Low Cost vs. Traditional Airlines
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Low Cost vs. Traditional Airlines
Found this article the other day. I know it is long, but quite interesting though.
------------------------------------------
Part 1
------------------------------------------
Speech given by Captain Otto Lagarhus at the International Aviation Conference at Sola near Stavanger, Norway.
Preface.
In this speech I critically examine the "typical" low cost operator that we see in the European air transport of today. Then I outline the structure of an "ideal" operator, eminently suited to challenge the traditional airlines of Europe. Lastly, I give my view on the ability of the traditional airlines to meet challenges of the new competitors, before arriving at my conclusion. The speech is intended to provoke, and as a consequence stimulate to debate and discussion.
History.
The airline industry is a young industry. It has been well regulated and protected, and this was probably necessary during the establishment of operations at a satisfactory level of safety.
However, like in any protected industry, the protection resulted in the airlines becoming fat and lazy, and the cost and effectiveness left a lot to be desired.
Basically, the airline industry is still regulated in many aspects, and here in Europe we still have not seen any real competition for the major airlines. Duopolies with identical, high fares are more the rule than the exception.
Things are starting to change, although slowly. Monopoly and duopoly routes are being challenged, and the fight for the customers is gradually intensifying.
The large airlines are forming alliances in order to protect or increase their market share. However, this only gives temporary relief through large-scale synergies in marketing and to a certain degree in operations. But soon the competition also forms alliances, and in the end, the competitive power of each entity is restored and balanced. Pooling airlines together tends to cover and distort their internal inefficiency, and hide this from the board and owners through a temporary greater power in the marketplace.
I claim that the major airlines of Europe - with no exception - are basically inefficient operators with outdated organisations and infrastructure, emanating from 50 years of regulation after WW2. I believe a lot of you agree with this observation.
And so, everybody is waiting for the airline version of the Lone Ranger - the Low Cost Operator. The established airlines and their large employee groups are downplaying the effect that the emergence of the real Low Cost Operator will have. And some are fighting the concept, claiming that low cost is low quality and hence, low safety.
But - read my lips - we have seen nothing yet. Because the REAL competitor, the low cost high quality operator has only emerged in extremely scarce numbers.
Today's low cost operator.
Is it low cost or just low quality..?
I claim that many of the so called low cost operators actually are low quality and even high cost operators, with no lasting competitive power in the airline industry.
Let's look at a typical low cost operator, as we perceive it today. To best do this, I will examine a fictive operation, and why not call it Typo Airlines.
Typo Airlines is presently getting quite a good press. Upstart, cheap, effective etc. A real competition for the SASs and Lufthansas of this world, is the word in the national newspaper, and even in certain international publications.
But a closer look into the Typo Airlines organisation and operation actually gives amazing conclusions.
Ownership and finances.
Generally, the owners have provided insufficient start-up and operating capital. This means that money must be borrowed at interest rates higher than necessary. Nothing low cost about the financing - but probably a percentage or two higher capital cost than an established airline.
The management.
Inexperienced although enthusiastic. But the inexperience, impatience and lack of management tools & support result in lots of time and energy spent on "fire fighting". They really want a larger support staff, and strive to build a "real airline administration".
Again, TYPO Air has no major advantage over the established airline, although there is some cost savings if you directly compare salary to salary.
The fleet.
Inadequate funding has resulted in Typo Air's lease of 5 second generation jets of approximately 150 seats. Fairly maintenance intensive due to age and wear, and the fuel bill certainly amounts to a sizeable amount of money. The landing fees are also higher at some places due to noise emission charges.
Nothing low-cost about this set-up, but it is a typical profile of what many today call a low cost operator.
The Route Structure.
Competition is the name of the game, and everybody is talking about the superb SAS monopoly routes. So - Typo Air starts operations from Oslo's main airport to 5 cities, which is served by SAS. The planes are to be heavily utilised, but the frequency is still much lower SAS on any of these routes. And Typo did not really get the best slots. But they are so much cheaper. And watch the good press they are getting - everybody is writing about their 399 kroner fare. And TA flight 2190 had 61 passengers last Friday afternoon..!
