APPLICATION OF KNOWLEDGE MANAGEMENT IN THE

MALAYSIAN AIRLINE INDUSTRY: A CRITICAL REVIEW

Rain Low Swee Foon and Lum Soo Eurn

SEGi University College
9, JalanTeknologi, Taman Sains Selangor,
Kota Damansara PJU5,
47810 Petaling Jaya
E-mail: rainlow@segi.edu.my

ABSTRACT

Knowledge has been perceived as the key strategic asset of an organization in the current
competitive and unprecedented business environment, particularly in the vulnerable airline
industry which has been tremendously affected by the soaring world oil price. As the future
success of airlines comes to depend on how quickly and flexibly airlines respond to changes
in customer demand, an uncertain business environment as well as competitors’ challenges,
greater emphasis needs to be placed on how knowledge management can bring competitive
advantage for the organization in the form of superior operational effectiveness and strategic
positioning. Knowledge management covers broad and multidimensional aspects like ICT,
organizational learning, intellectual capital (human capital, relationship capital and
structural capital), organization design (complex knowledge), and e-commerce. The literature
review conducted shows that the application of knowledge management in the industry
focuses mainly on the four major constructs, namely ICT, organizational learning,
intellectual capital and knowledge sharing. The objective of this paper is to analyze the
current use of knowledge management in the Malaysian airline industry and to provide a
strategy for the future use of knowledge management in the industry.

1.0 INTRODUCTION

Knowledge is a shared collection of principles, facts, skills and rules embodied within a firm’s
knowledge assets through which competitive advantage is achieved (Stonehouse and
Pemberton, 1999). Managing knowledge is a prerequisite for companies operating in today’s
hyper-competitive and ever-changing environment whose survival and performance is
dependent on their relative speed and ability to develop durable and adaptable knowledge-based
competencies (Nonaka, 1991). Knowledge, while difficult to manage, is a strategic
organizational asset (Shepard, 2000) and according to Nonaka (1991), is the only lasting source
of competitive advantage. Knowledge can be specific or generic to varying degrees (Stonehouse
and Pemberton, 1999). Specific knowledge is unique to the firm and as such, is a more likely
source of competitive advantage and the basis of core competences compared to generic
knowledge which is necessary for operating the business (Stonehouse and Pemberton, 1999).

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The airline industry with its scale, complexity, highly competitive and volatile nature, and its
dependence on knowledge and information as a source of competitive advantage makes an
excellent case for demonstrating how Knowledge Management (KM) is used to gain
competitive advantage. This study specifically explores the following KM-related aspects in
relation to the current and potential use of KM within the Malaysian airline industry.

1.1 Information and Communication Technology (ICT)

ICT enables KM by allowing vast amounts of data to be captured, processed, stored and
disseminated to the right people at the right time. Internet technology, web-based interfaces,
intranets, and portals are key KM infrastructures (Pemberton and Stonehouse, 1999).

1.2 Organizational Learning

Organizational learning represents a conscious effort of the organization to develop and is a

continuing and continuous process aimed at acquiring skills and knowledge (Pemberton and
Stonehouse, 1999). Organizations learn as their individual members learn (Argyris and Schon,
1996) and individual learning is dependent on the organization’s cultural, structure, and
infrastructure context in which it takes place; the context can hasten or hamper the learning
process (Pemberton and Stonehouse, 1999).

1.3 Intellectual Capital

In the competitive business landscape of the 21st century, the new business paradigm of
knowledge is power and a knowledge-era global phenomenon has made intellectual capital
more crucial than financial capital. Intellectual capital refers to intellectual materials that have
been formalized, captured, and leveraged to produce higher-valued assets (Klein and Prusak in
Stewart, 1997). It comprises human resources (skills, know-how, competence), stakeholder
relationships (customers, suppliers, partners, government), and organizational resources
(systems, processes, corporate culture, management style, intellectual property, brands).

