Silk Airline Revival

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Revival of a sick airline: Silk Airline by Shweta Durge

PROJECT REPORT ON

REVIVAL OF A SICK AIRLINE:

SILK AIRLINE

Submitted for the

Post Graduate Diploma in Aviation Law and Air Transport

Management (PGDALATM)

Submitted by

SHWETA PRAKASH DURGE

April 2012


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ABSTRACT:

The world economy is changing rapidly. Current global economic conditions

underline the importance of governments planning ahead and preparing for all

eventualities. This includes putting in place strategies to build sectors of the

economy which are crucial to ongoing economic growth. The global financial

crisis has affected many international industries and its impact on aviation

businesses is likely to be significant. Air transportation in India is under the

purview of the Department of Civil Aviation, a part of the India's Ministry of Civil

Aviation and Tourism. However, since the early-1990s, as part of a broader

economic liberalization agenda, India has been in the process of opening up its

civil aviation sector, including the airline industry, to private domestic and foreign

players. This rapid growth of air traffic led to increased consumer demand and

expectations. 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 thoughenjoys 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 Air has been in the red for the past five years and is faced

with growing inadequacies, thereby losing its image day by day. The project

discusses the immediate remedial measures to be taken by silk air line to prevent it

from bankruptcy.

BRIEF OUTLINE OF THE PROJECT:

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


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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 has been in the red for the past five years and is faced with growing

inadequacies, thereby loosing its image day by day. It is in need of immediate

remedial measures to prevent it from bankruptcy

MAIN ISSUES INVOLVED:

Silk airlines is having so much of experience in airlines business, running from

over 21 years. However as time passed by the airline went to into losses before

analysing the main cause. The identified challenges are:

1. TOUGH COMPETITION: These days there is lot of competition from other

airlines, who are offering tickets at a competitive price. They are also

adopting new strategies to attract more passengers in the form of Low Cost

Carriers (LCC). So in order to tackle the competition SILK airlines has not

succeeded. The fleet of the airline has become old, with old furnishings and

luxuries. Airlines like Kingfisher, Jet and various other airlines have created

a scenario for this conventional airline to look back at the loss of Passenger,

freight and mail traffic. Competition comprises of Quantity as well as

Quality. Quantity refers to factors like route networks, Interlining,Frequency of operation, Asset utilization. Quality refers to the co-ordination

between departments of Service, Maintenance as well as Healthy Industrial

Relations. Frequency, Departure schedule on each route, Price charged in


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comparison of Airliner, products offered, service Quantity and Quality etc.

form the pivotal areas in respects to competition.

2. AGING FLEET and LOW PROFITABILITY: The total fleet of the airline is

60. In this they have purchased B747-400, A300, A310 and 320 way back

15 years ago. After that they have not purchased any new aircraft except a

few B-777. The aging fleet increased the cost of maintenance, in turn

profitability of the company. As there were incidents of grounding aircraft

because of lack of spares and other equipment. These aircrafts were not

returning profits as seats were not getting filled. Returns per seat occupied

are very low for the company, as it was following old procedures. The

typical Ageing Aircraft challenges faced by Silk Airlines are, Technological

obsolescence, Safety issues, Non availability of Spare parts, processes and

tooling being no longer available, changed Logistic procedures, Suppliers

out of the business, Budgetary limitations, Higher fleet utilization causing

increase in the demand to cope with ageing structures.

LOW PROFITABILITY:Silk Airlines has been having reputation of flying

passengers for more than half a century. But the airline has not been able to

capitalize on that which will affect the profitability of the airlines. The

profitability for an airline will depends upon many factors such as

passengers experience, friendly attitude towards customers, filled up seats

and optimum utilization of the available capacity in the aircraft. No seats

should be left vacant in an airline.

3. POOR ON TIME PERFORMANCE: The flight data sheets indicate that the

Silk Airlines is poor ontime performance (OTP). The primary reason for


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poor on time performance is ageing fleet and incapability to reduce the run

time affairs both in the air and the ground as well. Effective mechanism

between man and machinery is lacking in Silk Airline, resulting to

inordinate delays in flights.

