What Makes Airline Save Money Or Maintenance Facilities Cut Costs?

Southwest Airlines is a company that is known for its low ticket prices and profitability despite the highly risky industry in which it operates. This essay examines the cost behavior, cost volume profit (CVP), activity based costing (ABC), budgeting process, costing and decision making policies of the firm. The essay will discuss how the airline integrates these concepts in its daily operations.

Suppliers generally have a moderate to high bargaining power within the industry due to the limited number of suppliers which forces aviation companies to choose from the number available and accordingly to accept their prices. In fact, fuel is the second highest cost for aviation companies. There are highly depended on supplier’s prices and the availability which indicates on a relatively high bargaining power of suppliers. In addition, there are high switching costs which are strongly in favor of the suppliers and means that the company experiences an increase in operating costs when switching to another supplier as flying another type of aircraft leads to additional costs (maintenance, training etc.).Aircrafts are vulnerable to delays due to the location of gate locations which leads to a decrease in utilization and therefore to an increase in costs.

Vega, D., Pamplona D., & Oliviera A. (n.d.). Assessing the influence of the scale of operations on maintenance costs in the airline industry. Retrieved last February 25, 2015 from http://sitraer2014.pcs.usp.br/wp-content/uploads/Apresentacoes/19-11- 2014/Session5/04-Daniel-Alberto-Pamplona.pdf

A unique cost cutting policy would be the main core competence of Ryanair. It refuses to provide any meal vouchers or hotel accommodation for flights which are delayed or cancelled for reasons beyong Ryanair’s control in order to reduce the operating cost. (Ryanair, 2011) Meanwhile, Ryanair is using LFA business model to design the size of its

Jerome Simelane, the airline's Commercial GM, “By using what we have learned over the years about international airline best practice‚ we have also created a cost structure which allows us to offer competitive fares without cutting any corners on quality‚ safety and reliability."

US RAC on-airport operating expenses: Labor per transaction, administrative and other costs had increased 41%, 65% and 30% respectively between 2000 and 2005. In addition, margins were not constant across locations and varied from 32% to -7%. CD&R proposed that the operating expenses could be reduced resulting in cost savings of $75M per year.

Economic, social-cultural, and technological forces are the external macro-environmental factors Southwest Airlines should be most concerned with. Weak economic growth reduces the purchasing power of an airline’s target market. Southwest, known for being a leader in low cost airline, provides flights at a higher frequency and capacity to attain profit. However, the company experienced increasing overhead through the lapse of long-standing fuel contracts, which previously helped provide a competitive advantage. This factor is also amplified by the growth the company experienced with success. Southwest is the fourth largest airline and has seen fuel cost skyrocket from 29 percent to 35 percent over a seven-year period.

American Airlines is looking to expand its market to more wealthy consumers by offering an excusive line of aircraft consisting mostly of first class and business type seating. This new model will be labeled under the title “Elite” and would market routes to and from major city hubs during heavy business traveling hours. American Airlines will position this service as the, “Black Jet” since that would be the standout feature of the aircraft. American can take advantage of its existing market base along with its frequent fliers to sell the experience of a flight experience beyond maximizing passengers. The target motto would be a “flight redefined.” American Airlines Elite would target business, first class, and frequent flying travelers.

* Hedging. Hedging with the fuel market could save enough money in one year to offset the next year’s fuel supply and costs.

Over the years, company sustained low operation costs and tickets prices following well-developed strategy. Among other measures, it was able to keep prices low by flying only one airplane type, minimizing service and maintenance expenses, and convincing employees to cut gate turn-around times and make the airline more efficient (Fitzpatrick, 2005).

A critical factor during a time of high oil prices is Southwest's history of hedging future fuel costs. Southwest is not only able to gain from a lower oil price, they are also better able to budget costs for the upcoming year. (USA Today, 2008). Consumers are starting to cut back on luxury purchases. According to Reuters, “...just 25 percent of respondents rated their financial situation as better than a year ago, the lowest in 27 years.” (Reuters, 2008).

The airline industry has always been a fiercely competitive sector. Since the invention of low-cost carriers, also known as no-frills or

The Airline industry has experienced continual problems with rising costs with both fuel and maintenance which has caused them to increase their fees to the consumers to pay for those rising costs. This paper will help explain what an airline such as Delta does to help alleviate such costs without forcing its consumers to flip the bill through high fees that consist of tickets, baggage fees and food. The costs of doing business in aviation today have spiraled out of control making it very expensive for both airlines and the

The income of mas is mainly generated from logistics and secondary activities such as aircrafts maintenances as well as technology development by coordinating the two it can help Mas to have a lower cost structure hence increase the value of the outcome product it can also help Mas to compete better in the aviation industry by understanding the connection between the value chain activities. Another important aspect is the issue of proper coordination with their union in the aviation industry, the consumers as well as their suppliers can help to add up the bonding between the companies. The improvement of primary and secondary activities by mas can have a positive impact on Mas because it can help Mas because it can help Mas to have higher profit which can be gained in the

Elimination of several services including in-flight meals, assigned seating and baggage transfer to connecting airlines results in costs savings; and