Sick Airline

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					Revival of a Sick Airline


          Silk Airline incorporated in 1990, employing over 18,000 employees is
based at 'Good Hope' and operates on major international trunk routes with a
concentrated network in the Middle East with a fleet strength of 60 aircraft
comprising mostly of B 777, B737, AB 320 and few B 330 Silk Air though enjoys
world-wide traffic rights, the airline has been progressively reducing its route
networking, resorting to code sharing and other cooperative arrangements for
the past few years.

          Silk Airline been in the red for the past five years and is faced with
growing inadequacies, thereby losing its image day by day. It is in need of
immediate remedial measures to prevent it from bankruptcy.

Singapore Aviation Industry: Aviation in Singapore is a key component of the
Singaporean economy in its quest to be a transport hub of the Asian region.
Besides currently the sixth busiest airport and the fourth busiest air cargo hub in
Asia, the Singaporean aviation industry is also a significant aerospace
maintenance, repair and overhaul Centre..

           It is a wholly owned subsidiary of Singapore Airlines and operates
scheduled passenger services from Singapore to 31 cities in Southeast Asia, South
Asia and China. It has its head office on the fifth storey of SIA Superhub 1.[3] As
the regional wing of Singapore Airlines, it serves 31 out of 50 short-haul
destinations in the Singapore Airlines Group network, and flew 1.56 million
passengers in 2006. It made a profit of S$30 million, as turnover rose 20.4% to
$415 million.
The airline had its roots as a regional air-charter company in the form of
Tradewinds Charters, formed in 1976, and using planes predominantly leased
from parent company Singapore Airlines serving leisure destinations. Scheduled
services were introduced as Tradewinds Airlines on 21 February 1989, when it
leased McDonnell Douglas MD-87 airplanes for services to six destinations,
namely Bandar     Seri     Begawan, Pattaya, Phuket, Hat   Yai and Kuantan from
Singapore's Changi Airport and Tioman from Singapore's Seletar Airport. As the
carrier matured, regional business destinations such as Jakarta, Phnom
Penh and Yangon were added to its network, thereby broadening the airline's
appeal beyond the holiday-maker to include the business traveler.

SilkAir A319-100 at Singapore Changi Airport, with a Singapore Airlines (parent
company) Boeing 777 in the background.

A major marketing overhaul was started in 1991, culminating on 1 April 1992, by
giving the airline its present name and logo as a new corporate identity. The re-
branded airline utilized up to six of the new Boeing 737-300s introduced just a
year earlier. The mid-1990s saw two Airbus A310-200aircraft in use and the
expansion of services to India as well as mainland China. It was the first Asian
carrier   to   offer     handheld   portable   video-on-demand      (VOD) in-flight

entertainment in the form of the DigEplayer 5500, available on flights to selected

SilkAir began operations with 2 leased McDonnell Douglas MD-87 aircraft in 1989,
before investing in its own fleet of six Boeing 737-300s, the first of which began
operations in 1991. It operated two Airbus A310-200s for a brief period from 1993
to 1995 before they were transferred to Singapore Airlines, and two Fokker
F70 from 1995 to 2000. It began replacing its Boeing fleet with Airbus aircraft
when the first Airbus A320-200 arrived in 1998, and retired all Boeing aircraft a
year later. On 20 December 2006, SilkAir signed an agreement to purchase
11 Airbus A320-200 aircraft with nine more on option. These aircraft will be
delivered between 2009-2012.

                                SilkAir Airbus A320

The SilkAir fleet consists of the following aircraft (as of 29 February 2012):

                                            SilkAir Fleet[10][11]

                                           In                               Passengers
                          Aircraft               Orders Options
                                         Service                        J      Y    Total

                                           1                            12 106      118

                       Airbus A319-100     2         —          —       8     112   120

                                           3                            8     120   128

                                           5                            16 126      142
                       Airbus A320-200               4              4
                                           9                            12 138      150

                            Total          20        4              4

The airline won successive Best Regional Airline: Southeast Asia in 2009 and 2010
by Skytrax at each year's respective World Airlines Awards. In October 2011,
SilkAir was awarded the Regional Airline of the Year by the Centre for Aviation
(CAPA), an aviation research body.