1.4 Knowledge Sharing and Culture

This process of KM identifies existing and accessible knowledge, in order to transfer and apply
such knowledge to solve specific tasks better, faster and cheaper than they would otherwise
have been solved (Christensen, 2007). But the willingness to share knowledge is dependent on
organizational culture which is embedded within a firm’s structure, stories and spaces
(McDermott and O’Dell, 2001). KM-friendly organization culture is a necessity for successful
KM implementation. Examples of KM-friendly organization culture are being innovative,
trusting, flexible, adaptable, risk taking, performance-oriented, problem solving, team-oriented,
with appropriate rewards and incentives, sharing information freely, enthusiasm for the job,
tolerant of failure and supportive of superior performance.

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2.0 INDUSTRY ANALYSIS

The Malaysian airline industry is in an oligopoly market structure, where it consists of one full
service carrier (FSC) Malaysia Airline System (MAS) and two no-frills carriers, namely
AirAsia and Firefly. The Malaysian airline industry is tightly regulated by the government and
was dominated by the state-controlled MAS before the government’s domestic liberalization
exercise opened up the market to allow AirAsia to join the industry. Following Porter’s (2001)
generic competitive strategy, MAS and AirAsia operate on different business models. As a full
service carrier (FSC), MAS follows a differentiation strategy and charges a fare premium. In
contrast, AirAsia uses a cost leadership strategy. Due to their different strategic positioning,
AirAsia and MAS differ in their customer value propositions as well as target market segments.
Table 1 provides a summary of the main differentiating characteristics between MAS and
AirAsia.

Product AirAsia (LCC) MAS (FSC) Table 1:

features Product Features of
Brand One brand: low fare Brand extensions: Airasia and MAS
fare+service (O’Connell and
Fares Simplified fare structure, Complex fare: Williams, 2005)
60-70 percent cheaper structure+yield
than MAS’s fares management
Product One product: low fare Multiple integrated product
Seating Small pitch, free seating Generous pitch, seat
assignments
Class One class (high density) Two class (dilution of
segmentation seating
capacity
Check-in Ticketless Ticketless, IATA ticket
contract
Airport Secondary (mostly) Primary
Distribution Online and direct Online, direct, travel agent
booking
Connections Point-to-point Interlining, code share,
global alliances (hub-to-
spoke)
Customer Generally under- Full service, offers
service performs reliability
Inflight Pay for amenities Complementary extras
Aircraft Very high Medium to high: union
utilization contracts
Turnaround 25 minutes Low turnaround:
time congestion/ labor
Aircraft Single type: Multiple types: scheduling
commonality complexities
Ancillary Advertising, on-board Focus on the primary
revenue sales product
Operational Core (flying), extending Extensions: e.g.
activities to tour operations, maintenance, cargo
financial services, cargo

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In year 2001, AirAsia had successfully stimulated and captured the growth of discretionary air
travel traffic by targeting mostly first-time travelers and budget leisure travelers. The business
expansion was tremendous and has since captured a significant market share in South East
Asian countries. AirAsia is currently the leading domestic carrier with 6.5 million passengers
compared to MAS’s 5.4 million. Its low cost strategy and successful positioning strategy in
Asian market that has putting it as the market leader in the Asian airline industry. MAS, despite
being an award-winning airline, has struggled financially in the past and has only recently
completed its business turnaround exercise. Moving on, MAS is embarking on a business
transformation to secure its future competitive position.

Competition between the two is intensifying as both begin to move into each others’ core
markets and engage in price-cutting measures. AirAsia has set up a new franchise airline,
AirAsia X to service long-haul routes and as a defensive move MAS has set up its own LCC,
Firefly (Thomas, 2007). This, in addition to the airline industry’s turbulent operating conditions,
declining yields and increased foreign competition paints a long and difficult road ahead for
both airlines. Competitive advantage will have to be gained through operational effectiveness
and strategic positioning (Porter, 2001).

