Introduction
There is a very large difference in the price and operating economics of aircraft and this is only one aspect of several important factors that are absolutely vital for fleet planning. “Fleet commonality” and costs associated with it must be considered very carefully to obtain a better economic viewpoint of the way that cost effectiveness will impact the operations and eventual survival of the airline from an all encompassing point of view. Some carriers chose to have only a single type of aircraft for their airlines while others usually chose two or more types of aircraft to offer diversified services for both small and large markets by plying the “right type of aircraft” for different sectors and different market sizes. Although there is no absolute or correct formula for the right type of aircraft, such important decisions need meticulous analyzing. According to “Air-Insight” in their Market Analysis of 100-149 Seat Segment aircraft they reached the conclusion that the costs of commonality are quite average compared to the potential economic benefits of purchasing aircraft built with the latest innovative technology. The difference in economics is a minimal 1.5 to 2 % over the useful operating life of the aircraft .
Analysis of Differences
The analysis carried out for this purpose considered the following essential factors:
- The initial expenses that will invariably be incurred for regulatory and adjustment materials.
- Preliminary expenses for stocking or buying additional spare parts
- Initial training for the technical staff, pilots and cabin crew
- Initial expenses for additional handling staff
- Progressive expenses for training and other miscellaneous expenses
The findings of the analysis showed that introducing a new type of aircraft into the existing fleet envisages additional expenditure for many things including training additional pilots from within their existing cadre because of the difference in aircraft technology and different handling methods. This is essential because of their transition to another type of technologically advanced airplane. The analysis also found that staffing requirements for a smaller sub-fleet requires slightly higher crew ratios per aircraft which increases the differences in setting up costs. On the positive side, the analysis proved that a sub-fleet of new technology aircraft would pay back the additional within an operating period of 12-15 months and also save a considerable amount of money over the useful operational life of the aircraft. With the very short payback time, a more efficient sub fleet of technologically advanced aircraft makes economic sense .
Aircraft Purchasing Decisions
Airlines that uses single aircraft type
Southwest Airline is a company that has chosen to maintain Fleet commonality because they use a single aircraft type for their operations. They contend that keeping one type of aircraft keeps the operation simple because then fewer things can go wrong. The rely on the element of commonality by using just type of Boeing 737, because this results in many different types of cost savings because they train their pilots, technical staff and cabin crew to work in just one type of carrier.
Another cost saving aspect is that that they only need to stock just parts for one plane which can work in all their carriers. They also have no problems in parking their planes since they are all the same size and shape. The airline does not assign seat number because if they have to swap an aircraft for a different one, there is no problem with seat numbers because even the 737s have a different seat configuration. Southwest also save money by not charging to check bags. They contend that when baggage is checked in, people try to cram in as much as possible which is more than can be easily stored in overhead bins. This results in delays for baggage checks. Delays invariably cost time and time is money which result in financial losses for the airlines .
Hub and Spoke System
Some carriers work on the hub-and-spoke system which routes planes to major connecting airports before making the final trip to their prime destination. Hubs lead to invariable delays because when 25 or 30 planes all arrive at a hub simultaneously, they lead to substantial ground time as they line up for their turnaround and need cleaning, refueling and other maintenance processes. This creates huge financial losses for the airline because the planes are only making money when they are flying. Southwest’s flights are usually direct from one destination to another because when planes land, they quickly turnaround and are airborne in the shortest possible time. Because it is less interdependent, the network easily takes care of problems at any single airport. The airline has limited itself to domestic flights which are considered short-hauls to ensure that its operations do not develop operational glitches. The airline has the shortest turnaround time of 25 minutes which no other company in the business is capable of. Southwest has not infringed upon the market share of other airlines, but with its operating strategies has made the cost of flying more affordable for passengers .
Airlines that uses different makes of aircraft
JetBlue is an airline that predominantly uses the 70 A320 airbuses because they say that this aircraft consumes less fuel than the Boeing and is just as efficient or more so according to Jet Blue. This reliability is authenticated by the fact that the company completed 99.4% of flights on time. This shows the reliability of the aircraft. By flying the A320 airbus, JetBlue believes that they have established a strong brand that separates them from their competitors because they have the ability to offer a low fare structure and reliable customer service which the customers enjoy and fly with the airlines whenever they need to travel. JetBlue envisages some key values as part of its policy towards its customers and the people employed by the company, which are:
- Safety
- Compassion and concern
- Integrity
- Having a good time
- Passion about providing the best services
This is accomplished by employing people who are friendly and helpful, can work well as teams and are customer focused
Main benefits of commonality between new aircraft and the existing fleet
When airlines are considering addition to the existing fleet there are several important aspects that influence their decisions such as:
- The aircraft must have the capabilities/capacity so that it can be transferred from one operator to another in a functioning state and must have cash value in the global markets.
