Worldwide, airlines are expected to lose $4 billion in 2006, despite continuing growth in air travel. Air traffic was up 7.5% in 2005 – further increases in the range of 5-6% are projected for 2006.
From the article: “Industry losses reached $6 billion in 2005, in keeping with predictions by IATA in December. That compared with $4.2 billion of losses in 2004 and $7.6 billion the year before. A steady return to profitability in the airline industry has been hampered by a surge in prices of jet fuel to record high levels until they eased slightly in the final months of the year.”
Why the blame on fuel prices???
Rising fuel prices must be acknowledged, but so should efforts or improvements made to shed cost that can be controlled by the various carriers. Sure we now have e-tickets and self check-in that pass work onto the consumer, but it is clear from continuing losses that these have not gone far enough.
If Profit = Market Price – Cost (the lean view of the value equation as highlighted by Mark Graban in a previous post), it follows that there are only 2 ways to improve profits: reduce controllable costs, and add value. Air travel is a saturated industry and market prices for fares are respectively low. Just look at the number of Internet based services all geared to finding the consumer the cheapest rates. While airlines would certainly like to be able to charge more for fares, the competitive landscape dictates that this is not possible.
Maybe, just maybe an external focus on the customer and an internal focus on the value stream would identify additional opportunities to improve flow and eliminate waste, improving cost and adding value. There may also be opportunities for airlines to work together on common processes and leverage each others ideas and resources for improvement. Common processes would include as an example, all activities for handling and moving passengers and baggage at airports.
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