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Part 3 | Redesigning work process

Posted by Ariya Furkfon

Ariya Furkfon

In the previous article, Ariya revealed the importance of how human resource management impacts business competitiveness in the aviation industry. Today he explains the strategy to decrease Cost of Available Seat Kilometres (ASK) in Low Cost Carriers (LCCs) comparing to Full Service Carriers (FSCs) or network carriers which depends on asset management and operating cost management.

“Regarding Hay Group’s study, we found that asset management strategies of low cost carriers are just simply as buying cheap, utilizing worth and repairing economically. Buying cheap means trying to buy cheaper cost along aircraft acquisition processes, starting from buying the aircraft directly from the manufacturer in large volumes and in advance. As there are only a few aircraft manufacturers, airlines need to queue up orders in advance. If the airline does not want to wait, it has to buy through intermediary agents which results in higher costs. For some airlines which have low cash flow, ordering in advance might not be worth it financially as they need to pay a deposit. Some low cost carriers face this issue as well, but they solve the problem in different way. They make money by creating attractive promotions where customers need to book the air ticket almost a year in advance. This way, low cost carriers are able to make revenue since the aircraft has not been finished yet, but they are also able to capture future customers’ needs, compete with competitors and create differentiation.

To keep their asset prices low, LCCs try to decrease assembly time by designing and decorating the cabin simply and focusing on usability such as through having only one type of seats which are simple but durable throughout all aircrafts. They also try to increase the number of seats by reducing unnecessary areas such as kitchen area. Thus, the aircraft is easy to assemble and repairs can be carried out. Meanwhile, FSCs focus on market differentiation, thus their aircraft are designed differently focusing on presenting unique identity, convenience and comfort which require a longer time to assemble and also higher costs.

LCCs try to utilize worth by minimizing the amount of time that the aircrafts is on the ground. They choose to land in smaller airports which have less air traffic to save time in landing and departing with also saver cost. After landing, cabin crews need to clean the cabin themselves. As the seats are designed simply it is easy and quick to clean. As full service carriers have more sophisticated services under complicated designs, they need to have cabin cleaners for cleaning the cabin in order to retain comfortable for next customers, this costs more and consumes longer time. Moreover, cockpit crew from low cost carriers has to plan for their next flight after landing instantly due to busy and tight flight schedule. According to the aviation rules to prevent fatigue, cockpit crew is not able to have more than 1,000 flying hours per year or approximately 82 hours per month. Therefore some low cost carriers have a 3×4 shift roster pattern, which means flying for 3 days followed by full rest of 4 days, while some full service carriers arrange to have 5×2 shift roster pattern. The difference is that the 3×4 shift roster does not require changing cockpit crew between flights, while cockpit crew of the 5×2 does not have many flight hours per day but have less full rest days.

Another factor that can decrease aircraft on-ground time is time taken to board passengers. It was found that non-assigned seat numbers like musical chairs not only reduce administrative costs and systems, but also reduces the time taken for boarding, while assigned seat numbers require a longer time as passengers take time search and wait along corridor for their seats. Another factor decreasing boarding time is the on-ground service process, which takes less time if there is less baggage loaded into and reloaded from the aircraft.

Repairing economically is one of the key factors directly impacting the airline business in terms of safety, utilization and cost. With the exception of fuel cost, repairs and maintenance cost is the 2nd largest operating costs contribution following by the 3rd largest as labor cost. However, different from other machines aircraft manufacturers as seller and airlines as buyer need to come to an agreement before delivery the aircraft, that buyer have to maintains and repairs aircraft properly according to the manufacturer’s standard strictly, this will also be controlled by the country’s laws as well thus we can be sure that every airlines, no matter whether they are FSCs or LCCs, have the same safety standards as if they strictly follow country’s aviation laws/regulations and manufacturers’ standard.

As airlines try to utilize the aircraft as much as possible and have effective repairs and maintenance, they decrease average age of aircrafts. In exception of real flying hours, aircrafts in FSCs have average age of around 12 – 15 years, while aircraft in LSCs have around 5 – 9 years. At AirTran, aircraft has the lowest average age of 2.3 years. Their strategy is to buy cheaply and utilize the aircraft at utmost frequently, thus the breakeven point is earlier. Furthermore, the simple design which results in fleet harmonization makes it easier to maintain and repair. Many LCCs use outsource services for their maintenance activities however maintenance plan, regular engine inspection and spare parts management are managed by themselves. LCCs have aircraft from the same manufacturer, with the same specifications such as aircraft series, engines, and decoration thus it is more cost effective and easier to maintain and repair. While FSCs have aircrafts with longer average age, the aircrafts are from different manufacturers with different aircraft series, engines, decoration, and in addition manufacturers have stopped producing certain devices. For example, AirAsia outsources maintenance and repairs in Malaysia and Singapore, but uses centralized spare part management and maintenance plan from other companies under group to increase their negotiation power to save cost. Other AirAsia subsidiaries also deploys the same strategy, thus the airline is able to manage its maintenance plan easily. In addition, they bring their own spare parts for the outsource company to use, thus they can manage lower maintenance and repair cost comparing to FSCs.

From Hay Group’s study above, it can be concluded that key differences between FSCs and LCCs is not the aircraft, but the concept of business management, especially in organization and people area which can be covered in an umbrella of human resources management. It is indeed the key differentiator in airlines in today’s competitive business landscape. In the next article, Ariya will reveal in details about people management in aviation.

Missed any of the previous articles in the series? Catch up here:

Part 1 | Great people management makes the difference

Part 2 | Business competitiveness

 

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