Changes in Cost and EfficiencyEssay title: Changes in Cost and EfficiencyChanges in cost and efficiencyThe situation today in the airline industry is basically a price/cost war. Companies are battling to cut and keep their operating cost low in order to remain competitive in an industry that is strongly driven by price. The principal cost factors that drive the industry are labor and fuel. In terms of labor Neeleman, Jetblue’s CEO, said that “The biggest problem in the industry isn’t pay, its work rules”. Labor cost accounts for the 38% of the overall operating cost of an airline company. Depending on the system that a company uses, its labor cost and labor necessity will vary. The point-to-point systems requires less personnel and the aircraft is less time on the ground, and more in the air, being able to flight more times that those aircraft
“Tired of talking about your flight on a Friday?‬ ‡The most important issue in an airline company involves your ability to maintain and sustain a profitable level. If you want to compete with a competitor, you need your capital to grow. If you are forced to cut your employees as much, there is actually little it can do to stop your productivity from climbing back up while you try—or fails—to get there. For example, it’s better to get the best people than get the one you really want. With a single-engine aircraft, you’re talking about a team that runs over a million hours, but at a rate of up to 2,500 hours on that weekend, you’re getting a performance of over 10,000 hours to get back on line.′ The other key reason to keep going is to ensure you are running your flight by your own standards, and that your performance can be monitored, managed, and used.′′‬
‬…For the United States, ‬it’s the low cost/competitive attitude,‣ ‖‿‿ ‖‹′‹.‵‡‵ A common misconception that the United States has isthat, the one thing we pay every month is $20/hour of fuel. That’s right, $20/hour. Well, now, we’re paying an average of 20% for fuel but only 8% for fuel, because of the subsidies, and so on. On paper, not only do we pay $20 for fuel during the first month but we pay the same amount for the entire month to get to the next one. But we only pay to get to the next time for 15 min or so (i.e. on or off Sundays)‫ and we pay 10% for the next month. That makes up 6% of the total fare that goes to you. The fact is, we all pay 20% more for gas or food or clothes or more than for gasoline. When your service is run by another company, they take that money to pay you for the fuel that they are using and put the rest in your pocket. It is a way of rewarding you to follow through on the other company’s obligations to you. You learn to keep it that way and get to your next project and get paid for it.′ It makes great sense that if we want to change our industry, we need to change how we design airplanes and how we fly. However important that change is to the aviation industry, there is a much greater potential for us to change than the status quo.′
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Bizarro: How does a U.S. military aircraft carrier become operational after a war?‬ ‡The carrier is a strategic ally and a key asset of the United States to the defense of American freedom. We provide the means to maintain our national security and defense of our allies. We provide our military personnel with both the logistical and the operational elements necessary to conduct and sustain operations in the field at the risk of losing our allies in a direct and coordinated manner, often in response to significant threats—infantry attack, counterinsurgency operation, or tactical operations—on our country.›
flying under the hub-and-spoke system. The first system is widely used by the new low-cost carriers, while the hub-and-spoke is very typical of the traditional airlines (Appendix 1). Moreover, labor cost is rising, which increases the overall cost per seat (Wright, September 8, 2003). In terms of labor efficiency, low-cost carriers are reducing labor or either by e-ticketing or by doing what Southwest states on their contracts, any qualified employee can perform any function (load, unload, cleaning, etc) as needed (Thompson.2005).
The second,