide as an organization’s pathway), with marketing (how to compete in current market for sustainability) and operations framework which correlated for contribution towards corporate’s long term success and sustainability (Ted, 2011) is applied.
2.1 COMPARATIVE ADVANTAGES OF MAS
Comparative advantage which also may defined as order qualifying and order winning factors are the elements which explained the core competencies potential that allow a product or
themselves with other competitors and finally contributed to a winning situation in market (Majukwa & Haddud, 2016). Price and quality of services had been the major elements concerned by consumers during their selection of air carrier (Norazah, 2014). Therefore, the reasonable prices offered with high services quality delivered practiced by MAS as shown in table 2-1 had been their order qualifying elements which ensuring their long term sustainability in aviation industry (Deana etc al (2017)). They had implemented the continuous improvement policies for their packages offered and service quality delivered. Therefore, these allowed them to monopolized the local aviation market in the past. Their value and ability as full service carrier had also proved through several awards earned. Therefore, MAS’s reasonable price offered base on their available service packages and high level service quality delivered are the elements which fulfill the criteria to be their order winning factors that allow for positive financial performance before year 2011.
3 INTERNAL AND EXTERNAL CUSTOMERS OF MAS
Conciousness about customers’ need play a major role to ensure accurate information being channel to organization precisely and effectively. It further allow an organization to take action in advance to win the market compare to other competitors. These proved the necessity for MAS to know and understand their preference market demand. Thus, they are able to further implement the right policy to improve their ability in generating income. These become crucial to secure their downstreamed performance trend happened since year 2011.
Internal customers been defined as the team members which contributed their talent or energy towards achieve the same aims within an organization. This is regardless with the departments which you are allocated in. In contrast, external customers may clarified as people who standing in different view with internal team. They are those who demanding products and services from an organization (Karen & Keith, 2011). However, in servicing industry, customers play their roles as both internal and external customer. Besides to provide feedback base on their experiences through service provider, they are also required to provide their demand informations to service provider. Since there are variable services demand in the market, thus the process of gathering information become crucial for customers’ value optimization purpose (Jacob, 2013).
In this circumstances, internal customers of MAS may be categorized as customers who selected MAS’s services, cabin crews, pilots and all the supportive manpower given in the organisation while external customers may be categorized as those who will select MAS’s services as an air carrier to transform them to their preferences’ locations.
3.1 CRITICAL ANALYSIS OF OPERATION OBJECTIVES AND PROCESS OF MAS MAS started to face performance downstream since year 2011 which found out caused by the intensive competition happened in aviation market upon reviewed their operation strategies applied. The entrance of AirAsia Berhad as low cost airline in the early of year 2000 which been spotted as the main competitor of MAS had succeed to make change on the market demand trend happened in the aviation market. (Muhammad etc al (2018)).
The slogan “Now Everyone Can Fly” which used by AirAsia Berhad had presented their direction clearly in focusing on operation costs minimization policy as shown in figure 3.1-1 below. These will further contribute to their achievement of aim in allowing Malaysian to enjoy airline service without financial burden. Besides, their operation effectiveness also been enhanced through costs reduction policy. These efforts had provided them the ooportunity to continuously maintain their low airfares and operational effectiveness. Their low cost strategies furnished them with the opportunity to win local market share and further allow thrm to sustain in the current tough economy and price sensitive environment. MAS’s capability in generating income specially in domestic market had been affected after the entrance of AirAsia Berhad (Yasmin, 2012).
Air Asia Berhad had been one of the major competitor to MAS. Air Asia Berhad through weakening their performance in local market. Low fare air carrier which parallel with today tough economy environment will be the preference to the market. Besides, two aircrafts incidents happened had raised the worriness about MAS’s safety enforement in their aircraft. These result which being analyzed through quantitative analysis had proved to be the main factors which worsen the current status of MAS in domestic flight market (Tuck etc al (2012)). MAS further faced huge losses in year 2014 which caused by the accidents of flight MH 370 (flight crashed from Beijing to Kuala Lumpur) and MH 17 (Flight from Amsterdam to Kuala Lumpur shot down over in Ukraine) ( (Simi, 2015). These incidents which happened within 4 months had retained a strong memory for their stakeholders. Their confidence level with MAS’s safety prevention policies had been affected (Muhammad etc al (2018)). In addition, MAS who reacted slow in post crisis management had worsen the negative impacts toward MAS (Norman & Elena, 2018). MAS claimed that they had fall into “financial bankruptcy” which caused by the necessary to involve in various post crisis actions (Simi, 2015). These two elements and the main strengths of MAS which is having powerful skilled employees had been recognized. These had been analyzed through SWOT analysis which able to identify both of their internal factors (strengths and weaknesses) and external potentials (opportunities and threats) as presented in figure 3.1-2 below (Emet & Merba, 2017). Besides, their external potentials which foresee will enhance their operational effieciency being indicated together in figure 3.1-2 shown below.