3.0 CURRENT USE OF KNOWLEDGE MANAGEMENT IN THE MALAYSIAN

AIRLINE INDUSTRY

3.1 Information Communication Technology

The modern airline industry is dependent on ICT for its operations, namely the yield
management system (YMS), computer reservation system (CRS), and enterprise resource
planning system (ERP). The systems also play a pivotal role in generating and integrating
information assets into organizational decision-making and a knowledge building process which
helps to improve airlines’ value chains and operational efficiency. YMS helps airlines to
maximize revenue for each flight and is instrumental in improving MAS’s previously poor
yields. Meanwhile, AirAsia has realized increased revenue (3-4%) for the same number of
aircrafts by leveraging on computer forecasted high/ low demand patterns that effectively shift
demand from low to high periods and by charging a premium for late bookings (Kho et al.,
2005).

The CRS helps to fuel AirAsia’s dramatic growth (from 2.2 million to 7 million passengers
within 2 years) and minimize costs as a direct sales engine by eliminating commissions paid to
travel agents and ticketing and handling costs (AirAsia, 2008). MAS’s e-ticketing is to save it
RM 19 per ticket and e-CRM is helping it to manage its frequent flyer loyalty program and
utilize customer database more effectively (MAS, 2007).

Other KM technologies such as collaboration, mobile work, content management, business

intelligence, business process management (BPM), and knowledge sharing are also employed
within the industry. MAS’s new Integrated Human Resource Management System has helped it
to reduce administration costs, improve data management and increase its HR division’s
efficiency (MAS, 2007). See Appendix 1for on how ICT enables connectivity to multiple direct
sales channels in the aviation industry.

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3.2 Organizational Learning

MAS and AirAsia are continuously learning to gain knowledge, that when applied, will lead to
improved organizational performance. MAS, after its successful business turnaround is learning
to internalize the new ways of working whereas AirAsia is learning to cope with its market
expansion and cost efficiency. Together, they are learning to cope with the difficult operating
conditions faced by many global airline companies. Going further, the organizational learning
context consists of three elements; people, processes and technology.

Staff is a key aspect of knowledge management as knowledge is developed and controlled by

them. According to Ingram and Baum (1997), organizations can learn from their own and their
industry’s experience which MAS did with its diverse business committee team. Both airlines
use an integrated performance management system to improve staff competency and secure
future talent. MAS’s e-learning portal provides it with personalized, timely, current, and
user-centric educational activities via consolidated access to learning and training resources
from multiple sources. MAS and AirAsia both own training academies as part of their human
capital development plans and have made leadership development a priority.

KM has helped both airlines to continuously improve their operational effectiveness by setting
procedures, standards, performance targets and adopting best practices. Efforts are aimed
towards improving the cost structure through more effective yield management and better fuel
hedging strategies. AirAsia, with its aim to become the lowest cost airline in every market that
it serves is relentless in cutting costs. It has clear policies and guidelines covering all areas of
flight operations. Its pilots have managed to lower fuel consumption by 20 % and doubled the
landings it gets from the tires (Ricart and Wang, 2005).

Technology plays a major role in KM. Pemberton and Stonehouse (1999) assert that only those
businesses that keep abreast with technological developments will be able to manage
knowledge effectively; resulting in rapid learning and greater intelligence that will lead to the
generation and sustenance of competitive advantage. MAS’s internal division facilitated the
replacement of its severely inadequate legacy accounting system to result in improved quality
and timeliness of information for management decision-making and significant reduction in
manpower (MAS, 2007). Technology also forms the basis of airlines’ distribution model. Both
airlines are now engaging in a promotional price war via their company websites.

AirAsia and MAS have emerged from their respective double-loop (Argyris and Schon, 1978)
and generative learning (Senge, 1992) with new ways of doing things and new business
opportunities. MAS is using its knowledge from the recently ended business turnaround
exercise to improve its future competitiveness. It has set up Firefly, a new budget airline to
compete more effectively with AirAsia. Through Firefly, MAS also intends to learn the know-
how of managing a low-cost operation before adopting Firefly’s processes into MAS (MAS,
2007). Meanwhile, AirAsia is generating new competences centered on industry learning by
adding financial services, and tour and accommodation to its product offer. It is also expanding
into long-haul flight operations through a new franchise airline.

