4th Airline Cost Conference - IATA - Home€¦ · 4th Airline Cost Conference August 30-31 2016 ......

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

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

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

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

"If you don't know where you are, you won’t get to where you want to go”

"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

Detailed Findings

Detailed Findings• Overheads: +83%

• Maintenance & Overhaul: + 54%

• Ground Handling: + 33%

• Navigation: + 111%

• Airport Charges: + 295%

Detailed Findings

• Sales Costs: - 9%

• Pax Service: - 27%

• Overheads: +83%

• Maintenance & Overhaul: + 54%

• Ground Handling: + 33%

• Navigation: + 111%

• Airport Charges: + 295%

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%

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%

The Process

• 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

• 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

• 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

”Whether you think you can, or think you can't- you're right” Henry Ford

• Leadership Culture of innate Pessimism

• Self fulfilling Failure

”Whether you think you can, or think you can't- you're right” Henry Ford

• 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

• 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

• 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

”Action is the foundational key to all Success"Pablo Picasso

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

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

Results: How did we do?

Positive progress-on track but more to do

Alliances: Meridiana isolated

Alliances: Meridiana isolatedObjectives:• Attract strong partners• Expand scale & market presence• Get new funding• Reduce Unit Costs

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

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

• 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

Implementation Setbacks"All progress is precarious, and the solution of one problem brings us face to face with another problem” Martin Luther King Jr

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

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

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

• Eliminated surplus

• Reduction in pilot pay - 20%

• Retire less efficient aircraft

• Improved supplier relationships

Implementation Positives

• Eliminated surplus

• Reduction in pilot pay - 20%

• Retire less efficient aircraft

• Improved supplier relationships

Implementation Positives

And they all lived Happily ever after

• 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

• 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?

• 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

ACMG was, and continues to be, a great help

Thank You

ACMG was, and continues to be, a great help

Thank You

Richard W CreaghCEO Aviation Management Ltd

&Former CEO

Meridiana / Air Italy

E-Mail: richard.creagh@aviationmanagement.limited

ACMG was, and continues to be, a great help