Improving Airline Operational Performance through ...

Improving Airline Operational Performance through Synergy between Internal and External Suppliers Yudi Fernando

Mahmod Sabri Haron

Dept of Marketing School of Management, Universiti Sains Malaysia Penang, Malaysia Email: [email protected]


Norizan Mat Saad

Suhaiza Zailani


Dept of Operation Management Graduate School of Business, Universiti Sains Malaysia Penang, Malaysia Email: [email protected] there are many internal service issues that undermine the organisation’s ability in its attempts to improve the level of service provided to its external customers. It probably leads to the more complicated ISQ study. The remainder of the paper is organized as follow. Following this introduction, Section two presents the review of literature. Furthermore, section three presents the methodology and the results ensue in section four. Finally, this paper concludes with a discussion of the subject matter concerned.

Abstract Drawing on information from secondary and primary data, this study examines the role of supplier relations as the moderator to enhance the relationship between the internal service quality and operational performance. Several measurement instruments are developed and used to investigate the relationship. Data was collected from mixed method. A solid synergy between the LCC (Low Cost Carrier) and supplier are hard to duplicate by competitors. Results noticed that the lack of trust could be the barrier for the implementation of collaboration.

II.

Keywords: Low Cost Airline, Internal Service Quality, Supplier Relations

I.

LITERATURE REVIEW

A. The Supplier Relation on Internal Service Quality and Operational Performance The previous studies had found that the benefit of improving the internal service quality will improve the company’s competitiveness (3). Besides that, the LCC has created a partnership system to improve the service and gain a better performance in the industry. One type of partnership is supplier relations (SR).

INTRODUCTION

The synergy between internal employees and suppliers has created value to enhance organizational productivity. Nevertheless, the synergy between internal employees and suppliers in producing quality service needs to be frequently evaluated, especially during service processes. This is to enhance organizational effectiveness and provide excellent service to the customers. The firms will know the parts that need to be improved; if necessary an organization may also be inclined to search for an additional supplier and terminate the existing one because of inefficiency. The firms need to put attention on supplier relations since the formulation of a business model has changed rapidly in the last decade.

Frontier airlines have developed supplier relations to overcome the complicated service process. However, the inconsistency of findings has been recorded between supplier relations and performance. Some weak relationships have been found between supplier and performance improvement. Besides that, they do find a stronger support for a better performing company that have higher levels of collaboration than other companies (4).

The firm can hardly escape from integrating its operations with business partners, hence, organization’s overall performance of end products or services is significantly affected by those outsourced service providers performance (1). The main objective here is, thus, to test the moderating effect of supplier relations on the relationship between internal service quality (ISQ) and operational performance (OP) in the low-cost carrier industry. An excellent airline service quality begins from the high level of ISQ. According to reference (2)

Best airline practices have employed supplier which is responsible to support service and improve performance. Despite the condition whereby many researchers have explored a lot of contributions from the suppliers in business success, little attention is still given to the supplier relations as intervening the inter-connection between ISQ and OP.

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Scholars (5) suggest that future research would possibly consider the potential moderator in the relationship between ISQ and ABP (airline business performance).

guide was created, focusing on both negative and positive critical incidents. In addition to the semi-structured interviews, a questionnaire was used to collect the profile of respondents.

H.1: The ISQ and ABP relationship is stronger when SR is higher

The interview protocol in the current study had followed the scholar’s (7) procedure: a) Indicate to the interviewee with an authority on the interview that was being held; b) Make a statement about the purpose of the study; c) Mention to the interviewee about the anonymity of the data; d) The main “question” should state that an incident or actual behaviour is desired; e) Allow the interviewee to do most of the talking and avoid asking leading questions; f) Ask follow-up questions to ensure that a comprehensive and detailed account has been given.

H.1.a: Employee competence and operational performance relationship is stronger when SR is higher H.1.b: Employee competence and financial performance relationship is stronger when SR is higher H.1.c: Employee competence and marketing performance relationship is stronger when SR is higher H.2.a: Minimizing poor service process and operational performance relationship is stronger when SR is higher H.2.b: Minimizing poor service process and financial performance relationship is stronger when SR is higher H.2.c: Minimizing poor service process and marketing performance relationship is stronger when SR is higher

b). Qualitative Method: Benchmarking However, to get more exposures on BP measurements, the benchmarking study had been conducted. The benchmarking process in a study used the secondary data which was drawn from published annual reports (period 2005-2009). The worldwide best low cost carrier practice used the set of airlines sampled from Skytrax survey results. It was the top-two low cost airlines in those regions. The regions include Europe, Asia, Africa, Australia-Pacific, Middle East, North America and South America. The airlines are ranked by Skytrax, the World’s Best Low-Cost Airline survey results in 2007(8). The researchers identified the words and phrases that were important in the ABP. The words or phrases were selected through the units of interest by categorizing and analyzing the results from the annual report. It was a process called content analysis.

H.3.a: Safety and operational performance relationship is stronger when SR is higher H.3.b: Safety and financial performance relationship is stronger when SR is higher H.3.c: Safety and marketing performance relationship is stronger when SR is higher H.4.a: Punctuality and operational performance relationship is stronger when SR is higher H.4.b: Punctuality and financial performance relationship is stronger when SR is higher H.4.c: Punctuality and marketing performance relationship is stronger when SR is higher III.

