Faraaz Ahmed - Revival of a Sick Airline

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 Revival of a Sick Airline
                              Project Report

                    By Faraaz Ahmed


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One of the pioneers of airline industry, Hind Airlines, is a 30 year old airline, established at
Cape. Currently its employing more than 15,000 employees with a fleet of 60 aircrafts. The
airline has maximum network in the Middle East, along with a large number of international
trunk routes to major international destinations. The international fleet of Hind Airline
comprises largely of B 747-400, AB 300/310/320 & few B 777. Despite enjoying world-
wide traffic rights, the airline has been incurring losses & resorting to code sharing & other
cooperative arrangements for a few years now. These losses have led to increasing
inadequacies which are resulting in image degradation of Hind Airline as time passes. There
is a need for drastic improvement & a very potential plan of action which can be executed
immediately. This report highlights the key issues affecting the airline's performance &
image. It also provides the immediate remedial methods necessary to save the airlines from
being bankrupt. A systematic approach has been undertaken in order to device strategies
required for battling the tough competition. Prime focus has been laid on restructuring the
fleet & improving profits. The scenario of lack of punctuality has also been addressed in
moderate detail along with measures to improve leadership within the airline. The problem of
unhealthy industrial relations has also been taken into consideration & methods to improve
the same have also been devised. However, it may definitely need the involvement of more
than one sector of the industry. Finally, measures to reduce unwanted expenditure &
maximize profits simultaneously have also been discussed. With the exposure of major issues
affecting the Hind Airline, the solutions derived here are obtained with the central idea of
being                immediately                  put                into                effect.
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Main Issues And Their Solutions:

Increasingly being faced with tough competition

Conventionally, offering the lowest fare has been the finest, if not the only, way for airlines
to get their product noticed by customers. Carriers have long looked for a ways to compete
elsewhere, mainly as the number of low-fare airlines increases, & many are increasingly
resorting to branded fares. The concept of branded fares is easy. It involves the fold up of 26
traditional inventory classes into powerful, customer-focused brands with outstanding brand
names & product attributes. Along with these basic brand names comes consumer clarity
regarding individual services that each of these fare brand segments provide, enabling
customers to select the offer that best meets their requirements.
The thought of folding up the traditional 26 booking classes into several brands definitely
makes sense to sharp air shoppers, enabling them to quickly gain confidence in their
shopping experiences, since the offer creates clear choices. Graphical displays which include
an easy-to-follow branded matrix offer feature & price clarity that has earlier been missing
from the shopping process. Travellers can now analyse one simple matrix to compare fare
features, enabling them to make the right purchase decision depending on their travel
Once brands are recognized in all distribution channels, customers quickly welcome the ease
and clarity of branded fare shopping and, in fact, will shop for particular brands by name,
demonstrating the brand fairness that can be established by the airline. Now that travellers see
the brands they want, consumer marketing campaigns can emphasize the benefits of selecting
higher-yield brands. These targeted campaigns can transfer consumer attention on features,
benefits & flexibility of the premium brand tiers as well as present a platform for airlines to
compete for the most cost-conscience travellers, providing a value proposition consistent with
competitors that may offer only basic products & fare structures. This gives the opportunity
to compete on more than just airfare, highlighting an Hind Airline’s distinct services over &
above the elementary product & low-fare offerings.

Aging Fleet And Low Profitability
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Strategic alliances have been one of the most evident responses of airlines to the intense
competition of recent years. The main purpose of these alliances is to create competitive
advantage for the partners by allowing them to complement each other’s services & attain
substantial economies of scale, particularly in marketing & maintenance costs & mostly
retailing & corporate independence.      Inter-airline alliances result in many competitive

   -   Integration of commercial activities in requisites of sale & passenger service
   -   Merging of intercontinental routes & linking domestic routes
   -   Offering high quality services
   -   Allowing preferential access to a long haul hub for feeder airline partners
   -   Joint maintenance & ground handling at airports
   -   Capturing market share
   -   Joint investments & performing expenditure agreements
   -   Code sharing
   -   Merging of reservation systems
   -   Joint fare policy
   -   Advantage of global status & transcontinental distribution on partners
   -   Risk sharing