Sales and marketing.
The main strategy for Typo Air is to avoid the high commission of the travel agents. So, they establish their own "sales office" on the telephone. Everybody just call in an order - easy as Easy Jet. Maybe they also should go on the Internet..? "Think of the money we save by not paying the 8% of our low ticket price to the agents" is the favourite expression at headquarters.
The concept is not quite problem free, though. The customers all call at peak hours, resulting in a tremendous number of lost calls. And when they call their ordinary travel agents, the travel agents recommend the competition. And the load factor stays low, very low.
Operations.
Typo Air had a great pilot salary scale - seen from a management point of view. The only problem is that the pilots leave once they have had the training completed and some experience on the routes. Training costs are skyrocketing, and it is hard to find cheap simulator time nearby, resulting in extensive travelling and loss of production. The Chief Pilot says the only way to solve the problem is to substantially raise the salary level - including his own.
The cabin attendants are young and inexperienced. But their pay is fairly low, and Typo Air has reduced the training course to 5 days, which also saves a lot of money. But some are already leaving for other occupations, and the best ones have applied for positions at other airlines, where working conditions and compensation are better.
On the maintenance side, unscheduled maintenance has soared, and spare parts have to be bought on the spot market or leased at very high costs. The extra maintenance makes it impossible to keep the goal of superb utilisation. Trips are cancelled, and some customers claim they will never fly Typo Air again. Maybe it is better to lease in another plane, to have a spare. Maybe a bigger one; there is a 1011 available, it could be used for charter in the weekends..?
The Director of Maintenance wants to establish his own department, and hire some technicians. And the repeat phrase is: "We must invest in a larger spare inventory."
And our "low cost operator" is slowly finding out what he really is - high cost, low yield and low quality.
Soon it is time for management to visit the owners and ask for more capital. And capital they will get, because everybody realises that a low cost operator like Typo Air has a great future in air transport. And the owners keep pouring the moeny in, this must be a good concept, it's so logical..!
With a sigh of relief, the management of the established airlines peers out of their fancy glass offices, planning next months fare increase..! Because they know Typo Air will not last.
------------------------------------
End of part 1
------------------------------------
------------------------------------------
Part 1
------------------------------------------
Speech given by Captain Otto Lagarhus at the International Aviation Conference at Sola near Stavanger, Norway.
Preface.
In this speech I critically examine the "typical" low cost operator that we see in the European air transport of today. Then I outline the structure of an "ideal" operator, eminently suited to challenge the traditional airlines of Europe. Lastly, I give my view on the ability of the traditional airlines to meet challenges of the new competitors, before arriving at my conclusion. The speech is intended to provoke, and as a consequence stimulate to debate and discussion.
History.
The airline industry is a young industry. It has been well regulated and protected, and this was probably necessary during the establishment of operations at a satisfactory level of safety.
However, like in any protected industry, the protection resulted in the airlines becoming fat and lazy, and the cost and effectiveness left a lot to be desired.
Basically, the airline industry is still regulated in many aspects, and here in Europe we still have not seen any real competition for the major airlines. Duopolies with identical, high fares are more the rule than the exception.
Things are starting to change, although slowly. Monopoly and duopoly routes are being challenged, and the fight for the customers is gradually intensifying.
The large airlines are forming alliances in order to protect or increase their market share. However, this only gives temporary relief through large-scale synergies in marketing and to a certain degree in operations. But soon the competition also forms alliances, and in the end, the competitive power of each entity is restored and balanced. Pooling airlines together tends to cover and distort their internal inefficiency, and hide this from the board and owners through a temporary greater power in the marketplace.
I claim that the major airlines of Europe - with no exception - are basically inefficient operators with outdated organisations and infrastructure, emanating from 50 years of regulation after WW2. I believe a lot of you agree with this observation.