Reference (9) analyzes the communications content of the chairmen's statements in the annual reports. The sample of his study is on investment companies quoted on the London Stock Exchange. The content analysis is an unobtrusive observational technique. This is to evaluate systematically the symbolic content of these messages in the context of the commercial environment in which they are sent and received (9).

METHODOLOGY

a). Qualitative Method: CIT Data Collection A convenient sample of employee in the LCC organization was acquired through the international call-phone interview. The researcher contacted the respondents from Penang, Malaysia all the way to the wide range of cities in Indonesia. The sample comprised of managers working in LCC airlines. The list of airlines and contact numbers was issued by the Indonesian Directorate General of Civil Aviation (DGCA) and obtained from online yellow pages.

c) Quantitative The top five LCC airlines in Indonesia composed the population studied in this research. The study had conducted surveys in the top five cities in Indonesia. The cities which had participated in this study were Jakarta, Surabaya, Denpasar, Makassar, and Medan. An instrument was developed from the literature review, results of benchmarking, and expert review (academician & practitioner).

Letters of invitation were sent by email. The letters was in the form of file attachment with the PDF format. The interviewees were then encouraged to tell their stories. The situations explored were those deemed memorable and more likely to be faithfully recalled (6). The interview lasted from 30 to 40 minutes. The interviews were conducted by using an electronic-recorder. The data was transcribed. An interview

Each item was measured using a seven-point Likert scale. At the time, the draft was completed and effort was made to conduct pre-testing of the questionnaire. Questionnaires were prepared in English then translated into the national language of the participating countries. Bahasa Indonesia is an official language in Indonesia.

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manager (24.4%) and only 15.8 percent of managers are employed in their age of less than 25 years old.

The top five LCC airlines in Indonesia composed the population studied in this research. The cities involved were Jakarta, Surabaya, Denpasar, Makassar, and Medan. After conducting some observations and having learnt the Indonesian LCCs organizational structure, an average total of five cross-sectional managers were identified.

A. The Moderating Effect of Supplier Relations on the Relationship between Internal Service Quality and Operational Performance The moderating effect of supplier relations on the relationship between internal service quality and operational performance is shown in Table 1. Model 1 shows the regression analysis with the control variables. There are two control variables; the types of flight operated and Indonesian ownerships. The model is significant with R²= 0.085, adjusted R²= 0.075, R² Change= 0.085 and F change= 9.078. It is found that the control variables have contributed to the model.

The estimated population in this research was approximately 50 (10 x 5) managers and assistant managers of LCC in the top five biggest cities of Indonesia. The totals of 500 (10 x 5 x 10) respondents were identified from five LCCs’ heads of departments. The quantitative data was collected through the questionnaires, and they were attached to the mail survey technique. Two control variables were included in this studythose are: type of flight and ownership. Data was later processed and analyzed by SPSS 16. IV.

TABLE I. THE MODERATING EFFECT OF SUPPLIER RELATIONS ON THE RELATIONSHIP BETWEEN INTERNAL SERVICE QUALITY AND OPERATIONAL PERFORMANCE

RESULTS

This study employs the mixed method analysis. There are two qualitative studies that have been accomplished. First, the interview section has been conducted with LCC managers. The 23 managers had described a total 163 incidents. 120 (73.6%) gave accounts of some positive incidents and 43 (26.4%) told of negative incidents. The critical incident technique was used to determine the ISQ measurements.

Step 1Æ Control Variable (s): Medium and Short-haul Indonesian Owned Step 2 Æ Predictor (s): Employee Competency Service Process Punctuality Safety Step 3 Æ Moderator: Supplier Relations (SR) Step 4 Æ Interaction (s): Employee Competency x SR Service Process x SR Punctuality x SR Safety x SR R² Adjusted R² R² Change F F Change

The second being the content analysis, and the results were gathered based on top two annual reports. It was done from the benchmarking technique. The aim of the benchmarking study is to analyze the best practice in a similar industry. The benchmarking has been conducted to examine the OP indicators. The OP measurements were gained from the top two of worldwide (six regions)’ low cost carriers’ annual reports. Out of thirty seven items, three indicators were derived to be the measurement of the operational performance. It was gained from the high frequency that had been mentioned in the content analysis. After conducting two qualitative studies and gaining the measurements, the survey data was processed in the quantitative analysis. To fulfill the goodness of the data, the factor analysis and reliability test were presented. Two separated factor analyses with varimax rotation were done to validate whether the respondents perceived the predictor and criterion variables which were distinct constructs. The reliability results also met the good criteria which found cronbach alpha to be more than 0.70. The profiles of respondents were described. Most of the LCC managers have less than five years’ experience (64.1%) with the airline industry, whereas those with 6-10 years (25.8%), 11-15 years (5.3%), and more than 15 years experiences (4.8%). The management prefers to employ managers in the age range between 25 to 30 years old (34.4%), then the next age range preferable is 31 to 35 years old (25.4%), 36 to 40 years old

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Model 1 (β)

Model 2 (β)

Model 3 (β)

Model 4 (β)

.270***

.162**

.135*

.123*

-.041

.043

.021

.029

.154**

.170**

-.282

.231***

.246***

-.681*

.233*** .340***

.249*** .316***

.913** .758*

-.120* -.449

.722 1.496** 1.097* .085 .075 .085 9.078*** 9.078

.522 .507 .437 34.934*** 43.889

.535 .518 .013 31.385*** 5.346

-.635 .563 .538 .028 21.919*** 3.025

Note: *p