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3.3 Intellectual Capital

Analysis on the intellectual capital in the Malaysian airline industry can be grouped into three
different perspectives. They are human resources, stakeholder relationship and organizational
resources. In terms of the human resources aspect, AirAsia’s people play a key role in the
success of its low-cost business model. AirAsia trains its employees to be innovative multi-
taskers and team players. AirAsia also stresses internal recruitment and relies on its Human
Resources Department for this. Meanwhile, MAS is moving towards greater employee
empowerment and involvement and is using web-based talent management solutions to support
compliance training, reporting, and performance management across its global workforce. Both
airlines have taken steps to protect their intellectual capital in the event of staff turnover by
having succession plans for key personnel.

Maintaining favorable relationships with stakeholders is paramount for any businesses,

especially in the airline industry, where stakeholders yield considerable power. AirAsia’s
excellent negotiation and lobbying skills with governments, airport authorities, international
partners and suppliers have been critical success factors to the company especially in supporting
its business development and planning strategies. AirAsia, indeed started its business by
tackling the basic flight passengers’ need, which is low-cost; and offered the routes which were
not effectively served competitors. In other words, AirAsia possessed the knowledge
capabilities of identifying what customers want, creating profitable routes under-served by other
airlines within South-East Asia, as well as efficiently increasing flight frequencies in established
and high growth markets. MAS has taken a more proactive approach in engaging its
stakeholders (government, partners and suppliers) through a new External Relations Department
to help meet its various interests. As a result, MAS has entered into various new code-sharing
partnership agreements with other airlines as well as establishing a Suppliers’ Forum for
supplier relationship management. Both airlines also actively engage their stakeholders in their
performance, issues and plans using a variety of means such as the media and intranet to raise
their company profiles and improve communication with employees.

AirAsia regards its AirAsia brand as a valuable asset and has been aggressively promoting it
using bold branding strategies such as high-profile sports sponsorships (such as Formula One
racing and Manchester United Football Club), and charity and community projects to raise
brand awareness in both its current operating and non-operating markets. It has also leveraged
its powerful brand and branding expertise to diversify into financial services, tour and
accommodation. Meanwhile, MAS is using its established premium airline brand to attract and
retain more passengers. Both leverage on their respective expertise in training and development
(AirAsia) and aircraft maintenance and services (MAS, AirAsia) to perform third party work to
generate additional profit streams. MAS’s revenue from third party work grew from RM 100
million in 2005 to RM 300 million in 2007 (MAS, 2007b).

3.4 Knowledge Sharing and Culture

Airlines share knowledge with both internal members and external parties such as financial
institutions, government, commercial partners, suppliers, and customers to establish a powerful
network which they can leverage to their advantage. Through code-sharing and inter-linking

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with other airlines MAS has established a well-balanced network that covers all of its key
markets and this has had a direct positive impact on its bottom line. Communication, trust,
flatter organization structures and supportive information systems are evident in the corporate
culture of both airlines and according to Al-Alawi et al. (2004) are imperative factors for
knowledge sharing to take place. MAS and AirAsia are using their intranet and other informal
communication channels such as email, memos and bulletin boards to breakdown
communication barriers. Silo mentality is counterproductive to the sharing of knowledge as the
focus is inward and information communication is vertical. Acknowledging this, MAS has
stressed on open and honest communication, effective consensus building and teamwork. This
includes setting up a formal whistle-blowing policy, cross-functional business committee teams,
constant communication and disclosure of business plans to employees. Its CEO heads the
special committee tasked with transforming MAS’s corporate culture and sends emails to
employees in his effort to communicate his new vision for the company’s culture. Meanwhile,
since its takeover, AirAsia has always practiced open management and provides above average
industry disclosure (AirAsia, 2007). AirAsia’s informal team culture also helps organizational
members to bond, which according to Nonaka (1994), helps to facilitate knowledge sharing.