And so, everybody is waiting for the airline version of the Lone Ranger - the Low Cost Operator. The established airlines and their large employee groups are downplaying the effect that the emergence of the real Low Cost Operator will have. And some are fighting the concept, claiming that low cost is low quality and hence, low safety.
But - read my lips - we have seen nothing yet. Because the REAL competitor, the low cost high quality operator has only emerged in extremely scarce numbers.
Today's low cost operator.
Is it low cost or just low quality..?
I claim that many of the so called low cost operators actually are low quality and even high cost operators, with no lasting competitive power in the airline industry.
Let's look at a typical low cost operator, as we perceive it today. To best do this, I will examine a fictive operation, and why not call it Typo Airlines.
Typo Airlines is presently getting quite a good press. Upstart, cheap, effective etc. A real competition for the SASs and Lufthansas of this world, is the word in the national newspaper, and even in certain international publications.
But a closer look into the Typo Airlines organisation and operation actually gives amazing conclusions.
Ownership and finances.
Generally, the owners have provided insufficient start-up and operating capital. This means that money must be borrowed at interest rates higher than necessary. Nothing low cost about the financing - but probably a percentage or two higher capital cost than an established airline.
The management.
Inexperienced although enthusiastic. But the inexperience, impatience and lack of management tools & support result in lots of time and energy spent on "fire fighting". They really want a larger support staff, and strive to build a "real airline administration".
Again, TYPO Air has no major advantage over the established airline, although there is some cost savings if you directly compare salary to salary.
The fleet.
Inadequate funding has resulted in Typo Air's lease of 5 second generation jets of approximately 150 seats. Fairly maintenance intensive due to age and wear, and the fuel bill certainly amounts to a sizeable amount of money. The landing fees are also higher at some places due to noise emission charges.
Nothing low-cost about this set-up, but it is a typical profile of what many today call a low cost operator.
The Route Structure.
Competition is the name of the game, and everybody is talking about the superb SAS monopoly routes. So - Typo Air starts operations from Oslo's main airport to 5 cities, which is served by SAS. The planes are to be heavily utilised, but the frequency is still much lower SAS on any of these routes. And Typo did not really get the best slots. But they are so much cheaper. And watch the good press they are getting - everybody is writing about their 399 kroner fare. And TA flight 2190 had 61 passengers last Friday afternoon..!
Sales and marketing.
The main strategy for Typo Air is to avoid the high commission of the travel agents. So, they establish their own "sales office" on the telephone. Everybody just call in an order - easy as Easy Jet. Maybe they also should go on the Internet..? "Think of the money we save by not paying the 8% of our low ticket price to the agents" is the favourite expression at headquarters.
The concept is not quite problem free, though. The customers all call at peak hours, resulting in a tremendous number of lost calls. And when they call their ordinary travel agents, the travel agents recommend the competition. And the load factor stays low, very low.
Operations.
Typo Air had a great pilot salary scale - seen from a management point of view. The only problem is that the pilots leave once they have had the training completed and some experience on the routes. Training costs are skyrocketing, and it is hard to find cheap simulator time nearby, resulting in extensive travelling and loss of production. The Chief Pilot says the only way to solve the problem is to substantially raise the salary level - including his own.
The cabin attendants are young and inexperienced. But their pay is fairly low, and Typo Air has reduced the training course to 5 days, which also saves a lot of money. But some are already leaving for other occupations, and the best ones have applied for positions at other airlines, where working conditions and compensation are better.
On the maintenance side, unscheduled maintenance has soared, and spare parts have to be bought on the spot market or leased at very high costs. The extra maintenance makes it impossible to keep the goal of superb utilisation. Trips are cancelled, and some customers claim they will never fly Typo Air again. Maybe it is better to lease in another plane, to have a spare. Maybe a bigger one; there is a 1011 available, it could be used for charter in the weekends..?
The Director of Maintenance wants to establish his own department, and hire some technicians. And the repeat phrase is: "We must invest in a larger spare inventory."