4 OPERATIONS AND PROCESS GAP OF MAS Upon appointed consultant reviewed operation strategies applied by MAS which resulted their performamce faced slow down trend since year 2011, founded that MAS offered packages which labeled higher prices compare to their competitors had weaken their capability in generating operation revenue to meet financial obligations. The gap which happened in service packages designed had been recognized as one of the main discrepancy which affected their financial performance
4.1 GAP IN SERVICE PACKAGE DESIGNBesides in servicing industry, manufacturing industry also viewed services as a crucial element to allow their long term success in the market. Customer service had been promoted as one of the element which included in manufactured product. It plays an important role as communicator which link between manufacturer and customers. Therefore, a professional and efficient customer service provided may able to build positive reputation for an operation (Peter, 2011). Service package model being defined as a summary of services which available for delivery to fulfill customers’ requirement. A perfect service package shall consists the core and supporting service with facilities which available for customers.MAS had inputed their efforts to innovate variety choices of core services through collaboration with MAS Kargo. This allowed them to involve in tangible goods transfer activity. MAS proved to provide extra core services compared with Air Asia Berhad. Although airport had been the main support facility available by both MAS and Air Asia Berhad, MAS proved their ability to provide extra facilities to customers compared to Air Asia Berhad. MAS had obtained majority acceptance in terms of their tangibles facilities and intangible services delivered (Deana etc al (2017)). Therefore, doubts about the facts where air transport service providers who applying the concept of delivering services in high level quality will driven towards long term survival in aviation market should not been raised (Norazah, 2014). However, the economy slow down trend had forced customers to change their perspective in selecting low cost airline service for cost reduction purpose. Service quality had become secondary aspect concerned compare to price which parallel with current economy condition. It had further proved where AirAsia who operated in low cost strategy base had expanded their local market share till 66% in Malaysia for year 2018 while full service airline such as MAS who charged premium price had shown a decrease result in domestic market (Ayisy, 2018). 4.2 GAP IN SERVICE DELIVERED MAS had practiced to evaluate their customers’ expectation by own perspective which had lead to the circumstances of poor performance in the past 8 years. Although their perception made believed being supported base on previous experiences, those irrelevant informations obtained which caused by lack of identification about market changes happened had further caused the discrepancy occurred in their service quality. Service quality may be identify as judgement given base on intangible performance supplied to customers base on the necessary information provided. It is aimed to achieve their satisfaction at the maximum level (Kiran & Ajmer, 2016). However, since there is a need for service provider to face with variety of service requirement in the market, there is without anaccurate guideline to defined the actual terms and conditions to fulfil quality of services provided. Service Quality (SERQUAL) Model is an analysis which developed to identify the gap happened between the customers’ requirement with service provided. It is using the evaluation technique to examine factors which caused an organization unable to fulfill market expectations (Azman & Yusrizal, 2016). Although there are five gaps which had been introduced by this model, gap in service delivered had been choosen to explain about the differences which happened between service delivered and
After the aircraft accidents of MH370 and MH17 which operated by MAS happened, there are many passengers had turned down their option to select MAS as their transportation service provider. These crisis proven to affect the level of trustworthiness customers had to MAS. Customers are mainly lost confident towards MAS reliability in terms of safety protection (Muhammad etc al (2018)) which caused damaged of MAS reputation. It had been proved where safety become a crucial element concerned by passengers and crews specially for airline service provider such as MAS who had recorded 3 aircraft accidents within year 1977 till year 1995. These recorded incidents’ in the past will require MAS to highly ensure crews’ and passengers’ safety in their next routes to avoid lost of life (Norman & Elena, 2018). Failure to do so which allowed the next accident happened will bring worst damaged to an airline company reputation which further worsen their financial performance (Nazri etc al (2016)). After these two accidents happened, MAS had made their statement said where these crisis happened had caused MAS faced a huge declined in booking and increased the number of booking cancellations which further resulted MAS’s faced loss in their business in year 2014 compared with previous years (Danny, 2014). Besides, inappropriate crisis management by MAS which caused inaccurate reporting and fake news spreading had further damaged their brand image. Slow response given by MAS upon crisis happened had shown their performance inefficiency which disappointed their user and victims’ families also raised dissatisfaction among stakeholders which further resulted lost of trust towards MAS (Norman & Elena, 2018).