Airline companies are principally capital intensive segments. For example, a new 747-400
that is mostly used for high volume & long distance travel costs about 200 million dollars & a
new 737-800 used for regional flights can cost about 600 million dollars. Hence, though
originally many players can be seen in this industry, they later enter into joint ventures &

The Hind Airlines can get productivity profits not only by reducing headcount, but also by
introducing new technologies like internet ticket distribution, web check-in, etc., & by
moving capacity from domestic to international routes in an attempt to improve aircraft
utilization with longer stage lengths. Hind Airlines can also attempt to mimic several
strategies of the Low Cost Carriers (LCCs), i.e., by eliminating meals & pillows to reduce
costs & by dropping aircraft turn-around times to improve aircraft productivity.
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Poor On time performance

The possible delays can be determined using analyses that classify the ‘real’ delay root causes
& their relative importance. There are 3 basic approaches to identify the ‘real’ root causes of
delays & to define improvement levers.
   -      Process monitoring & sampling
   -      Simulation
   -      Conventional analytical methods
Once all the facts have been composed, it is of utmost importance to reach agreement
amongst all the important parties involved on the root causes of the delays.
An effective framework for attaining punctuality in a structured way should use 3 main
   -      Network planning & control: The first and foremost step to overcoming poor
          planning & control, is to develop an integrated planning process, in which all the
          planning entities act in the same context &, if possible, use the same systems or at
          least the same timetables & rotation plans. A sound network structure & appropriate
          block, ground & slack time deployment are key to a good plan. Adding slack time is
          expensive. A possible remedy is to identify the flight numbers where the punctuality
          impact on the total schedule is highest—the “star flights”, add some appropriate
          buffers for them & in reverse tighten time frames for other, less important flights.
   -      Aircraft availability: If, as a result, Hind Airline decides to increase the number of
          reserve aircraft it is vital to deploy them carefully & not in a sweeping fashion.
          Monitoring their deployment will avoid the tendency to simply use them as a holding
          area for maintenance requirements.
   -      Ground operations & departure process: Significant improvements in on-time-
          performance at a low price, without major capacity investments & undue impacts on
          the sales front, can be achieved through focused process engineering in ground
          operations & in the departure process.
Hind Airlines need to use all three of the main levers described above simultaneously in order
to be successful.

Lack of Leadership
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Hind Airlines has a lack of leadership alignment that creates the disagreement on how to
resolve the existing problems. Hind Airlines should align stakeholders to design an internal
unified leadership team in supporting customer relationship management (CRM) philosophy
& external stakeholders to balance between Business & Needs. It can avoid by developing an
cohesive, unified, collaborative team to improve communication. This is an opportunity to
install philosophy & practically a CRM system to the current customer retention efforts. The
system should include a loyalty program, & integrate with the reservations & customer
service functions.
A culture where junior workforce is given fair amount of responsibility & is allowed to
challenge themselves is one where employees are more enthused to work & enjoy what they
do. The process of consultation & feedback naturally results in better decision making &
more effective operations. Hind Airlines, under democratic leadership will tend to run into
fewer grave mistake & catastrophes. In simple words, people tell a democratic leader when
something is going badly wrong. The free flow of ideas & positive work environment is the
perfect channel for creative thinking. The benefits of this are relevant for creative industries,
because creative thinking is necessary to solve problems in every single organisation,
whatever its nature. By enabling subordinates to use their ideas & even more importantly,
gain credit for them, it can neatly reduce the amount of tension employees generate with their
manager. When autocratic leaders refuse to pay attention to their workers, or blatantly ignore
their ideas, they are in fact asking for people to talk behind their back & attempt to undermine
or supersede them. When employees feel empowered through leadership development, Hind
Airlines will experience lower rates of employee turnover which has numerous benefits. A
company which invests in leadership development for its employees, is also investing in their
future, & this is appreciated by a large majority of the workforce.