And our "low cost operator" is slowly finding out what he really is - high cost, low yield and low quality.
Soon it is time for management to visit the owners and ask for more capital. And capital they will get, because everybody realises that a low cost operator like Typo Air has a great future in air transport. And the owners keep pouring the moeny in, this must be a good concept, it's so logical..!
With a sigh of relief, the management of the established airlines peers out of their fancy glass offices, planning next months fare increase..! Because they know Typo Air will not last.
------------------------------------
End of part 1
------------------------------------
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-----------------------------------
Part 2
-----------------------------------
The Low Cost High Quality Operator - an unbeatable combination.
There is another type of operator in the making. We have not seen it yet, but there is a tremendous business potential in establishing the true Low Cost Operator. And the secret is the unbeatable combination: High quality at low cost.
Entrance to our other operator - Challenge Air, and here follows a short examination.
Ownership/financing.
Challenge Air is a well-researched and meticulously planned operation. It is financed by a large investor group, and with a substantial share capital. As such, Challenge Air is a well-funded operation, and the credit lines are secured at very low interest rates. That is low cost.
Management.
The solidity and seriousness of the Challenge Air's establishment attract experienced management from the airline industry. The Board is very careful in recruiting top management, making sure that they only get people who are hardworking, quality conscious, and most of all - people who will avoid empire building, and who really understands that quality in all areas is an essential element in order to be competitive.
It is a clear understanding and part of the culture of Challenge Air that everything shall be correct from the beginning, and that high quality drives down cost. Furthermore, the culture accepts and subscribes to TQM's view of outsourcing/subcontracting - "it is the quality that counts - not the ownership." Nothing shall be built into the company that can be better performed by a high quality subcontractor. No exceptions. Management focus shall be on running the airline, and in ensuring that outsourced services and products are of the desired quality level.
The board made one major demand on the Chief Executive Officer: In addition to the necessary CAA approvals, the company should be certified to ISO 9001 - an essential element in a company which relies on subcontractors for a large part of the operations support.
Management pay scales are fairly low, but with future potential increases depending on profits. That is low cost and high quality.
The Fleet.
The fleet is new and efficient, and is a combination of purchase/lease at very attractive rates, with options for expansion. It consists of 10 modern, low emission jets with 80 seats, with the low operating costs transferred from the "commuter" environment onto this very efficient "airliner".
Engines are "power by the hour", and the entire operation is heavily supported from the manufacturer of the airframe and the engines. Maintenance is by contract to approved JAR 145 operators, and all overhauls and heavy maintenance is the responsibility of the manufacturers. Training is contracted for at a prestigious training facility, long term at favourable prices, all inclusive with full support.
All contracts are at the ISO standard, and all subcontractors meticulously audited and checked. That is low cost and high quality.
The Route Structure.
Challenge Air management understands that it is the margins that make a company prosper. And that fixed costs for buildings and administration should be kept down to the minimum. The company therefore has a policy of staying away from the main hub airports, and operate from alternative locations, but which must be easily accessible and attractive for the customers. The obvious choice for Challenge Air is the Torp Airport, an underutilized facility south of Oslo.
The destinations and schedule are picked after careful studies and customer research. Pricing is constructed to achieve two major elements: Detract traffic from the major airlines and hubs, while still operating at as high a price as possible.
Furthermore, the destinations are also picked according to the requirements of efficient operation. Challenge Air is trying hard to achieve the required combination for success in the lte 1990's. Management is very precise in getting their message across: The 1970's were "production oriented", which means efficiency with disregard for the customer. ("Let him fly when it is convenient for us".) The 1980's were "customer oriented only", which means fulfilling all the wishes of the customer, regardless of operating consequences and costs. ("We'll fly him where he wants when he wants".) But success in the new competitive world coming for the airlines in the late 1990's is all about balancing customer orientation with operating efficiency. ("Providing the best alternative for the customers we want, while making sure we retain operating efficiency".)
