Friday 16 September 2016

Importance of Cost Monitoring Solution for Airlines

The airline industry is a service industry with a low level of profitability because it is labor, capital, and technology expenses. It is also affected by external environmental changes as well as internal operations. Among other things, jet fuel is a major component of commercial airlines’ operational costs. Therefore, airline companies must always exercise cost control, especially after having experienced the extreme crude oil price increases. According to International Air Transport Association (IATA) statistics, in 2008 the global airline industry’s fuel bill in 2008 grew somewhere between $31 and 165 billion USD, and lost about $16.8 billion USD, which accounted for 31% of operating expenses at $99USD/barrel Brent of oil. Thus, improving fuel-efficiency continues to top the agenda of the airline industry. Under this challenging economic environment, operation cost control is of the utmost importance to the airline industry.

When we discuss about Operational costs, it includes a plethora of expenses that needs to be cut short. During a flight operation, there are multiple costs that needs to be pulled down in order to assure maximum profitability. These costs includes Fuel, Parking charges, covering air space charges, maintenance cost particularly. This not only helps an airline to reduce their operational costs but also helps them to attain a competitive edge in the domestic as well as International Market. This in turn plays a major role in the Revenue Management also since it helps the airlines to provide a competitive pricing to the Travel Agents through different GDS. Lets discuss few points that could help airlines reduce their cost of Operations and Manage their expenses in an organized manner:-

1)     Manage the cost of Project:-
                                                         Managing the cost of Project is one of the most important project management activities that would help us to complete the task within the estimated cost that suits the airlines. A proper guidance along with effective management objective is required by the Project Manager and the team who plays a major role in effective planning.

2)     Deciding on the Budget:-
                                         Budget planning is one of the most crucial and difficult activity to be executed. This requires a lot of Strategic planning and research. Now planning and research doesn’t necessarily mean only data available to determine the expenses as per the revenue and capital but also going back to previous expenses and experiences in terms of cost reduction and profitability. We need to keep a close eye at the competitors and understand their strategy, make comparisons and gain something out of it.

3)     Tracking the Expenses:-
                                       There should be an effective IT tool with effective resources to keep a track of the costs that is being incurred at every phase. This would help in tracking the actual cost against the estimated cost and with tracking the cost at every phase, it will help to stimulate the upcoming costs and help to manage them accordingly. This would infact allow us to take a decision if a new work can be adjusted within the objected cost.

4)     Time Management:-
                                  Although most airlines take this quite casually but it’s a fact that managing time effectively is equivalent to reducing cost. There are different phases of a Project/Operation. If there is a delay in any of the phase, it will highly affect the cost of the entire project since we need to meet the deadlines. In that case, we might need deploy more resources and make more expenses in the tools to meet the deadlines. Again this will definitely increase the cost.

This could only be attained if Airlines opt for an effective Cost Monitoring Framework which would not only be helpful to them on an internal expense perspective but it would also lead to reduction of ticket pricing for the customer and the Airline can accommodated additional services for their customers which would satisfy them more and help increase Loyal Customer base

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