Blog Article

Part 2 | Business competitiveness

Posted by Ariya Furkfon

Ariya Furkfon

From the previous article, Ariya Furkfon, Managing Consultant at Hay Group, revealed that great human resource management makes the difference in airline industry. Today he reveals the competitiveness of the airline industry. In the beginning, the industry had limited airline routes to prohibit overlapping routes (similar to bus concessions) and flying across territorial skies in order to protect the airline industry which requires high investment, of which some are National Flag Carriers. This industry directly supports the economic development of the country. Afterwards the Open Skies Policy was expanded in order to increase business agility, safety and customers’ convenience; however the policy resulted in a fiercer competitive landscape for airline industry.

This intense competition has resulted in divisions in the airline market segment, with more choices for customers. At first there were Full Service Carriers (FSC) and Low Cost Carriers (LCC), later there was further segmentation with Budget Airlines and Light Premium. Moreover, it appears that for the past 30 years, air ticket prices has decreased more than 50 percent compared to inflation and is likely to continue decreasing. The airline industry’s growth thus not only depends on new routes opening up or marketing campaigns but also on strict capital management.

From Hay Group’s analysis, we found that the Cost Available Seat Kilometers (CASK) of legacy airlines is higher than newer established low cost airlines; as shown in figure 1.

Airline industry blog

Figure 1 Capital effectiveness development

In detail of cost components, Thai AirAsia strictly manages 4 areas which are labor, aircraft & fuel, infrastructure and product distribution overhead; as shown in figure 2. This has made AirAsia’s ASK the lowest cost in Asia.

Airline industry blog

Figure 2 Cost different compared to Thai AirAsia

The Low Cost Carriers cost cutting per unit strategy has been divided to 2 aspects. The first one is capital asset management. This includes lowering the cost of aircraft providing and maintenance cost. Another one is operating capital management which is the lowering of costs in distribution, fuel, crew and ground services. In the following article, Ariya will explain on how FSC and LCC differ due to work design and human resource management.

If you missed part 1 in the series of articles, read it here.


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