Sales and marketing.
Challenge Air has formed a strong alliance with the Travel Agents. Management realises that the Travel Agents are crucial in getting well paying customers on board the aircraft.
And no airline is better prepared to pay an 8% commission than Challenge Air. Their margins are high with the combination of low cost and high quality.
And as competition intensifies when the major airlines lower prices in order to take passengers away from Challenge air, the margins still remains positive, due to Challenge Air's effective operation and resulting low unit cost.
Operations.
Challenge Air is not a low salary employee. People are generally satisfied with the salary level as such, and the airline carefully recruit young, dedicated professionals, and give them high quality training to perform their job. But the collective agreements are simple, with good flexibility, both for the employer and the employees.
The philosophy of the management is that to be a successful company, you must balance three crucial elements: Satisfied customers, satisfied employees and satisfied owners. If one of these elements fail, the company's long term success is in danger.
Challenge Air is a great place to work. There is laughter in the corridors, and the decision making process takes place very close to the customer, but with clearly defined and communicated rules and regulations.
Safety is a major topic at all management and employee meetings, but any attempts to use "false" safety arguments for ulterior motives are recognised as a danger for the company, as management knows that this will lead to inefficiencies and detract focus from real safety issues. Openness and willingness to discuss safety and safety related issues are part of the company culture.
In a comparatively short time, Challenge Air has become a very popular airline with the public. Precision, high quality, low prices and a friendly atmosphere bring the customers back, time after time.
The management of the traditional airlines is worried. The have lowered the prices several times, and profits are disappearing fast. Challenge Air is popular among the passengers, and even though they meet the competition on price, they still seem to be making good money.
The light in the traditional airlines headquarters stay on late at night, and the cost cutting programmes keeps rolling. "Employees must work harder and for a lower salary" is the message.
The employees and their unions are resisting the change, and rightfully point to inefficient fleet structure, large administration and excessive management pay. And management fires back, attacking the old fashioned collective agreements and the severe restrictions emanating from 50 years of regulated existence. The deadlock is there.
Meanwhile, Challenge Air is flying, higher and higher.
------------------------------
End of part 2
------------------------------
Part 2
-----------------------------------
The Low Cost High Quality Operator - an unbeatable combination.
There is another type of operator in the making. We have not seen it yet, but there is a tremendous business potential in establishing the true Low Cost Operator. And the secret is the unbeatable combination: High quality at low cost.
Entrance to our other operator - Challenge Air, and here follows a short examination.
Ownership/financing.
Challenge Air is a well-researched and meticulously planned operation. It is financed by a large investor group, and with a substantial share capital. As such, Challenge Air is a well-funded operation, and the credit lines are secured at very low interest rates. That is low cost.
Management.
The solidity and seriousness of the Challenge Air's establishment attract experienced management from the airline industry. The Board is very careful in recruiting top management, making sure that they only get people who are hardworking, quality conscious, and most of all - people who will avoid empire building, and who really understands that quality in all areas is an essential element in order to be competitive.
It is a clear understanding and part of the culture of Challenge Air that everything shall be correct from the beginning, and that high quality drives down cost. Furthermore, the culture accepts and subscribes to TQM's view of outsourcing/subcontracting - "it is the quality that counts - not the ownership." Nothing shall be built into the company that can be better performed by a high quality subcontractor. No exceptions. Management focus shall be on running the airline, and in ensuring that outsourced services and products are of the desired quality level.
The board made one major demand on the Chief Executive Officer: In addition to the necessary CAA approvals, the company should be certified to ISO 9001 - an essential element in a company which relies on subcontractors for a large part of the operations support.
Management pay scales are fairly low, but with future potential increases depending on profits. That is low cost and high quality.
The Fleet.
The fleet is new and efficient, and is a combination of purchase/lease at very attractive rates, with options for expansion. It consists of 10 modern, low emission jets with 80 seats, with the low operating costs transferred from the "commuter" environment onto this very efficient "airliner".
