Beyond Airline Disruptions

Thinking and Managing Anew

Jasenka Rapajic

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351592079
• Edition: 2
• Topic: Technology & Engineering
• Subtopic: Aviation
• Index: Technology & Engineering

Flight disruptions continue to thrive unnoticed, invisibly eroding airline profitability and causing growing passenger dissatisfaction. This is especially critical at airports where traffic expansion outstrips airport capacities. Hampered by legacy information systems, management practices and organisational detachments, decision makers across the industry have little or no understanding of the multiple causes of disruptions and their implications. Consequently, their actions are focused on resolving local problems without being synchronised at system level. As problematic as they are, disruptions create opportunities for learning about system interactions, a solid and appropriate foundation for resolving complex industry issues.

Beyond Airline Disruptions explains how airlines can become more competitive by utilising unexplored potential for gradual, consistent and measurable improvements, centred around cost and quality of operational performance. It describes practical methods and techniques essential for turning these ideas into daily practices.

This second, revised edition features updated content that introduces a fresh approach to airline management and decision making, more in line with future industry needs. It bridges the gaps between strategy and operations and inspires collaboration between airlines, airports, ATC, service providers and regulators to bring longer-lasting benefits not only for industry participants and passengers, but also for the economy, society and the environment.

1 Obscured by the past

Airline industry is facing its greatest challenges ever. Hub networks are getting critically congested at its busiest parts, space for growth is limited, operational dysfunctions are more frequent and quality of service is at its lowest level yet. Both legacy and low-fare airlines are in search for new identities, merging the elements of low-cost and full-service business models.

Airlines operating in the capacity-constrained areas find it hard to grow revenue except in periods of low oil prices and favourable global economy. Many stay in business through mergers and acquisitions, making the system even more difficult to control on both operational and cost sides. As for the costs, in need for quick fixes, airlines have had to turn to the easier, value-destroying methods for cost cutting. Instead of innovating and improving their core offering, they have ‘innovated’ their cost allocation by reducing the quality of service and passenger comfort. They are also passing the ‘other-than-seat’ costs onto customers, expecting them to self-manage and cover the costs of increasingly frequent and stressful travel disruptions.

Still, major airlines continue to invest in fleet expansion, risking overcapacity, more disruptive air travel and pressure to reduce prices. How well will they be prepared to cope with major cyclical events like economic crises or increase in fuel prices, and how hard will it be for companies exposed to a high level of operational risk and passenger dissatisfaction to keep their business afloat? To answer these questions, let’s first look more closely at what drives airlines away from their core purpose to provide good service to passengers and ensure sustainable business development.

The daily life of an airline is a collection of myriads of activities that are happening simultaneously: aircraft are flying, flights are delayed and cancelled, passengers are stuck at overcrowded airports, their travel time is extended, aircraft are repaired, crew run out of hours, new reservations are made, current schedules are changed and new ones created, investment decisions are made, route profitability is scrutinised, existing network and sales strategies are questioned, prices are revised, a new cost-saving programme is in operation, hub connectivity is reassessed, negotiations with service providers are taking place, and on and on it goes.

Airlines are complex systems, but we have difficulties in seeing our role in making them complex. This comes from our misunderstanding of complexity and ignorance of ways to handle it. In combination with the excessive operational variability, obsolete management practices underpin the majority of the problems related to complexity.

Each of the daily activities and every decision made at every moment are shaping a company’s overall performance. These complex interactions cannot be identified and measured by conventional means, which worked well during the periods of stable operating history and a relatively static environment but are no longer up to the task. They are creating an illusion of stability because, in retrospect, complex systems appear to be ordered and predictable. Decisions based on the past patterns, while internal and external conditions constantly change, result in costly deviation from plans – their root causes are difficult to understand and often impossible to explain. This is why airlines find it hard to manage these changes successfully. The wider the gap between plans and reality, the more improvised the decisions, resulting in a more disrupted and more costly operation. It is not that the information is not there, but about using it in the wrong way.

We need to recognise that inherited management methods and information systems can no longer serve the purpose. Traditional planning and forecasting are not suitable to keep the pace with what is happening in the real world. We need to find a new way of system management that acknowledges its dynamics and interactions, and constantly balances between profit and service quality. The key to managing such a system is understanding of operational changes, especially when they exceed the acceptable level built in the company’s plan and start generating additional cost and decline in service quality. These changes – that we will refer to as disruptions – are the sweet spots where the results of all systems activities, for better or for worse, become visible, measurable, and their deeper origins trackable. They are the place from where we can start connecting instead of counting dots.

