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A decades-old system for cost classification and reporting inherited from industrial era still dominates management practices across the airline industry. Airlines continue to use this system partly driven by collective inertia and partly by the lack of alternative solutions that would empower decision makers with understanding of true origins of operating costs, essential for making informed cross-functional decisions of strategic and operational nature.
Traditionally, costs derived from financial reports are statistically distributed to segmented business units in order to be calculable at functional levels and easy to control. This practice ignores the fact that costs are more than just sums of numbers - they are nonlinear, interrelated, and consequently cannot be measured in a conventional way. This is why answers to questions related to true effectiveness of cost saving measures, route network, aircraft and hub operation, outsourced services, or investment in additional resources, remain stumbling blocks for improvement in cost efficiency and operational performance.
To inject more life into the planning processes, upset by limitations of traditional costing system, senior executives need to be regularly informed about the cost critical but avoidable changes in planned operations and their root causes. This will bring profound changes in the way airlines plan and control their business resulting in measurable improvement in operational and cost efficiency.