Engines are "power by the hour", and the entire operation is heavily supported from the manufacturer of the airframe and the engines. Maintenance is by contract to approved JAR 145 operators, and all overhauls and heavy maintenance is the responsibility of the manufacturers. Training is contracted for at a prestigious training facility, long term at favourable prices, all inclusive with full support.
All contracts are at the ISO standard, and all subcontractors meticulously audited and checked. That is low cost and high quality.
The Route Structure.
Challenge Air management understands that it is the margins that make a company prosper. And that fixed costs for buildings and administration should be kept down to the minimum. The company therefore has a policy of staying away from the main hub airports, and operate from alternative locations, but which must be easily accessible and attractive for the customers. The obvious choice for Challenge Air is the Torp Airport, an underutilized facility south of Oslo.
The destinations and schedule are picked after careful studies and customer research. Pricing is constructed to achieve two major elements: Detract traffic from the major airlines and hubs, while still operating at as high a price as possible.
Furthermore, the destinations are also picked according to the requirements of efficient operation. Challenge Air is trying hard to achieve the required combination for success in the lte 1990's. Management is very precise in getting their message across: The 1970's were "production oriented", which means efficiency with disregard for the customer. ("Let him fly when it is convenient for us".) The 1980's were "customer oriented only", which means fulfilling all the wishes of the customer, regardless of operating consequences and costs. ("We'll fly him where he wants when he wants".) But success in the new competitive world coming for the airlines in the late 1990's is all about balancing customer orientation with operating efficiency. ("Providing the best alternative for the customers we want, while making sure we retain operating efficiency".)
Sales and marketing.
Challenge Air has formed a strong alliance with the Travel Agents. Management realises that the Travel Agents are crucial in getting well paying customers on board the aircraft.
And no airline is better prepared to pay an 8% commission than Challenge Air. Their margins are high with the combination of low cost and high quality.
And as competition intensifies when the major airlines lower prices in order to take passengers away from Challenge air, the margins still remains positive, due to Challenge Air's effective operation and resulting low unit cost.
Operations.
Challenge Air is not a low salary employee. People are generally satisfied with the salary level as such, and the airline carefully recruit young, dedicated professionals, and give them high quality training to perform their job. But the collective agreements are simple, with good flexibility, both for the employer and the employees.
The philosophy of the management is that to be a successful company, you must balance three crucial elements: Satisfied customers, satisfied employees and satisfied owners. If one of these elements fail, the company's long term success is in danger.
Challenge Air is a great place to work. There is laughter in the corridors, and the decision making process takes place very close to the customer, but with clearly defined and communicated rules and regulations.
Safety is a major topic at all management and employee meetings, but any attempts to use "false" safety arguments for ulterior motives are recognised as a danger for the company, as management knows that this will lead to inefficiencies and detract focus from real safety issues. Openness and willingness to discuss safety and safety related issues are part of the company culture.
In a comparatively short time, Challenge Air has become a very popular airline with the public. Precision, high quality, low prices and a friendly atmosphere bring the customers back, time after time.
The management of the traditional airlines is worried. The have lowered the prices several times, and profits are disappearing fast. Challenge Air is popular among the passengers, and even though they meet the competition on price, they still seem to be making good money.
The light in the traditional airlines headquarters stay on late at night, and the cost cutting programmes keeps rolling. "Employees must work harder and for a lower salary" is the message.
The employees and their unions are resisting the change, and rightfully point to inefficient fleet structure, large administration and excessive management pay. And management fires back, attacking the old fashioned collective agreements and the severe restrictions emanating from 50 years of regulated existence. The deadlock is there.
Meanwhile, Challenge Air is flying, higher and higher.
------------------------------
End of part 2
------------------------------
Thread Starter
Join Date: Jul 2002
Location: 35000'
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Received 0 Likes
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----------------------------
Part 3
----------------------------
The future for the traditional airlines.