Facing challenges
Increasingly being faced with tough competition

Competition would always be there and companies with better models would
always compete with their older rivals and taking their own slice of the cake. The
need of the hour would be innovation and improvisation rather than cower down
to the pressures of competition. Low cost airlines with low running costs would
compete any full cost airline. The idea is to take the competition head on and
improve the services being provided. As noted, low-cost carriers have put
increased pressure on Airlines to reduce its fares and their costs. This pressure
has become intense as low-cost carriers have increased their share while that
Airline’s volumes have reduced drastically And one study found that one low-cost
airlines lowered fares on routes accounting for more than 90 percent of domestic
and regional air travel. Despite the heavy discounts, airlines failed to achieve the
seat occupancy needed to break even. Though they call themselves low-cost
carriers, they are actually merely low-fare airlines. Airlines need to look for
revenue models that are bottom line based rather than market share-driven. This
includes reviewing large 'cash outs', such as heavy aircraft maintenance in the off-
peak winter season, and restructuring costs, such as severance payments. SilkAir
should find some ways to attract more passengers by giving some limited offers
than the other companies. When there are offers it attracts people. More than
80% people try to get the cheapest ticket available in good flights. That can
seriously bring in more passengers to Silk Airlines. Technology can also help in
developing a range of customer-friendly service enhancements as well as other

value added products so as to carve a niche for the company in the same market
itself.A very common advancement in this field is the use of e-ticket, e-booking
and e-marketing approaches. Also, with different policies introduced as well as
reformed by the Government, existing airlines are bound to face unexpected new
international competition. A common move to counter such changes in the
market and improve overall efficiency is resorting to code sharing, thereby trying
to cut costs in all operational areas

Aging Fleet and Low Profitability

The use of air cargo, freight and overnight express delivery has increased at an
annual growth rate of over seven percent during the last thirty years. This
expansion has seen the advent of many all cargo airlines, expanded fleets and a
greater number of pilots. Projections are that by the year 2022 the cargo jet fleet
will grow to 3,500 aircraft and that at least half of the present 1,600 cargo planes
will need to be replaced. Many of these 800 older first generation narrow body
jets are more then 35 years old and, even though inexpensive to buy, are
expensive to maintain and fly. The average age of the worldwide passenger
carrier fleets is approximately 7 years while their cargo counter parts have an
average age of approximately 28 years and 4 times as old. With this continued
cargo growth, more jets will be converted from passenger-to-freighter (P to F)
aircraft. Many of these converted P to F cargo aircraft have served with U. S. or
other first world passenger airlines, been sold to a second tier or similar foreign
passenger carrier, then finally have undergone a P to F conversion after 15 to 20
years of use. So changing the fleets every 7 years will help blue link over the flight

aging issue.
               In order to reduce the operating cost on fuel and maintenance, Silk
Air can either try substituting the existing ageing fleet with attaining a fresh fleet
on lease or maintaining a fleet consisting of a single series of aircraft; either
Airbus aircrafts or Boeing aircrafts so as to cut down on the procurement of
multiple spare-parts when required. This will also reduce expenses of training the
cabin crew on different aircrafts. There should also be a process standardized to
monitor the life cycle of aircraft fleet and their parts to prevent unexpected
malfunctions and breakdowns. Silk Air can also establish maintenance resources
sharing networks with other airlines. This can include sharing of hangars,
maintenance materials, as well as allied material purchases for the same-type of
aircrafts. This will help lower inventory and maintenance costs. Other ways to
maintain the ageing fleet and reduce fuel cost is by cleaning engines and the
fuselage on a regular basis as this will not only improve profitability also improve
aircraft performance by reducing flight drag. Moreover, there are strategies to
overcome uncertainties caused by extreme oil price volatility like locking-in the
fuel cost in order to lower future fuel cost losses.

