4th airline cost conference - iata - home€¦ · 4th airline cost conference august 30-31 2016 ......
TRANSCRIPT
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4th Airline Cost ConferenceAugust 30-31 2016
Geneva
Transforming an airline with the help ofACMG benchmark data
Richard W CreaghCEO Aviation Management Ltd
&Ex CEO Meridiana/Air Italy
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Introduction
Why Are We Here• Make airlines more cost competitive
• “Study the past, if you would divine the future” [Confucius]
• ACMG enables us to- measure- compare- share ideas
• Manage - Take action
ACMG is one of IATA’s best initiatives
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Case Study• Heavy losses - bleeding cash - ineffective management
• Contract with Aviation Management Ltd team
• Ship adrift in storm with no helmsman
• CEO ( with authority and power to manage)
"If you don't drive your business, you will be driven out of business" B. C. Forbes
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Situation in Nov 2014
• Net Loss (EBT) EUR xxx
• Liquidity Crisis: EUR xxx overdue debt
• Staff Surplus xxx -----------Nine Unions
• Intercompany tensions ----- Meridiana/Air Italy
• Cultural Issues------------------Imbedded insularity
• Aggressive Competitors------High Unit Costs
Positive Support from Shareholder & Government
Deep rooted problems
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"If you don't know where you are, you won’t get to where you want to go”
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"If you don't know where you are, you won’t get to where you want to go”
• No Handover
• No clear strategy
• ACMG analysis of 2013 cost data
• Findings: CASK 31% higher than the industry average
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Detailed Findings
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Detailed Findings• Overheads: +83%
• Maintenance & Overhaul: + 54%
• Ground Handling: + 33%
• Navigation: + 111%
• Airport Charges: + 295%
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Detailed Findings
• Sales Costs: - 9%
• Pax Service: - 27%
• Overheads: +83%
• Maintenance & Overhaul: + 54%
• Ground Handling: + 33%
• Navigation: + 111%
• Airport Charges: + 295%
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Detailed Findings
• Sales Costs: - 9%
• Pax Service: - 27%
• Overheads: +83%
• Maintenance & Overhaul: + 54%
• Ground Handling: + 33%
• Navigation: + 111%
• Airport Charges: + 295%
• Yield per RPK: + 33%
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Detailed Findings
• Sales Costs: - 9%
• Pax Service: - 27%
• Overheads: +83%
• Maintenance & Overhaul: + 54%
• Ground Handling: + 33%
• Navigation: + 111%
• Airport Charges: + 295%
• Yield per RPK: + 33%
• Pax Load Factor: - 10%
• A/C Utilisation: - 36%
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The Process
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• Shared data with Staff, Unions, Management, Shareholder and Government
• Message ‘ Change or Die’
• Create sense of inevitability about change
• Lowering unit costs critical to survival
The Process
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• Shared data with Staff, Unions, Management, Shareholder and Government
• Message ‘ Change or Die’
• Create sense of inevitability about change
• Lowering unit costs critical to survival
The Process
• Prepared Strategic Review & Action Plan
![Page 15: 4th Airline Cost Conference - IATA - Home€¦ · 4th Airline Cost Conference August 30-31 2016 ... can't- you're right”Henry Ford ... •Complete the equity sale to Qatar Airways](https://reader031.vdocument.in/reader031/viewer/2022030608/5ad6bae77f8b9a6d708e86e5/html5/thumbnails/15.jpg)
• Shared data with Staff, Unions, Management, Shareholder and Government
• Message ‘ Change or Die’
• Create sense of inevitability about change
• Lowering unit costs critical to survival
The Process
• Prepared Strategic Review & Action Plan
Shareholder Support absolutely necessary
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”Whether you think you can, or think you can't- you're right” Henry Ford
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• Leadership Culture of innate Pessimism
• Self fulfilling Failure
”Whether you think you can, or think you can't- you're right” Henry Ford
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• Leadership Culture of innate Pessimism
• Self fulfilling Failure
”Whether you think you can, or think you can't- you're right” Henry Ford
Replace with:• Optimism- Belief that we can• Determination to Succeed
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• Leadership Culture of innate Pessimism
• Self fulfilling Failure
”Whether you think you can, or think you can't- you're right” Henry Ford
Replace with:• Optimism- Belief that we can• Determination to Succeed
Vision:
• Create a profitable self-sustaining Business• Attract Strategic Investors
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• Leadership Culture of innate Pessimism
• Self fulfilling Failure
”Whether you think you can, or think you can't- you're right” Henry Ford
Replace with:• Optimism- Belief that we can• Determination to Succeed
Vision:
• Create a profitable self-sustaining Business• Attract Strategic Investors
Set very challenging Targets
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”Action is the foundational key to all Success"Pablo Picasso
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Savings
• Commercial: Route rationalisation
• Challenge the status quo : Stop doing stupid things
• Streamline: Renegotiate all contracts
• Overheads: Rationalise and eliminate waste
• Fleet: Reduce re-delivery costs ; increase utilisation
• Maintenance: Engine overhaul; Close some stations
”Action is the foundational key to all Success"Pablo Picasso
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Savings
• Commercial: Route rationalisation
• Challenge the status quo : Stop doing stupid things
• Streamline: Renegotiate all contracts
• Overheads: Rationalise and eliminate waste
• Fleet: Reduce re-delivery costs ; increase utilisation
• Maintenance: Engine overhaul; Close some stations
”Action is the foundational key to all Success"Pablo Picasso
Revenue
• Ancillary Revenue:
• Long haul leisure
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Results: How did we do?
