Labor and fuel costs are the biggest expenses for the airlines right now. If they can maybe negotiate lower rent for gates or lower payments on the aircraft, that would help. The legacy carriers have already asked employees to take pay cuts. Maybe if their upper management also took pay cuts instead of giving themselves bonuses, it would help the profitability. Right now fuel is too expensive to hedge. However Southwest did hedge some of their fuel which helps to keep them profitable.What types of costs must airlines control so they can be competitive?
The low-cost model suggests dropping unnecessary costs like:
- elaborate free meals
- paper tickets with complex rules
- connecting flights (note that lost baggage happens mostly in connecting between flights. The cost pf retrieving such baggage is so high)
- mutli-type fleet
- operation from major airports
- lengthy turnarounds
- unnecessary advertisement
- unnecessary ticket offices
- large administration
Put these and many more together, and you can get huge cost savings across the airline.
The ';un-controlables'; i.e. fuel and labor!
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