4. LACK OF LEADERSHIP: The airline was running very well under the

leadership of the old CEO around 4 years back. The change of leadership

along with bought many changes. As there was no immediate appointment

of an experienced CEO. So there were pressures from different Financial

Institutions for repayment of debt, oil companies are asking for their

payments, as fear of lack of good leadership was in the minds of

shareholders of the company.

5. UNHEALTHY INDUSTRIAL RELATIONS: Industrial relations include

management of both internal and external affairs of company or industry

tactfully. It includes business tactics especially for airlines business like

capacity expansion, route structure; code sharing etc. SILK Airlines once

enjoyed Monopoly in the skies as it was the market leader showing ways to

others about running airline. It was maintaining healthy relations with all

other associated Aviation related Vendors and Suppliers. But as amount of

losses have increased payments to the vendors got delayed, travel agents

were not paid their commissions. Vendors are not ready to supply spares.

6. INADEQUATE CASH FLOW: Due to Lack of Good Leadership and

unhealthy relations with government, Financial Institutions and banks led to

the lack of funds to run the airline. All banks and other financial institutions

are not happy with the way the company was running as there was no way to


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arrange funds, because the land bank the company was holding were already

mortgaged. No correct responsible person is there to stand and run the

airline. The shares of the company had fallen steeply these days and no

investors are ready to invest. This led to poor or even nil cash flow.

STRATEGIES TO MEET THE CHALLENGES:

1. MARKETING TECHNIQUES: Innovative marketing techniques should be

adopted to attract more and more passengers to fill up the total available

seats. For an airline, one vacant seat is revenue lost forever. Seats should bepriced accordingly to increase the revenue yield. The main objective of Silk

Airline must be for Selling the right seats for the right customers at the

right price.

2. AIRCRAFT MAINTENANCE: Another problem is by way of aircraft

maintenance. Silk Airlines has been outsourcing its maintenance to other

maintenance companies. Silk Airline is having an aircraft fleet of 60 aircraft.

Hence there is a need to start in-house maintenance facilities for its aircraft.

Most airlines today have entered alliances to share the burden of operating

costs. Formation of joint ventures by induction of partners capable of

providing technical, financial and marketing inputs, change in product mix,

improving marketing strategy, etc. may be looked upon. Silk Airlines should

look for this option as by these alliances it can use the expertise of ground

crew and the maintenance staff. The Company should try to minimize the

non-operating cost and try to increase customer satisfaction which in turn

creates customer loyalty and together combining these factors will result in

the profitability of the airlines.


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3. PUNCTUALITY: Research shows that major airlines with above average

punctuality rates have been more profitable than those with lower than

average punctuality performance. Research on the performance of major

airlines suggests that there is a positive correlation between on-time

performance and operating profit. Despite the increasing attention that Silk

Airlines paid to punctuality the airlines on-time performance is still far

below satisfactory levels. Punctuality is a key leadership challenge

throughout the organization and should rank high on the management

agenda from strategy and planning all the way to front-line operations.

4. CHANGE OF LEADERSHIP: There is an immediate need to appoint a

responsible person i.e. CEO, who is having experience to handle in these

situations.

5. LOW PROFIT ROUTES: The airline should boost its profit margins by

eliminating low-profit routes, parking unused airplanes and flying planes

closer to capacity than ever before.

6. LOWER COSTS: The airlines may hang on to planes and even expand their

networks to create more revenue to cover their high fixed costs. It is also

recommended to walk away from aircraft leases or allow redundant planes to

be re-possessed. Fewer planes mean lower fixed costs. Different strokes for

different folks shall be the pricing strategy. This shall cater for the common

man and as well as the elite. First come first serve basis shall be maintained

so as to give the early bird, cost benefits.


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7. LOW COST CARRIER MODEL: It has been planned to convert some of

the busy short haul flights to single class low cost model as to garner

maximum revenues. However being the national carrier, the legacy model

shall continue in most of the international routes.

8. CODE SHARING: Presently Silk Airlines has discontinued many routes

owing to various factors. Some of these would be restored while the rest

would be considered by partners and alliances by means of code sharing.

This would work both ways and would increase traffic and improve reach of

the Airlines tremendously.