I shall be very blunt when it comes to the traditional airlines and their ability to meet the competition from the new, low cost high quality entrants. In the short perspective, e.g. 3 - 5 years, they will manage, but the margins will lower, and the red ink will appear unless they make sweeping changes. This, however, is close to impossible to achieve.
The traditional airlines have a solid built-in type of bureaucracy that in the European scenery is extremely difficult to uproot. One airline I know has a good example, "the person in charge of the first class give-aways". Even in a major cost cutting drive during a period with large losses, it proved impossible to get rid of this function. And in every airline that has existed in Europe for more than 20 years, you find numerous such examples. May be not as flagrant, but the Technical Departments, Stations, Operations etc. of these airlines are ripe with functions that are deemed "necessary", but actually are non-essential functions.
Arguments to retain such functions often use safety as reason - and that is in my view the ultimate sin, namely using "false" safety arguments to avoid change or for personal benefit. The truth is actually to the contrary, as the abundance of "nice-to-have" functions in established major airlines detract focus from management, even the focus on essential safety elements.
On the employee side, strong unions are resisting change, even change to the better. There is a tendency to blame management for the lack of success, and even for the lack of friendly service to the passengers. Suggestion and solutions put forward from the union side are mainly to improve the situation for the employees, and generally does not take into consideration the two other essential elements for success: The happy customer, who will fly with you again, and the satisfied owner who will continue to invest in your company.
Top management of the traditional airlines is faced with a dilemma of great magnitude. Should they try to reform the airline over a longer-term period, and is this at all possible with the old structure? Or should they assume more drastic measures, in order to establish competitiveness with operators like Challenge Air. That would take nothing short of a revolution, and would mean sweeping changes in the management, administration, fleet and employee conditions and attitude. That will require courage, stamina and a board and owners with patience and trust in management.
Conclusion.
The word "low cost operator" is often a misnomer. Many operators adapting the typical low cost profile are actually adopting low quality as a principle. More likely than not they will quickly develop into a high cost, low yield and low quality operator. In the end, this will also cause safety to suffer, through excessive pressure to avoid cost due to insufficient funds.
A new type "low cost operator" will emerge, which actually is a high quality operator in the true sense of Total Quality Management. It is built on the fact that high quality drives down costs, and the strong belief that everything can be made even better, with less resources consumed.
The traditional airlines of Europe are in a more serious condition than most people imagine. Changes are very hard to get through, as both the organisation and the employee groupings are severely resisting change, and fighting very hard for the "good old life" in the traditional airlines.
But one thing is for sure: The next 3 - 5 years will be interesting for all of us, both inside and outside the airline community.
Appendix.
The concepts of Typo Air and Challenge Air are to some extent modelled after existing airline operations. Recent devlopment on the Scandinavian scene certainly gives some examples; compare Typo in my story to the demise of Norway's Color Air in 1999.
Challenge Air could be modelled after Ryan Air and EasyJet, both European Airlines, and great successes at that.
But actually, Challenge air is modelled after Southwest Airlines in the U.S.A. In the debate of safety of the low cost operators, the FAA claimed that safety statistics were good. Following the Valujet accident, the statistics were examined more in detail. Removing Southwest Airlines from the statistics changed the entire picture, and showed inferior safety records for the rest of the "low cost operators" as a whole.
Southwest's eminent safety record had distorted the picture.
And as to the competitiveness of an operator such as Southwest, I will quote Bob Crandall, previous CEO of American Airlines: "We cannot compete with them. When they enter a city pair, we try to leave..!"
---------------------------------
End of part 3
----------------------------------
Link to the article
Part 3
----------------------------
The future for the traditional airlines.
I shall be very blunt when it comes to the traditional airlines and their ability to meet the competition from the new, low cost high quality entrants. In the short perspective, e.g. 3 - 5 years, they will manage, but the margins will lower, and the red ink will appear unless they make sweeping changes. This, however, is close to impossible to achieve.
