Holistic cost transformation can accelerate airlines on the path to value
Airlines face headwinds that are different from other industries. There are shortages in specific labor groups, such as pilots, and labor costs are on the rise. Fuel prices—which make up 15-20 percent of an airline’s cost at 2017 prices—are going back up. Capacity growth is at an all-time high. These headwinds affect profitability and airlines are being pushed to do something different to survive and grow.
Companies are struggling to generate profits. Even those with strong profits for the last few years are seeing them shrink amidst unprecedented competition, market volatility and disruptive business models. 60 percent of the top 1000 global firms have announced major cost takeout.1 Yet just over half (51 percent) have been able to sustain their cost savings for one or two years.
Zero-based approaches are taking off in other industries as a means to gain visibility into spend, invest where it matters most, and redirect savings to growth initiatives and sustain profits. Accenture has found leaders that use cost reduction to fund new capability and growth are three times more likely to increase shareholder returns. Now is the time for airlines to seize the momentum and thrust value.
Take-off from zero
Although many traditional cost reduction programs are well-run, others are less successful. Best of these programs drive value of 5-10 percent within 18 months. A typical program at an airline would include aspects such as contract reviews and targeted efficiency improvements. Those exploring ZBA can achieve savings over the long haul—up to 10-20 percent within three-five years by also looking at how digital technologies and tools can help reimagine the possible.
The zero-based approach to cost reduction encourages airlines to rethink the possible, change the cost structure, leverage the application of digital technologies to maximize efficiency, and uncover savings opportunities across all areas of the business. It looks at every line item and sets it to a zero-base across the airline. From core airline functions to back office and everywhere in between—labor, fuel, fleet, distribution, maintenance, airports and G&A.
Airlines must understand where they are spending money in these areas. Technology can be applied to create full cost visibility and ensure real and trustworthy figures through standardized and unique cost definitions. Analytics allows benchmarking and analysis of where money is being spent. Airlines end up with a full spend baseline that reveals opportunities to reduce costs. Cost savings can then be reinvested to solve business challenges, enable new capabilities, and support business initiatives that differentiate the airline and fuel growth.
Plotting the new cost transformation
Cost reduction should not be the only goal. Airlines have an opportunity to evolve from traditional approaches to new cost transformation. Value from an airline cost reduction is only limited by mindset and pace.
Your cost-reduction co-pilot
Airlines need the right partner to guide the organization through the uncharted territory of cost reduction via ZBA. Accenture’s expertise in cost transformation is unmatched. Our more than 100 dedicated aviation professionals will challenge your team to zero-base your airline. We have applied our decades of experience to develop leading practices and tools to enable airlines to:
- Leverage data, analytics and insights to shape and guide the journey to outcomes.
- Determine whether transformation programs are on track, and to take the corrective actions required to keep them on track.
- Diagnose their organization’s culture and understand how they can leverage their unique cultural attributes to realize change and business goals.
- Kick-start behavior change and embed new habits through micro-actions.
We also use leading-edge technologies to help airlines gain better visibility into spend and target value.
Our closed-loop approach, powered by Accenture’s aurora AI tool and Seabury Consulting’s expertise, delivers impact with speed.
Fast-track to sustainable value
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.
1 Accenture Strategy, 2017