Poor On time performance
A key contributor to the rise in air travel is the success of individual Airlines to
operate efficiently –the majority of the time. Closely tied to efficient operations
are significant benefits such as cost containment and performance that meets or
exceeds customer obligations. But efficient operations are key: passengers check-
in successfully , are effectively processed at the gate , receive favorable service
onboard the aircraft and arrive at their destinations on time – along with their

luggage and each day brings a new set of challenges that personnel must react to
when accomplishing the safe and efficient movement of passengers and cargo:
• Increasing fuel prices that have reached an all-time high and now represent the
largest single expense for airlines,

• Effective utilization of resources to improve productivity while reducing labor

• Irregular operations that occur from as simple an event as a mechanical
problem on a single aircraft to a weather storm that closes many airports and
cancels numerous flights,

• Internal and external difficulties such as air traffic control limitations that
reduce on- time performance to less than acceptable levels.
To achieve efficient operations, airlines rely on the people and tools located in
their system operations control centers, or SOCs. It takes combined effort of
many operations business units during the day of operations to make air travel
Flight operations; crew management; maintenance, repair and overhaul;
dispatch; airport and ground staff; reservations; and passenger service personnel
ensure the efficient and timely transportation of passengers, bags and cargo. And
they rely on their specific systems to develop and deliver necessary data. This
symbiotic relationship between employee and technology enables the formation
of sound, multi-level decisions.

Lack of Leadership
Leaders need to develop the vision for the enterprise and articulate it to the
entire organization. This creates a common purpose with everyone working
toward a common goal. This communication needs to be face-to-face, not videos,
publications or large meetings. For frontline employees this means their
supervisors, not the CEO or the executive team. Without trust, vision becomes an
empty slogan. Asking employees to take risk, be entrepreneurial and give up the
known for the unknown requires a strong foundation of trust. Managers and
employees view change differently. Senior managers consistently misjudge the
effect of this misunderstanding, and do not understand the effort required to
instigate change. Studies show that companies that train workers and give them a
stake in the business are more profitable than those who do not. Paying attention
to what many analysts term the soft side of business - developing skills in
management leadership and interpersonal areas of communication - is the real
key to a successful change in management strategy. Make a decision to become a
superior learning organization and apply this knowledge to create real customer
value. In truth, leadership stability can be found at the core of many of the
world's best airlines. A careful look at some of the best managed airlines reveals
common similarities in their leadership development and succession practices:

Well managed airlines have usually been working the CEO succession process for
a prolonged period of time, using the passage of time to prepare would-be
successor(s) as well as other key stakeholders such as the board, labor, and
partners. Far too often, airlines are so focused on their near-term "survival" issues
that they neglect this important task, leaving it far too late to yield a meaningful

outcome. As the Japanese proverb goes, "When you're dying of thirst, it's too late
to think about digging a well."

Ensuring effective leadership succession in airlines is much easier said than done
for several important reasons:

    Poor economic returns in the airline industry often make it difficult to both
      attract and retain top talent;
    Airlines are notorious for raiding each other's top management ranks, often
      seeing airline industry experience as a must for their leadership solutions;
    Developing internal solutions requires hard work over years, if not decades;
    There often just isn't enough "room at the top" for a good CEO and a
      credible lieutenant, particularly at small and mid-sized carriers; and
    Airline organizational structures are devoid of profit-and-loss platforms.

Often, but not always, a "duo" at the top, with one person taking the externally-
focused CEO role and the other the more internally-oriented President and/or
COO position;

    A small cadre of highly qualified potential successors one level down,
      typically at the Executive Vice President level (or equivalent), in
      commercial, operations, and finance;
    A fairly clear indication of who is in line for the next one or two succession
    A high degree of commitment on the part of the best-placed individuals to
      stay with the organization, despite the efforts of others to lure them away;
    Regular rotation of the top executives across functional areas so as to
      round them out in preparation for general management; and
    An effective management development and rotational program feeding the
      succession funnel from below.

If all the changes takes in the leadership of Silk Airlines then the changes will bring
Good profit to the airlines. A good leadership will affect in the working of the
whole airlines. It will bring in co – ordination, trust and make everyone work for a
common goal than for their personal interests.

Unhealthy Industrial Relations

Silk Air does have a lot of worldwide rights and code sharing and co-operative
agreements. But this will not suffice and a more proactive approach of building up
relations with other operators in the industry will go a long way in making the
functioning and operability of the airline more global. Organizations which ignore
the importance of industrial relations face high cost of production. Adverse effect
on efficiency, low-grade production, negligence in the execution of work,
absenteeism among the workers, high rate of labor turn-over etc. are the evils
that result from poor industrial relations. Perhaps the main cause or source of
poor industrial relations resulting in inefficiency and labor unrest is mental
laziness on the part of both management and labor. Lack of cordiality in industrial
relations not only adversely affects the interests of the laborers and employers
but also cause harm to different sections of society.

