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Fast track to sustainable value through airline cost transformation


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So much is changing for airlines today. But while the industry is volatile, there is also a perfect storm to put all costs under the lens and discover how to be best in class in every category. Airlines can get on the fast track to sustainable value by aligning costs with the future goals of the business and instilling a radically different value system with employee behaviors of ownership and accountability.

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Fast track to sustainable value through airline cost transformation

  2. 2. COST OF LABOR Pilot Shortages plus ongoing recoup efforts of concessions made in a post- 911 world will continue to drive up labor costs. CAPACITY Capacity growth of 5.8% CAGR globally between 2011-2017 resulting in a yield CAGR of -5.3% on long haul and -4.2% on short to medium haul markets. Future capacity growth will result in lower margins and limited ability to pass cost escalation to the customer COST OF FUEL Fuel makes up ~15-20% of an airlines cost at 2017 prices which are roughly half of 2011-2014. As fuel price rises, only a portion of the cost increase may be passed on to customers due to supply/demand dynamics. AIRLINES FACE UNCERTAINTY AND UNIQUE HEADWINDS THAT IMPACT PROFITABILITY Copyright © 2018 Accenture All rights reserved. 1
  3. 3. BUT… ARE THEY EFFECTIVE AND SUSTAINABLE? MAJOR COST REDUCTION PROGRAMS ARE LAUNCHING of the G1000 have announced major cost takeout.60% are able to sustain their cost savings for one to two years. Leaders that use cost reduction to fund new capability & growth are three times more likely to increase shareholder dividends/returns. 51% Copyright © 2018 Accenture All rights reserved. 2
  4. 4. A WHOLISTIC AIRLINE COST TRANSFORMATION IS REQUIRED TO GROW PROFITS. MaintenanceRevenue Ground Handling Sales, Distribution, Marketing Aircraft & other asset ownership Landing & Navigation fees Cockpit and Cabin Labor Fuel Catering G&A Regionals (if applicable) A.C. finance Lifecycle Mgt SCM MRO BTW Operations Labor Planning Labor Agreements Pilot Training Operations and Disruption Management Supply Chain Contract and procedure compliance monitoring IT services strategy Marketing effectiveness Insurance IT software and infrastructure costs Freight / logistics W&B / load planning Flight Planning Innovation, Digital, Advanced Analytics, Design Thinking, Automation Distribution channels and agreements Recruiting Real Estate Mx PlanningA.C. Procurement ATW Operations Crew Pay F&B / soft goods procurement Fuel procurement Shared servicesWellness programsPricing optimization Partnerships management (Alliance / JV) Organization Size and Shape Design Cargo sales effectiveness Marketing contracts Network optimization Cargo operations Airports GH ContractsMx Contracts Crew Pairing Catering contracts Conservation processesRM systems and processes CPA agreements Medical and pharmaceutical benefits Fleet optimization Copyright © 2018 Accenture All rights reserved. 3
  5. 5. FOR COST PROGRAMS TO BE SUCCESSFUL, THERE MUST BE A LARGER SET OF GOALS Offset growth in less controllable costs areas Retain and develop your team Invest in customer satisfaction Fund growth transformations Offset yield decline Return capital to shareholders Copyright © 2018 Accenture All rights reserved. 4
  6. 6. Just like a fad diet, most cost optimization initiatives don’t last. In fact, only 36 percent of companies surveyed agree that their business sustains the benefit of cost optimization programs. COST TRANSFORMATIONS FAIL TO SUSTAIN THEMSELVES WHEN COMPANIES DON’T HAVE THE RIGHT TOOLS Culture/buy-in 67% Data/visibility 33% Change management 41%Hardest obstacles to overcome Beyond the Buzz: Zero-Based Mindset, Accenture Copyright © 2018 Accenture All rights reserved. 5
