40% pressure on airlines has internal root causes
Lufthansa Consulting shared a comprehensive study that covered over 50 airlines around the world in late 2019. The study discusses how the airlines are to mitigate the current pandemic situation going ahead; what the current-and post-Covid-19 world would mean for airline operations.
While airlines are currently (and rightly) focused on topics related to liquidity management and the future network and fleet, it is important to also initiate a discussion on a future shape of operations in a timely manner. The scope of operations for most airlines will almost certainly be smaller in the near future, resulting in pressure to drive down costs and raise efficiency significantly.
The restart, emerging from the crisis, is a one-time opportunity to reevaluate an airline’s approach to operations planning, steering and performance management. One part of this is getting the basics right, often with relatively low effort; the other is looking to the future where digitalisation is undoubtedly the primary driver of airline operations. Investments must be made carefully yet strategically to minimise potential threat by disruptors, including those from industries which are less susceptible to the current crisis.
Never in modern history have airline operations come to such a widespread stop. It is increasingly obvious that aviation after the Covid-19 pandemic will be different. While the unpredictable nature of the crisis and projected long timeframe for recovery make it hard to imagine a definitive future scenario, one thing is clear: – the “new normal” will require a fresh mindset.
The grounding of the majority of the world’s aircraft is logically followed by other measures – temporary or permanent staff lay-offs, down-sizing of the fleets and importantly, cuts to all but the most essential investments. This is an absolutely prudent response. The times of plenty are over for now, and every airline will try to optimise costs due to the crisis-related obligations and lower demand.
However, this enforced grounding also raises the imperative for airlines to seek a more efficient, cost and cash conscious, sustainable “new normal”. And it would be short-sighted to exchange zero capital expenditures now for long-term increase in running costs.
Importantly, this applies to airline operations too. In particular, to operations planning and steering (control) areas which have been relatively overlooked in the past, relying on often outdated processes and technologies as a consequence of their complexity. The operational problems experienced by airlines in 2018, particularly in Europe but also, at some point, almost everywhere around the world, brought some attention to this area. While there have been some improvements visible in 2019 – in on-time performance, cancellations, customer satisfaction and irregularity costs - there are clearly more issues to be addressed.
As the recovery kicks in, external pressures related to airports and airspace will be relaxed to a certain extent due to lower demand. However, there will still be pressure from the system (Airports and Air Navigation Service Providers) and service partners (any contracted providers), who will also seek to raise revenues and become more efficient through capacity reduction.
From an internal perspective, the focus on efficiency will mean that typical “solutions” – buffers represented by extra block times, spare aircraft and crews, and so on – will have to be reduced or done away with. This is not a new trend, but something many airlines already realised last year; the cost of the buffers is tremendous, while the long-term benefits are questionable.
40% of reasons for pressure on airline operations can be attributed to internal root causes: planning and steering processes, communication and, to a lesser extent, fleet diversity. Therefore, now is the right time to start thinking about fixing the core issues systematically.
Based on Lufthansa Consulting’s study and experience, there are two steps in such a move. The first focuses on “getting the basics right” and achieving initial transparency, while the second builds on this by truly utilizing data and technology to digitalize operations.
Get the basics right
When considering airline operations as they stand today, there are many opportunities for improvement that airlines and their system and service partners have known for a long time. Many can be executed with relatively low effort: definition and alignment of processes, establishment of parameters and KPIs, leading to the implementation. These will help to achieve efficiency through transparency and there is no better time to do so than now. The key questions airline operations directors and managers should be asking themselves now are:
Is the planning function in your airline set right not only in terms of processes, but also organisationally? Do you have a common set of policies and philosophies, clearly assigning responsibilities across your business?
Are there opportunities to optimise reference models, flight prioritisation in irregularity situations and overall communication, internally and externally? And what about your disrupted customers and their ability to self-manage their journey?
Are you satisfied with the delay code assignment, clearing and evaluation processes, to be able to really identify, quantify and fix the root causes?
And are your (real time) KPIs helping you steer the performance of your airline as well as the service partners to achieve the desired quality, along appropriate Service Level Agreements?
Build for the future
The last two points listed are, of course, more challenging as they rely on accurate and consistent data, something that might require investments to be able to collect, process and store the right data in the right way. Nevertheless, it is a step which must be taken: without investment in this critical capability, the gap to airlines that have pursued investment in data driven operations will continue to widen. Moreover, the underlying technologies will continue to develop in other industries, raising the risk of some airlines getting even stronger, thanks to support of such technologies - similar to what Amazon, Uber or Airbnb have achieved in their sectors.
Once the data are under control, the next steps towards digitalisation might be arguably easy: Optimal data sharing across the company as well as with partners to drive common situational awareness as well as an improvement cycle
Automation based on the underlying data, avoiding some 20% failure rate of the attempts so far (based on Lufthansa Consulting’s research). How do we change the foundations, as well as culture, to genuinely implement management by exception?
Using the data to support predictability of operations. Although this might be more difficult than expected as historical data might lose part of their value in the post-crisis world, the benefit could be faster introduction of machine learning.
Every airline is and will be different. As a result, each has a different starting point as it seeks to emerge from the crisis. However, it is important to acknowledge that action is needed and that for some actions, the right time is now.
The study is authored by Martin Sedláček, who is an associate partner at Lufthansa Consulting and leads the solution group flight operations and safety management.