Countries, industries, and business units use productivity as a measure of how well it is using its resources. A large part of operations management is ensuring efficiency in the way a firm’s resources are allocated and used. AirAsia, a company that generated almost MYR 12 billion in revenue in 2019, undoubtedly has impeccable management of the factors that affect its productivity in order to generate a revenue of that scale. Here are the four factors that affect productivity – capital, quality, technology, and management – and how AirAsia manages and utilizes them.

1. Capital

Capital is the resources a company needs to produce the goods or services that it offers. Continued advancement and competitiveness in most industries are achieved via consistent investment of capital, which is an essential part of improving business productivity. In 2018, AirAsia reinvested 2017’s profits into buying planes, and with 21 new aircraft, they managed to fly 73.1 million guests in 2018, which is 15% more than in 2017. This is because their Available Seat Kilometre (ASK) increased by 17%, and they managed to hit their full-year load target of 85%. This is an example of how AirAsia reinvests its capital to increase productivity. AirAsia had a profit of MYR 1.7 billion at the end of 2018, and some of that was reinvested into projects such as upgraded technology for AirAsia’s fleets, digital-based ventures, finance-tech industries, and other travel and lifestyle projects. AirAsia was strategic in the reinvestment of this profit, and other than increased efficiency in regards to the operations of their flights, AirAsia also managed to obtain net profits of MYR 353 million and MYR 9.049 billion from the cash flow from operating and investing activities respectively. These profits can be reinvested to ensure higher productivity in other departments of AirAsia’s operations.

2. Quality

The second factor that affects productivity is quality. Quality management refers to the firms’ constant improvement of their services, products, and systems so that the offering is constantly at its best. This is in line with the organization’s constant pursuit of excellence and achievement of goals for its stakeholders. Quality management practices positively affect business performance and productivity. The Chartered Quality Institute suggests that quality management consists of the (1) company’s firm governance in defining its aims and the translation of those into actions with quantifiable results, (2) standards and systems to ensure that operations stay on track, and (3) constant proactivity in the improvement of those operations. AirAsia practices all three of these quality management suggestions. AirAsia is constantly improving on selling affordable and reliable air travel at a convenient, accessible location (online). The assurance that customers get is timely air travel on a well-maintained aircraft, with hospitable flight attendants to make sure customers have a comfortable flight. Of course, in the air travel industry, numerous things can do wrong, and when things do, AirAsia holds itself accountable and works on being responsive to and resolving customer conflicts.

3. Technology

Technology is also an important factor that affects a firm’s productivity. The presence of better equipment and technology not only greatly increases a firm’s productivity advantage, but also narrows the productivity gap with its competitors. AirAsia, a company that aspires to allow everyone to fly by providing excellent air travel services at affordable fares, invests in air-travel technology to ensure that productivity is increased every year and that their mission is being fulfilled. One example of a technological investment that AirAsia made in 2019 is the upgrade to a more advanced engine, the LEAP-1A, to power the Airbus A320neo and A321neo airplanes. This investment resulted in an improvement of fuel efficiency by 15%, and therefore an increase in cost savings in AirAsia’s bottom line. Overall, investments in technology led to an increase in the efficiency of AirAsia’s allocation of resources.

4. Management

The last factor that affects productivity is management. The proper management of human talent and technology greatly affects the productivity and effectiveness of the organization. Human capital is an important part of the sustained development, growth, and productivity of a firm. AirAsia heavily invests in the training and wellbeing of its employees. AirAsia Group CEO Tony Fernandez constantly posts about how he appreciates the AirAsia staff, who are called Allstars, on his LinkedIn page, constantly highlighting their outstanding work and thanking them. AirAsia’s 2018 annual report talks about Allstars being AirAsia’s most valuable assets because it is due to their passion and hard work that AirAsia overcomes obstacles and manages to turn opportunities into productive results. This acknowledgment and emphasis on the staff’s wellbeing raise the morale of the staff and this results in their personal investment in the company because they know that they are valued at AirAsia as individuals with valuable contributions.

Recommendations

To maximise productivity and the efficiency of its resources, AirAsia should establish critical operations, develop proper measures for productivity, measure and analyse improvements, set reasonable goals, and ensure the management’s support is sufficient. One particular goal that should be set is the better management of flight operations. One complaint that often makes its rounds on social media is the complaint that AirAsia’s flights are not on time. Better management of flight operations means smoother flights and fewer complaints. This results in more flights being completed in the same amount of time, more revenue due to fewer refunds, and better utilization of an employee’s time because of the decrease in customer complaints to resolve. This ultimately results in more efficient use of AirAsia’s resources, and with that comes a very likely increase in their productivity.

It is a challenge to efficiently manage these four factors that affect a firm’s productivity. However, based on AirAsia’s performance and the fact that in 2019, they won their 11th consecutive World’s Best Low-Cost Airline award from Skytrax, it is safe to say that they are not only good at managing these factors, but excel at it as compared to their competitors in the low-cost airline industry.

Sources

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