  7. 7. VALUE FROM AN AIRLINE COST REDUCTION IS ONLY LIMITED BY MINDSET AND PACE ILLUSTRATIVE EXAMPLES Labor Fleet Distribution Fuel Maintenance G&A Airports 5-10% within 18 Months Traditional Cost Transformation The New Cost Transformation 10-20% within 3-5 Years Optimized manpower planning Fuel conservation programs Fleet and network optimization Steering toward direct distribution Contract rate and terms renegotiation Rate and rent negotiations Rate negotiations and policy compliance Real-time task assignment AI supported flight planning ‘Day of’ fleet optimization Defining new low cost distribution channels Predictive maintenance Fees offset from passenger steering to retail and F&B Process automation Copyright © 2018 Accenture All rights reserved. 6
  8. 8. 7 IT IS A MINDSET THAT WE APPLY TO THE ENTIRE ENTERPRISE ZERO BASED APPROACHES HAVE EVOLVED: Copyright © 2018 Accenture All rights reserved. ZERO-BASED FRONT OFFICE ZERO-BASED ORGANIZATION ZERO-BASED SPEND ZERO-BASED AIRLINE ZBA, OR ZERO-BASED AIRLINE MINDSET, IS A NEW APPROACH THAT IS MORE HOLISTIC THAN TRADITIONAL ZERO BASED BUDGETING EXERCISES. Unleashing ZBA involves gaining a forensic visibility into enterprise-wide spending and funneling savings back into growth initiatives. Making companies agile. More competitive in the digital age.
  9. 9. Ultimately, its is about instilling a radically different value system with employee behaviors of ownership and accountability; we have proven processes and accelerators to support this change KEY SUCCESS DRIVERS Copyright © 2018 Accenture All rights reserved. 8 1Activating Leaders 3Shifting Mindsets & Behaviours 4Hardwiring behaviors into the Organization 2Visibility into business and tools to drive change
  10. 10. ACCENTURE’S ZERO BASED METHOD • Creates unparalleled visibility - builds from scratch the whole cost base aligned to the new strategies of the business (it does not only aims for past efficiencies • Changes culture, not a crash diet • Business led, not just a finance or procurement • Builds sustainable capabilities • Use of robust methodology (patent pending in US) • Category benchmarks collected over years of work across industries • Transformation approaches allow risk mitigation • Leverages the application of digital capabilities to maximize efficiency, e.g., Robotics / AI, Analytics and Big Data, Social Media, etc. • People-focused approach incentivizes the organization to achieve the results and promotes the acquisition of new skills Recently awarded patent for Zero based AI Platform that supports the proprietary closed loop process ACCENTURE’S EXPERTISE IN COST TRANSFORMATION IS UNMATCHED Copyright © 2018 Accenture All rights reserved. 9
  11. 11. IMPACT AT SPEED THAT STICKS A CLOSED LOOP APPROACH DELIVERS Visibility CLOSED LOOP Value Targeting Category Ownership Lock Targets Into Budget Execute Initiatives Control & Monitoring 1 2 3 4 5 6 Copyright © 2018 Accenture All rights reserved. 10
  12. 12. OUR AIRLINE EXPERTS WILL CHALLENGE YOUR TEAM TO ZERO-BASE YOUR AIRLINE Expansive network of industry professionals for access to specialized industry expertise when needed Over 100 dedicated aviation advisors 85 employees that held industry positions from 40+ aviation companies 75+ airline clients 10+ Airline major cost transformation programs 100s of smaller targeted cost projects 3 airline optimization tools with over 70 industry subscribers Copyright © 2018 Accenture All rights reserved. 11
  13. 13. TARGETED BUT COMPREHENSIVE EFFORT BECAUSE WE KNOW AIRLINES AND HAVE THE RIGHT TOOLS OUR PROCESS AND TOOLS DELIVER RESULTS Forensic visibility in weeks not months Co-creation with our clientsFuture cost focused through digital lens Copyright © 2018 Accenture All rights reserved. 12
  14. 14. VISIBILITY IS THE KEY TO FOCUS ON THE ‘RIGHT’ AREAS TO DELIVER REAL VALUE GETTING STARTED Powered by Accenture’s aurora AI tool and Seabury Consulting’s expertise Create full cost visibility to ensure ‘real’ and trustworthy figures… Transactional data are combined to ensure full spend baseline… …enabling powerful analyses & benchmarking to drive the right opportunities …through standardized and unique cost definitions, harmonizing the Chart of Account Visibility CLOSED LOOP Value Targeting Category Ownership Lock Targets Into Budget Execute Initiatives Control & Monitoring 1 2 3 4 5 6 Copyright © 2018 Accenture All rights reserved. 13 Review of key airline contracts (CBA, CPA, Maintenance, GH) Tailor benchmarks for airline specific network and operating characteristics