4.0 STRATEGIES FOR THE FUTURE USE OF KNOWLEDGE MANAGEMENT

Effective implementation and application of KM among organizations are critical in the current
knowledge-based economy. Moreover, in the current climate of continuous change and
uncertainty, airlines face critical problems and serious challenges (Doganis, 2006). New
knowledge (especially strategies) has to develop regularly in order to stay competitive in the
industry. The future success of airlines will be largely dependent on how quickly and flexibly
airlines respond to both competitive and market changes (Franke, 2004). Competitive advantage
as mentioned by Porter (2001) can be achieved through operational effectiveness and strategic
positioning. The firm’s unique knowledge provides the main source of its competitive
advantage; allowing it to combine conventional resources in distinctive ways and provide
superior value to customers (Saito et al., 2007).

It is believe that ICT will continue to be the central element in most knowledge management
implementations in this competitive market. ICT will help airlines to automate and streamline
processes to reduce complexity and costs as well as to provide greater convenience to the
transportation of passengers and freight. Through the integration of knowledge management
system and customer relationship management system, ICT will assist airlines in enhancing
their transaction-data processing, to make better informed decisions, value-added customized
products and services, improve customer-based knowledge and value-driven relationship
building.

ICT will support both codification and personalization knowledge management strategy which
it is used to create, capture, process, store and disseminate knowledge to organization members
and other authorized parties. Instant messaging, chat rooms, and expertise location applications
for example, provide individuals with tailored learning for more effective knowledge transfer.
Social networks that form the basis of an online corporate-wide directory are embedded with
instant messaging and e-mail links that provides a valuable resource for employees that go
beyond the corporate directory (Powers, 2006). This will enable employees to locate a network

18
of experts to collaborate with or get help from better informed people to solve business
problems or form communities of practice. Another ICT device, the asset management solution
is a knowledge sharing program which has a series of repositories that contains intellectual
capital, key resources, and discussion forums that all support the business and provides a place
for staff to access and retrieve knowledge. In short, communication and collaboration
technologies like video conferencing and groupware will assist knowledge creation at the group
level (Saito et al., 2007).

Continued advancements in pricing and revenue optimization system will help airlines to
maintain their competitiveness and increase their profit margin. Promising technologies like
radio-frequency identification (RFID) when realized will also bring significant improvements to
FSC’s baggage handling system (MAS, 2007b). However, for strategically important
knowledge to be distributed rapidly around organizations, ICT based knowledge management
system needs to be combined with learning from direct experience.

Organizational learning is vital as airlines seek to acquire new knowledge and upgrade their
core competences in order to give them competitive advantage over rivals. This can be
achieved through many means such as acquiring more knowledge workers, training and
development, knowledge sharing, strategic alliances, corporate intelligence, e-learning,
benchmarking, and learning from direct experiences. It is highly useful for airlines to adopt a
learning cycle framework which combines both active and passive stages of learning.
According to Honey and Mumford (1989), the learning process will help organizations to learn
more effectively. Successful KM leaders like BP use the framework to capture lessons before,
during and after any event (Science Applications International Corporation (SAIC), 2008). The
learning process can be supported by simple process tools embedded within the company’s
intranet with lessons arising from the learning loop agreed and distilled by a community of
peers across the organization that has a stake in agreeing and defining organizational best
practice (SAIC, 2008). Both specific and generic lessons are then incorporated into special
folders on the corporate intranet, where they represent a living focus for the company’s
experience around strategic and operational areas (SAIC, 2008). This however will not truly
give airlines the competitive advantage that they seek from their learning processes. In order to
achieve this, organizational learning must be carefully charted and be given a strategic
perspective by knowledge experts such as a Chief Knowledge Officer (CKO). The CKO
identifies the organization’s knowledge needs (knowledge sourcing); finds ways to meet that
need (knowledge abstract); identifies and refines various ideas and principles into specific
outcomes (knowledge conversion), shares and distributes the knowledge (knowledge diffusion)
as well as regularly monitoring and accessing the necessity of new knowledge development.
Acquiring knowledge workers is also the core factor for airlines to achieve and sustain
competitive advantage. Knowledge workers are value creators and value adders to
organizations, and their major contributions come from their abilities to process and apply
knowledge and information (McFarlane, 2008) to create distinctive advantage for organizations
and thus, achieve competitive advantage.