Positive progress-on track but more to do
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Alliances: Meridiana isolated
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Alliances: Meridiana isolatedObjectives:• Attract strong partners• Expand scale & market presence• Get new funding• Reduce Unit Costs
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Alliances: Meridiana isolatedObjectives:• Attract strong partners• Expand scale & market presence• Get new funding• Reduce Unit Costs
Strategy
• Explored a number of potential relationships
• Business Plan demonstrating potential of business
• Leveraged Government support
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Alliances: Meridiana isolatedObjectives:• Attract strong partners• Expand scale & market presence• Get new funding• Reduce Unit Costs
Strategy
• Explored a number of potential relationships
• Business Plan demonstrating potential of business
• Leveraged Government support
Outcome: Alliance with Qatar Airways
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• Build on confidence created by 2015 results
• Budget 2016 -challenging targets and breakeven bottom line
• Target further reduction in unit costs (-6%)
• Implement the HR changes
• Complete the equity sale to Qatar Airways
Budgets & Targets 2016
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Implementation Setbacks"All progress is precarious, and the solution of one problem brings us face to face with another problem” Martin Luther King Jr
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Implementation Setbacks"All progress is precarious, and the solution of one problem brings us face to face with another problem” Martin Luther King Jr
Culture Clash: No surrender v Change inevitable
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Implementation Setbacks"All progress is precarious, and the solution of one problem brings us face to face with another problem” Martin Luther King Jr
Culture Clash: No surrender v Change inevitable
HR Plan Implemented:
• Work Stoppages• Spontaneous ‘Sick Leave’ • Cancelled and Delayed Flights• Negative impact on forward bookings
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Competition intensified - yield erosion
Implementation Setbacks"All progress is precarious, and the solution of one problem brings us face to face with another problem” Martin Luther King Jr
Culture Clash: No surrender v Change inevitable
HR Plan Implemented:
• Work Stoppages• Spontaneous ‘Sick Leave’ • Cancelled and Delayed Flights• Negative impact on forward bookings
![Page 34: 4th Airline Cost Conference - IATA - Home€¦ · 4th Airline Cost Conference August 30-31 2016 ... can't- you're right”Henry Ford ... •Complete the equity sale to Qatar Airways](https://reader031.vdocument.in/reader031/viewer/2022030608/5ad6bae77f8b9a6d708e86e5/html5/thumbnails/34.jpg)
• Eliminated surplus
• Reduction in pilot pay - 20%
• Retire less efficient aircraft
• Improved supplier relationships
Implementation Positives
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• Eliminated surplus
• Reduction in pilot pay - 20%
• Retire less efficient aircraft
• Improved supplier relationships
Implementation Positives
And they all lived Happily ever after
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• Implementation of Alliance with Qatar Airways
• Continued Cost reduction programme
• Focus on Revenue development
• Improve Product and Customer service
• Budget for net profits and positive cash flow in 2017
Next Steps
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• Are all the problems solved........No
• Is the airline now secure?...........Probably
• Is it in a better condition than in 2014......certainly Yes
• Can it succeed.........Yes, but it must be ”made to happen”
Conclusion – Where Are We Now?
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• Are all the problems solved........No
• Is the airline now secure?...........Probably
• Is it in a better condition than in 2014......certainly Yes
• Can it succeed.........Yes, but it must be ”made to happen”
Conclusion – Where Are We Now?
Things do not happen. Things are made to happen." - John F. Kennedy
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ACMG was, and continues to be, a great help
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Thank You
ACMG was, and continues to be, a great help
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Thank You
Richard W CreaghCEO Aviation Management Ltd
&Former CEO
Meridiana / Air Italy
E-Mail: [email protected]
ACMG was, and continues to be, a great help