The above had resulted negative word of mouth regarding MAS failed to provide safety flight as required by customers and crews. This had damaged their image as high service quality provider. As the result, these allowed customers to subsitute their selection with other more secure airline. MAS’s performance believed further declined caused by this circumstances.
CONCLUSIONS This report had started with an introduction of MAS, followed by the section which examined the current framework applied by MAS that lead to the performance downstream trends beared since year 2011. Besides, this report also furnished with the informations about both internal and external customers who treated by MAS. Through recognizing their preference market, this report had further completed with the analysis of verifying MAS’s competitive advantages which allowed them to achieve the history of long term survival in aviation market. In addition, comparison also being made between their current operation strategies applied and market demand. This is to analyse the discrepancies which happened after plenty of uncertainties occurred in the market. Before ended the report, there are logical recommendations being provided for MAS’s further action plan in addressing problems being raised. MAS who had proved their ability in leading local aviation market based on their practices in reasonable price strategy being found out failed to support MAS for further sustainability after the entrance of Air Asia Berhad into local airline market. The price gap had happened after majority of MAS’s customers had changed their preference to select the service offered by Air Asia Berhad with more competitive price in the market. Besides their capability in maintaining high quality in services delivered had allowed them to expand their market towards international level. However, service delivered gap had happened when safety become the crucial element considered by customers compare with high quality of services which existed in the aircraft after the two aircraft accidents happened.Although MAS had been privatized under Khazanah Nasional Berhad in year 2014, and their effort of securing MAS through organization restructuring process being proved with successful result by narrowed the loss in their financial performance in year 2018, they should maintained their operating advantages which assisted them earned a long term market sustainability in the past. However, MAS had been encouraged to take further actions which recommended below in order to address the price and service delivered gap been identified. The completed analysis had consisted certain level of limitation caused by the limitation occurred during collecting information which involved with MAS practiced for their private and confidential policy.
RECOMMENDATIONS In order to resolve the price gap which practiced but in contrast with market requirement, MAS should diversify their service packages which parallel with current market preference to attract additional customers. The management of MAS should focus on below actions which will enhance their operation’s effectiveness: 1) Create extra new pacakages for selection. 2) Minimize cost through provide training to their staff to maximize their productivity in multi taskings. 3) Adjust their offered price to be more competitive through multiple resources sourcing. 4) Encourage ticketless flight through implementing self check in and self luggage tag printing. These believe will enhance the effectiveness of operations and crews in MAS. Besides, the reduced cost may further benefited their customers through maintaining low fare air travel service. However, these action plans required MAS to spend a minimum of six months time for implementation process. The duration of six months allow them to complete the collection data process together with accurate evaluation and planning did about the needs of market. Furthermore, MAS should enhance their efficiency in on crisis handling and post crisis management to recover their market trustworthiness towards them. This should be imposed through: 1) Organize training to provide latest knowledges (Usage of safety equipment, first aid) to crew. 2) Organize mock cases for frequent practice to crews.3) Impose regular check practice on the function of available safety equipments. 4) Impose regular check practice on equipments and trchnologies used for communications. These believed will enhance MAS’s crews effectiveness in handling crisis happened and further reduce their possibility of accidents happened in the future. MAS is required to spend a minimum six months till twelve months periods for implementation. The durations incurred allowed them to source for the best trainings which parallel to their knowledges required. The accuracy of strategies provided subjected and time frame estimated will affected by the uncertain changes from time to time.