The traditional airlines have a solid built-in type of bureaucracy that in the European scenery is extremely difficult to uproot. One airline I know has a good example, "the person in charge of the first class give-aways". Even in a major cost cutting drive during a period with large losses, it proved impossible to get rid of this function. And in every airline that has existed in Europe for more than 20 years, you find numerous such examples. May be not as flagrant, but the Technical Departments, Stations, Operations etc. of these airlines are ripe with functions that are deemed "necessary", but actually are non-essential functions.
Arguments to retain such functions often use safety as reason - and that is in my view the ultimate sin, namely using "false" safety arguments to avoid change or for personal benefit. The truth is actually to the contrary, as the abundance of "nice-to-have" functions in established major airlines detract focus from management, even the focus on essential safety elements.
On the employee side, strong unions are resisting change, even change to the better. There is a tendency to blame management for the lack of success, and even for the lack of friendly service to the passengers. Suggestion and solutions put forward from the union side are mainly to improve the situation for the employees, and generally does not take into consideration the two other essential elements for success: The happy customer, who will fly with you again, and the satisfied owner who will continue to invest in your company.
Top management of the traditional airlines is faced with a dilemma of great magnitude. Should they try to reform the airline over a longer-term period, and is this at all possible with the old structure? Or should they assume more drastic measures, in order to establish competitiveness with operators like Challenge Air. That would take nothing short of a revolution, and would mean sweeping changes in the management, administration, fleet and employee conditions and attitude. That will require courage, stamina and a board and owners with patience and trust in management.
Conclusion.
The word "low cost operator" is often a misnomer. Many operators adapting the typical low cost profile are actually adopting low quality as a principle. More likely than not they will quickly develop into a high cost, low yield and low quality operator. In the end, this will also cause safety to suffer, through excessive pressure to avoid cost due to insufficient funds.
A new type "low cost operator" will emerge, which actually is a high quality operator in the true sense of Total Quality Management. It is built on the fact that high quality drives down costs, and the strong belief that everything can be made even better, with less resources consumed.
The traditional airlines of Europe are in a more serious condition than most people imagine. Changes are very hard to get through, as both the organisation and the employee groupings are severely resisting change, and fighting very hard for the "good old life" in the traditional airlines.
But one thing is for sure: The next 3 - 5 years will be interesting for all of us, both inside and outside the airline community.
Appendix.
The concepts of Typo Air and Challenge Air are to some extent modelled after existing airline operations. Recent devlopment on the Scandinavian scene certainly gives some examples; compare Typo in my story to the demise of Norway's Color Air in 1999.
Challenge Air could be modelled after Ryan Air and EasyJet, both European Airlines, and great successes at that.
But actually, Challenge air is modelled after Southwest Airlines in the U.S.A. In the debate of safety of the low cost operators, the FAA claimed that safety statistics were good. Following the Valujet accident, the statistics were examined more in detail. Removing Southwest Airlines from the statistics changed the entire picture, and showed inferior safety records for the rest of the "low cost operators" as a whole.
Southwest's eminent safety record had distorted the picture.
And as to the competitiveness of an operator such as Southwest, I will quote Bob Crandall, previous CEO of American Airlines: "We cannot compete with them. When they enter a city pair, we try to leave..!"
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End of part 3
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Link to the article
Absolut ikke uinteressant, men stadig med Piloten's lidt begrænsede indsigt. Dette på trods af at Hr. Lagerhus er gammel chef for SAS Operations Division.......
Join Date: Apr 2001
Location: Norway
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Har endelig klart å lese meg gjennom den laaange avhandlingen. Det er vel ikke så mye nytt og revolusjonerende i disse tre stereotypiene her? Og stereotypier er og blir stereotypier.
Jeg reagerte på en ting:
Jeg synes nå det virker som om Ryanair ligner mer på TypoAir-modellen.
Jeg reagerte på en ting:
Challenge Air could be modelled after Ryan Air and EasyJet, both European Airlines, and great successes at that.
