The document discusses airlines outsourcing maintenance and other non-core functions to cut costs. It provides examples of Jet Blue outsourcing aircraft maintenance to El Salvador and US Airways cutting mechanic jobs. While Malaysian Airlines denies rumors of outsourcing its in-flight retail, the document analyzes benefits and potential issues with outsourcing for airlines. Benefits include lower costs, flexibility, and reduced management of non-core functions. However, outsourcing could impact quality control and aircraft safety if not monitored closely. The document also recommends airlines consider issues like cost savings, quality, core versus non-core activities, flexibility, security, and potential customer backlash when evaluating outsourcing.

1. CAPACITY
UTILISATION
BY: AIN ATIYA AZMI BT NAZMI
NUR WADHIHAH AMIRAH BT MOHD SHOKRI
IISM A LEVELS (2017)

2. CASE STUDY: WORLD’S AIRLINES
INCREASE OUTSOURCING

3. O Previously, all global airlines had their own
team of qualified aircraft engineers.
O Recent move is towards outsourcing
aircraft maintenance.
O E.g: Jet Blue planes are sent to El
Salvador for maintenance, US Airways cut
2000 mechanics jobs
O Malaysian Airlines denied rumours that it
wants to outsource its in-flight retail
operation, Golden Boutique

4. 1. Analyse the potential benefits to major airlines
from outsourcing the maintenance of their
aircraft. (10 marks)
O It is cheaper. Airlines do not need to
employ and train their own mechanics.
O The mechanics working for outsourcing
companies in countries such as El
Salvador do not have to be licensed and
are paid a fraction of the wages earned by
mechanics working directly for the airlines.
O The cost saving will help airlines be more
price competitive and boost profits.

5. O There is greater flexibility. By removing
mechanics from the payroll and buying in
services, fixed costs are converted into
variable costs.
O Contracts with outsourcing companies can
be cancelled if there is a fall in demand.
O There will be no need to make staff
redundant.

6. O It is easier to manage.
O The airlines no longer have responsibility
for recruiting,training and retaining staff .
O They will no longer have responsibility for
employee rights at work.
O The HR department may be reduced in
size as there are fewer direct employees

7. 2. Explain two reasons why Malaysia
Airlines may not want to outsource in-
flight retailing. (8 marks)
O • Controlling quality − the in-flight retail
operation called Golden Boutique has an
important impact on passenger perception
of Malaysia Airlines. If the retail operation
is outsourced, Malaysia Airlines will lose
some control over the quality of the
service and this could damage its
reputation.

8. O • Loss of jobs − Malaysia Airlines will
have to make some employees
redundant. This will lead to demotivation
in the workforce and there may be
industrial unrest during the transition.
O • Loss of profit − Golden Boutique offers
good value to Malaysia Airlines.
Outsourcing the operation may lose the
airline revenue and could reduce profits –
the outsourcing company will only offer a
service if it is able to make a profit.

9. 3. As a business consultant, write a
report to the chief executive of your
own national
airline discussing the process of
outsourcing and recommending
whether all non-core
activities should be outsourced. (14
marks)

10. O The process of outsourcing involves airlines
using other businesses to deliver services
such as baggage handling, in-flight meals and
retail operations. It may also involve the airline
using a third party to provide operational
activities, such as maintenance of aircraft .
O Should all non-core activities be outsourced?
An airline would need to consider the
following issues.
O • Cost saving from outsourcing − specialist
firms providing meals, for example, will benefit
from economies of scale and can, therefore,
offer competitive prices to airlines.

11. O • Impact on quality and aircraft safety – an
outsourcing firm is specialised and,therefore,
has expertise in the service it offers. Quality
may be improved as airlines have less
knowledge of non-core activities. However,
outsourcing does not guarantee quality and
there is a loss of control over quality for the
airline. Minimum service level agreements will
have to be drawn up and monitored.
O • Core activities − outsourcing frees up
management time to devote to the core
activity of the airline, leading to improvements
in performance.

12. O • Flexibility − the airline is responsible for
fewer staff and will find it easier to
respond to changes in demand.
O If demand falls, contracts can be
terminated; if demand rises, contracts can
be extended.
O However, if outsourcing fails, it may be
difficult and expensive for the airline to
reopen its own operations.

13. O • Security − airlines have a particular
need to protect security as they have a
great deal of sensitive information and
there is always a threat of terrorist attack.
O Thus, would using an outside business to
perform an important IT function present a
security risk or would the airline benefit
from the expertise that an outside firm can
offer?

14. O • Customer backlash − outsourcing
telephone call centres may lead to
customer dissatisfaction.
O Outsourcing can also lead to negative
publicity as it is often seen as a cost-
cutting exercise.

15. END OF
PRESENTATI
ON.
THANK YOU.