- The market price of the aircraft is does not go down because a major component of the general procedure is calculated at the enduring value of the principal aircraft. This envisages forming policies to alleviate the risk to assets so that they do not lose a large part of their prospective margins of the value of the aircraft declines.
The capability to choose resources which have the best chances of selling or leasing and depicting a good value retention is essentially the first step when new aircraft have to be added to the existing fleet. Fleet additions require a wide ranging understanding of all aspects that improve the strength of the purchased assets. Another very important aspect that should be considered is whether this is the right time to buy or sell aircraft assets which requires a comprehensive understanding of the economic indicators that that are considered as entry or exit points in the aviation cycle
Value of Aircraft
Different people evaluate aircraft in different way when considering addition to existing fleet. Accountants evaluate it according to its value as recorded in account books, and the company buying and selling aircraft will evaluate it according to its market value. However, aircraft appraisers follow a representative sample that is laid down by ISTAT (International Society of Transport Aircraft Trading) which are according to the Base Value (BV) of the aircraft that is based upon the evaluation value of one aircraft and its simple transaction that takes place between a knowledgeable buyer with no undeclared liabilities in an equitable market which is a market where supply and demand are equal and where the purchase or sale of an asset is affected by short or long terms occurrences. Short term occurrences include surprising manufacturing price discounts, an abnormal rise in the price of fuel or extraordinary events such as war or recession . The entire Air Arabia fleet consists of planes manufactured by “Airbus Société par actions simplifiée” which has production and manufacturing facilities in France, Germany, Spain and the United Kingdom. The company’s manufactures and sells the Airbus 320 including the world’s largest passenger airliner, the “A380”. Its range of aircraft includes:
Why airlines order different aircraft
Sometimes airlines like to keep different types of aircraft from different manufacturers for diversification purposes and they want to use different planes for long, short or medium haul purposes. American Airlines is one such company that keeps several different types of aircraft in their fleet which are given below for different business purposes:
There are several very legible reasons that American Airlines has several different makes of aircraft in its fleet with different capabilities and capacities. This includes mileage to be flown, seating capacities, fuel consumption, technological features and passenger traffic on different sectors. Aircraft that perform well on the long haul sector might to too expensive to operate on the short or medium sector and vice versa. Another factor is the amount and type of training that is necessary for the pilots, technical and other staff. Then there is the matter of keeping spare parts inventories for the aircraft fleet. Sometimes if one type of aircraft has an issue, it could be common for all the aircraft the fleet. A good example is of the grounding of most of the fleet of Southwest Airlines because a problem had developed in the Boeing 737s. Fearing that the problem could be common in the entire fleet, Southwest grounded most of its planes to rectify the defect to prevent the problem from cropping up in other planes. If this issue happens to planes of one make in American Airlines, they have other planes that will fill the gaps until the planes are allowed to fly .
Other factors include different and advanced features in one aircraft which can benefit the airlines as that feature might not be part of the other aircraft. Technology is progressing at a phenomenal rate, and like any other business, airlines also like to have the latest features in the aircraft in the fleet. However, the Airline that that flies Airbus A320's, A319's and A321's which are similar in size to Boeing 737's is JetBlue which are used on different routes.
Opportunities and Mergers
Mergers will provide substantial opportunities for airlines and also create new issues or expand existing issues for the airlines that are part of the merger. Mergers will create issues and disrupt normal business practices in the short terms but will create beneficial in the long term. Mergers will expand networks which will give frequent fliers greater options and will forge very strong competition with airlines from all over the world. On the issues side, there will be disrupted hubs, poor service, disappointed employees, wrecked communities and last but not least “higher prices”.
Does joining an alliance offer similar benefits in terms of acquisition?
Alliances and mergers between airlines benefits because they can provide service to passengers “from anywhere to anywhere” which is not possible for any single airline. Mergers create compact economies that benefit the merged airlines. Many airlines do not have the capacity or capability for regular services between designated points. Because of the dire need for network collaboration has created many mergers which have provided benefits for airlines and especially frequent flyers. Most mergers were made for catering to special market segments. There is conclusive and special evidence that mergers have led to consumer benefits because passengers get improved services and reduced fares .
List of References
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Stevenson, Seth. The Southwest Secret. September 27, 2014. http://www.slate.com/articles/business/operations/2012/06/southwest_airlines_profitability_how_the_company_uses_operations_theory_to_fuel_its_success_.html (accessed September 27, 2014).
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