9. EMPLOYEE-AIRCRAFT RATIO: The only single parameter which should

drive sustainability of an airline is employee to aircraft ratio since that

defines the fixed costs and therefore the breakeven point. The modern

technology in the air as well as on the ground makes so many people

redundant. Silk Airlines has been upgrading the technology in the air but has

failed to catch up with cost advantages of technologies available for

operations on the ground. The management has failed to monitor the values

important for running an airline and performance to contain various ratios

crucial for airline operations within preset limits and overcome the

deficiency.

10. IMPLEMENTATION OF CORE CAPABILITIES: The hub-and-spoke

delivery system has become the new standardized operating system and is

the order of the day. It has three central features. First, there are cost savings

to airlines form better capacity utilization. Load factors are now in the low to

mid-sixties, up from a level in the low to mid-fifties before deregulation.


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Second, there is greater concentration at the hub airport. A third feature is

that more destinations are served nonstop from each hub. Several waves of

incoming and departing flights occur each day that greatly increases the

number of sources and destinations between which passengers can flow with

at most one intermediate stop.

11.INFORMATION TECHNOLOGY: It needs no mention that advances in

computer technology, particularly with respect to the reservations systems,

have expanded the industry's core capabilities. Today's systems quote fares,

allow seat selection, and issue boarding passes and also provide car rental

information and enable travellers to make hotel reservations. Strategic

developments in pricing have also been made possible by computer

hardware and software advances. The company may introduce simple peak

and off peak pricing schemes. The intricate fare structure is driven by

different supply and demand characteristics.

12.ORGANIZATION AND MANAGEMENT: Silk Airlines needs drastic

changes in its organizational structure. It needs to adopt a matrix kind of

organizational structure, wherein each one on the role of the company will

be responsible to each other. Then only the orders and instructions and

delegation of responsibilities will move in a chronological order.

13.PERFORMANCE MEASUREMENT-AIRLINES: The Company pays

salaries and wages to the staff in order get their services and work

contribution to achieve its objectives and ultimate mission. Hence, it is

imperative on these incumbents to make their contribution effectively and

efficiently. This can be ensured by adopting various measures to monitor


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the performance of employees. The employees recognition must be done

on the basis of their contribution towards organizational objectives.

14.COST CUTTING: For any venture to be successful, especially in the time of

crises, the foremost is to cut down additional costs. This could be done by

cutting down all the bonuses and allowances in a reversible fashion. The

employees must be taken into confidence before implementing this step.

15.CUSTOMER RESPONSE: A two way communication is a must and

customers should be encouraged to voice their opinions and suggestions.

This can be done by emails or telephony.

16.PURCHASE/LEASING OF FUEL EFFCIENT AIRCRAFT: Currently the

average age of the fleet is touching 18 years. Not only are the ageing aircraft

consuming more fuel but also are heavy on recurring maintenance. New fuel

efficient and modern aircraft (787/350) need to be inducted in a span of 5

years. Keeping in mind the high cost of outright purchase the airline can

think of sale and lease back strategy.


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CONCLUSION: Observations of the industrys performance following oil

shocks and global recession in the 1970s and 1980 give good reason to expect the

industry will return to growth as the broader economy recovers in the medium and

longer term. In particular, improved navigation and surveillance systems, will

allow more flexible and efficient routes to be flown and will provide greater

awareness of other air traffic and potential airspace conflicts in-flight. Both ground

based and satellite based systems will play a part in our future air traffic

management system. Technologies and systems such as Automatic Dependent

Surveillance Broadcast (ADS-B), Global Navigation Satellite Systems (GNSS),

Airborne Collision Avoidance Systems (ACAS), Approach with Vertical Guidance(APV) and Wide Area Multilateration (WAM) will increasingly become available.

Government agencies, in close consultation with industry, will need to decide on

an approach to the introduction of new technologies that ensures maximum safety

and minimizes transitional risks. As far as possible, developments should be

compatible with those overseas, ensuring maximum interoperability and avoiding

unnecessary costs in equipment and training. High fuel prices and load factor

adding that the bad patch is almost over and we are looking forward to growth

now. The remedies will raise some hopes of revival.

REFERENCES:

1. www.aita.org

2. www.icao.int

3. www.wikipedia.com

4. Dr. P.C.K. Ravindran, Airport Management World Class & Beyond


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Silk Airline Revival