Gingerbread
23rd Jul 2009, 23:48
The following extract from a McKinsey article on the value of flexibility clearly indicates that QF's present inability to swiftly reallocate aircraft together with the pilots required between market segments will continue to hamper its ability to profit from changing consumer demand.
The value of flexibility
Corporations rethinking their operational footprint often consider only a single set of cost, profitability, and demand assumptions. McKinsey’s client experience shows what’s missing: a careful assessment of the value of operational flexibility. Flexibility can take a variety of forms—the ability to adjust production volumes efficiently, to change the production mix among different products or models, to move production from one location to another, or to reconfigure the timing of production, for example. Such strategies help companies respond to changes in local demand, currency levels, labour rates, tariffs, taxes, transportation costs, and so forth.
Consider a heavy-equipment corporation trying to decide between two potential strategies involving moves such as new operations in foreign countries and reallocating the mix and capacity between existing operations.....the company’s original analysis of options A and B—without taking flexibility into account—suggested that option B made the most sense, given its higher net present value and lower unit costs (shown on the exhibit’s vertical axis and calculated within an 80 percent confidence interval). When the analysis factored in the increased risk from currency exposure and transportation costs, however, option A emerged as the better bet. Copyright McKinsey & Company, 21 South Clark Street, Chicago, Illinois 60603
As an employee shareholder I am concerned that QF's segregation of its pilots will cost it much more than the IR savings it produces.
The value of flexibility
Corporations rethinking their operational footprint often consider only a single set of cost, profitability, and demand assumptions. McKinsey’s client experience shows what’s missing: a careful assessment of the value of operational flexibility. Flexibility can take a variety of forms—the ability to adjust production volumes efficiently, to change the production mix among different products or models, to move production from one location to another, or to reconfigure the timing of production, for example. Such strategies help companies respond to changes in local demand, currency levels, labour rates, tariffs, taxes, transportation costs, and so forth.
Consider a heavy-equipment corporation trying to decide between two potential strategies involving moves such as new operations in foreign countries and reallocating the mix and capacity between existing operations.....the company’s original analysis of options A and B—without taking flexibility into account—suggested that option B made the most sense, given its higher net present value and lower unit costs (shown on the exhibit’s vertical axis and calculated within an 80 percent confidence interval). When the analysis factored in the increased risk from currency exposure and transportation costs, however, option A emerged as the better bet. Copyright McKinsey & Company, 21 South Clark Street, Chicago, Illinois 60603
As an employee shareholder I am concerned that QF's segregation of its pilots will cost it much more than the IR savings it produces.