In order to fully capitalize on the vast amount of knowledge captured within their knowledge
repositories, local airlines need to assign dedicated experts such as a CKO to leverage
organization-wide knowledge. The creation of a CKO position also sends an important signal to

19
the organization that knowledge is an asset to be shared and managed (Stuller, 1998). However,
this can only be implemented effectively within a knowledge- friendly organization structure
with an existing strong knowledge culture. Great concern has been raised regarding the
protection of potential intellectual capital lost due to staff turnover (DeLong, 2004) and to
ensure continued organizational effectiveness, airlines need to preserve their corporate memory
by capturing knowledge and facilitating the transfer of both explicit and implicit knowledge
between staff (Al-Hawamdeh, 2002). Possible KM tools and techniques to deal with this
problem include the use of ICT, meetings, mentoring, learning logs, and job profiling. KM will
continue to play a critical role in managing customer relationship and competitive intelligence
(Al-Hawamdeh, 2002), focusing on the speed and manner in which information is being
collected, processed and disseminated to the right people, at the right time and right place and
how airlines will best respond to such information in competitive terms.

Airlines will also be looking into how to encourage knowledge sharing within the organization
and build a supportive culture to enable this. As most KM models are formed in the context of
Western framework and management practices, local airlines may need to raise awareness and
understanding of KM in order to reduce people’s reluctance to share their knowledge
(Chowdhury, 2006). This can be done through various means such as corporate-wide
campaigns, employee education, leadership by example, and appropriate reward systems.
Although the industry has been promoting a culture of transparency, trust and teamwork, the
practice of knowledge sharing is still at an early stage. Hence future KM efforts will see the
implementation of groupware that will promote greater collaborative efforts and assist in
creating and supporting communities of shared interest and information need. Knowledge
repositories will continue to be of importance to airlines and in the near future should include
lessons learnt from best and worst practices and other relevant information.

A knowledge transfer department or other infrastructure should also be considered to oversee

the development and maintenance of the organization’s knowledge base (Liebowitz, 1999).
Social networks whose features include message boards, blogs, live chat rooms, and podcasts
will help to breakdown hierarchical barriers and promote informal communication channels.
This will in turn help to create, coordinate, and transfer organizational knowledge. In order to
ensure a knowledge sharing culture, airlines will also need to maintain their lean, flexible
organization structure and motivate their people to share knowledge by rewarding those who
contribute useful information into the system.

5.0 CONCLUSION

The knowledge era business environment has made businesses heavily reliant on knowledge to
stay competitive in an industry. The amount of information created is overwhelming and the
knowledge produced has become more complex and complicated. This paper discusses the
basic, yet important aspects of KM for the airline industry. Our literature studies concluded that
generic knowledge is necessary to run the industry’s complex daily operations whereas specific
knowledge is imperative for airlines’ competitive advantage. MAS and AirAsia, which operate
in an oligopoly market structure in Malaysia practice KM to support their respective
competitive business and strategies. Their oblique approach to KM does not necessarily mean
KM is being perceived as of low importance in the industry, but rather as something that

20
requires gradual application and implementation by systematically incorporating KM tools and
techniques into their existing stage of business. ICT has been used in innovation, knowledge
development, knowledge utilization and knowledge capitalization, which in turn has produced
unique business strategies, lowered the cost of operation of airlines and increased organizational
efficiency. Meanwhile, organizational learning has led to new, improved modus operandi and
new business development for both airlines. Similarly, both airlines manage and leverage their
intellectual capital to their maximum advantage. However, with the challenging road ahead in
the airline industry there is an increasing need to maintain competitive advantage and to
progress beyond the industry’s current state of KM. AirAsia’s KM practices will need to
support its expanding business besides sustaining its cost-leadership advantage in the industry;
whereas MAS will have to face challenges of its hybrid strategy of competitive pricing
strategies and differentiation which may allow the market to recognize its branding efforts as a
five-star value carrier. Hence the “now” and “then” gaps represent the future void that KM
needs to fill today.

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 Appendix 1
(Centre for
Asia Pacific
Aviation, 5
April 2005)

24