Inadequate Cash Flow

There is a rise in merger and acquisition interest in the aerospace sector and an
increased availability of both equity and debt financing. Major Private Equity
players are back on the field, competing with large strategic investors. According
to several media reports, the search for deals is being fueled by the need of
private equity funds, which raised capital before the financial market crisis and
the recession, to invest their money quickly or return it to clients. In airline
business, increasingly price is a weapon of choice. To really win the price war and
decrease losses, the airline would have to become more efficient in reservations,
cut staff, more efficient in facilities, scheduling, and fuel consumption and in
other services related to airline travel. As far as consumers are concerned the
lower the prices, the better, whereas for the stockholders of the airline, the same
thing does not work. Price can drive the market and the winner would be that
airline which can innovate and adapt their way to the next level, like the new
digital economy. When competing for price, it is important to be ready to adapt,
be the best and most efficient, not to set any limits, have good relationship with
suppliers, market price cuts and explain why, raise standards of quality and ease
of use for customers simultaneously, have capacity ready to take on new
customer bases as competitors leave the market, have insider information on the
competitors and know their next move and use brand name recognition in
moving forward. , sensible economic analyses of opportunities provide realistic
expectations for project benefits. In addition, advanced analytical processes
consider resource limitations explicitly so that the final capital project portfolio is
within airline’s resource constraints while presenting the maximum expected
benefits. Opportunities and risks drive fleet management and capital planning

decisions. Various investments allow capitalizing on business opportunities, but
also include risks. Choosing the right investments to maximize the airline’s
position in the ever-changing marketplace is not a trivial task. The risks associated
with resource investments, coupled with market uncertainties, shift the actual
project benefits away from the nominal values. The problem is compounded by
limited financial resources for investments. Planning for capital expenditures is a
vital element in ensuring future prosperity. A strong post-recession rebound in
cargo and travel volumes had already driven the improvement in cash flows for
Asia-Pacific airlines in late 2009/early 2010. Capacity cuts in late-2008 had more
steadily improving performance for US airlines. The change that drove further
improvement in Q3 and produced the European upswing was a sharp
improvement in aircraft utilization.

Airline operations are highly leveraged and improved asset utilization generates
significant financial improvement. Managing cash is all about timing the inflows
and outflows. Cash Flow Analysis starts the process. This can be as simple as going
to your check book or accounting system and analyzing your receipts and
disbursements over the past few months. A pattern is likely to emerge. What are
the revenue sources, and how consistent are they from month to month? As well,
what are the expenditures, and how repeatable are they from month to month?
Next, look at the incoming revenue stream (Accounts Receivable) or your sales
forecast to confirm and further predict cash inflows, and your Accounts Payables
to build a pattern of required future disbursements.

Better performers manage complexity on behalf of their organisations, customers
and partners. They do so by simplifying operations and products, and increasing
dexterity to change the way they work, access resources and enter markets
around the world. Compared to other CEOs, dexterous leaders expect 20 percent
more future revenue to come from new sources. After reviewing the findings it
becomes clear the extent to which the economic downturn has affected
customers, business and society. For Silk Airline to emerge among the
competitors, they have go through drastic changes. They have to upgrade their
systems and upgrade their technology to the current trends. Adopting a
customer-centric approach as well as empowering employees with proper
education and related knowledge is equally important. Profitability for an airline
depends mainly on factors like passenger experience, employee attitude towards
customers, number of passengers travelling per flight, optimum utilization of the
available aircraft capacity etc. It is therefore, very important for Silk Air to pay
additional attention to all the above factors and strive to minimize their operating
as well as non-operating cost and try to increase customer satisfaction, which in
turn will create customer loyalty and result in the overall profitability of the
airlines. They have to bring their standards to world class. Financial planning is
very important. Have to set aside cash for the future plans and emergencies. A
sound financial plan will help Silk Air to be the best among the rest.

 – Articles on Silk Air

 Nalsar Reference notes by PCK Ravindran

 Most Important Leadership qualities by GEORGE

 Articles on Challenges faced by Airlines



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