Unhealthy Industrial Relations

The following measures must be taken to achieve good industrial relations:

   -   Strong & Stable Union: A strong & stable union in each industrial enterprise is
       necessary for good industrial relations. There must be strong & stable unions in every
       enterprise to characterize the majority of workers & negotiate with the management
       about the terms & conditions of service.
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   -    Mutual Trust: Both management & labour should help in the development of an
        environment of mutual cooperation, confidence & respect. Management must adopt a
        progressive outlook & should recognize the rights of workers. Similarly, labour
        unions must persuade their members to work for the collective objectives of the
        organization. Both the management & the unions should have faith in collective
        bargaining & other peaceful methods of resolving disputes.
   -    Worker's Participation in Management: The involvement of workers in the
        management of the industrial unit must be encouraged by making effective use of
        joint consultation, work committees, & other methods. This will improve
        communication between managers & workers, increase productivity & lead to greater
   -    Mutual Accommodation: The employers should recognize the right of collective
        bargaining of the trade unions. In Hind Airlines, there must be a great emphasis on
        mutual accommodation rather than conflicts or uncompromising attitude.            The
        approach should be of mutual “give & take" rather than “take or leave.” The
        management must be willing to cooperate rather than blackmail the workers.
   -    Sincere Implementation of Agreements: The management must sincerely implement
        the settlements accomplished with the trade unions. The agreements between the
        management & the unions should be enforced both in letter & spirit.
   -    Government’s Role: The Government must play an active role for promoting
        industrial peace. It must make law for the compulsory recognition of a representative
        union in every industrial unit. It should intervene to resolve disputes if the
        management & the workers are unable to settle their disputes. This will definitely
        restore industrial harmony.

Inadequate Cash Flow

Two important areas that airline revenue accounting teams must look at to impact cash flow
& profitability issues include:

    - Identification of actual revenue leakage & prevention of future leakage.

    -   Optimization of the airline's investment in passenger revenue accounting systems in
        the course of revenue integrity by ensuring bookings generate real revenue.
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The financial matters that are covered in working out a retrenchment strategy scrutinize all
aspects of a company’s situation, from day-to-day expenses, to changes in debt & asset
reduction. Financial shifts covering cash flow, overheads & costs should be examined. Good
cash flow is very important in a business & poor cash flow is generally a feature of a failing
organisation, with debtors taking longer time to pay for goods that have been supplied &
creditors waiting longer time to be paid for goods they have provided to the company. A
tightening up of creditors & debtors, such that money owed is acquired from debtors before it
is needed to pay creditors, will improve Hind Airline's cash flow situation. Examining costs
& improving the situation with concern to costs will also improve the cash flow situation,
such that enough funds are available to meet bills from creditors. Hind Airlines should
consider if it knows the actual cost of producing its various products & if it can account for
all expenditure. Failing to know the answers to these vital questions means the company does
not comprehend the relationship between costs, price & profits, which is crucial if
appropriate competitive strategies are to be practised in the best market segments. In
examining costs, Hind Airlines should also examine overheads & expenses, as if these are
high when compared to production costs, there is an opportunity to reduce costs.
Establishment of effective cost systems & greater control over the cash flow will improve
profitability                   &                      generate                     revenues.
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The present condition of Hind Airlines has been a result of poor planning & management,
along with inefficient decision-making. This process will involve a whole new level of
involvement from the employees of the airline, besides unaltered dedication of improvising
from the management. The ideas of branding the fares, merging the services as well as
reducing the headcount are all different approaches to solve various problems, but should be
worked on simultaneously. Time based pricing is suggested for utilities both in regulated or
market based environment. The use of time based pricing is inadequate in case of low
difference between peak & off-peak demand, unavailability of adequate time-of-use
metering. Also, customer response to time based pricing must be considered.

A regulated utility can develop a time based pricing schedule after analysis of its cost on a
long run basis, including both operation & investment costs. A utility operating in the market
environment, where electricity or a similar service is auctioned on a competitive market, time
based pricing will reflect the price variations on the market. Besides, establishing a dedicated
crew to manage the punctuality parameters, there should be excessive measures to involve the
employees in the process of decision making in order to battle the situation of lack of
leadership. But having a large involvement of employees may result in diversified opinions.
The management can choose to apply the most appropriate strategies in order to improve the
industrial relations. Last but not the least measure is to monitor the cash flow. Considering
the key issues & their solutions described above, Hind Airlines should be able to make a very
positive head start back again into the air transportation market.

Bringing Hind Airlines back to life with flourishing prospects may be difficult, but not

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