Disruptions ‘produce’ a lower quality of service, require more block time, more aircraft, more crew, more fuel, more stands, more equipment – they are always pushing costs up and service quality down. To get to grips with disruptions, we must have the system in place to identify, measure and analyse causes and costs of operational changes and then to work on their improvements. By gaining a deeper insight into the problems associated with disruptions, airline executives will be in a better position to identify the size of the gap between airline plans and actual results and take actions to make that gap as small as possible. Disruptions need to be constantly reviewed to make certain that they are in line with costs in money and time and, most importantly, that service delivered to passengers is as close as possible to their expectations. Improvements will last only if the process of disruption loss control becomes a part of daily practices and kept at the top of management agendas.

Operational constraints and their implications on airline performance

Airlines make tremendous efforts to plan their operations, compromising between many conflicting requirements. This is a complex and laborious work, where strategic goals are being incorporated into the network, schedules, and operational plans with little awareness about their impact on operational resilience. By the time myriads of operational, tactical and strategic constraints are harmonised, approved, and published in airline schedules, many external and internal inputs have already changed. Each of these changes distorts the originally designed system and continues to do so throughout the budget year. In the absence of information about cost and causes of these changes and their impact on passengers, airlines are missing an opportunity to understand and minimise their negative impact on future performance.

This raises many questions about the quality of management. How can business goals be achieved if, say, origins of 20 per cent or more of the total costs resulting from changed circumstances are not known and what impact the poor service have on passengers? How does it reflect on operational, strategic and corporate decisions? How much does doing things which an inefficient, disruption-prone systems ask people to do contribute to the waste of people’s time, their enthusiasm and skills?

To better understand the scope of disruption problems we will now take a closer look at their external and internal causes.

External constraints

During the last few decades, the airline industry went through a business transformation unprecedented in scale, stimulating a massive increase in air travel that, in many places, outstripped infrastructural limitations on the ground and in the air. This has resulted in a growing number of critically congested airports that have become the source of widely spread, still unreported, operational inefficiencies, and a deteriorating quality of system performance. With every new budget year, these system inefficiencies, detached from their root causes, would become an integrated part of airline plans, thus becoming a new norm. This can explain airlines’ tendencies to expand in areas with already critical infrastructural and resource limitations, now including even the low-fare carriers.

Another business transformation that has had a profound effect on the structure and costs of operational disruption is the outsourcing of the non-core businesses. The quality of airline operations has become more dependent upon external vendors. By adding an additional layer between themselves and their passengers, they lost the direct contact with customers, making the service quality difficult to control. Apart from traditionally independent service providers like air traffic control (ATC) and airports, the list of external suppliers is extending towards key operational activities – passenger handling, aircraft maintenance, IT and catering services – which are shaping the quality and costs of airline output. Some of the most damaging disruption events in the last decade were linked with problems related to external service providers including ATC, airports, and outsourced ground and IT services. These hidden problems are exposed to scrutiny only during major disruption events, which more and more often have a global impact. IT glitches have become one of the most costly causes of disruptions due to the shared resources within the megamergers and alliances, where just a day-long computer failure caused by a single airline usually affects hundreds of thousands of passengers stranded worldwide and incurs high unforeseen losses.

Internal obstacles

Looking more closely to airline internal practices, we can see that despite technological advances, accumulated industry knowledge and simplification of business models, airlines generally don’t have an organised system to track disruptions, their causes, costs and the effects they have on passengers and revenue.

A great number of disruptions are created internally during the process of strategic planning. Whenever an airline decides to expand to a highly congested airport, operate a diversified fleet, introduce multiple maintenance and crew bases, overutilise capacities, increase airline dependency on outsourced services or decide to lay off its workforce without understanding its own operational capabilities, it increases the level of disruption risk. With time, these underlying disruptors become long-lasting, intertwined, ‘chief causes’ of dysfunctional operations that increase operational vulnerability and generate losses caused by even the smallest variance in planned operations. Even though they underpin every single disruption event, ‘chief causes’ are covered up by over a hundred of operational codes used to acknowledge only the last in the strings of interrelated but disconnected causes.

This doesn’t mean that airlines should not extend operations to busy airports, have more than one aircraft type in its fleet or outsource many of its operational services. These strategies have a chance to succeed as long as top executives are aware of the full consequences of disruptive services on airline costs and on-time performance, and price their product competitively. Knowledge about the most damaging root causes of disruptions can help airlines to re-examine the effectiveness of business strategies at all levels, such as network and fleet structure, resource utilisation, schedule slacks, outsourcing policies, investment strategies, contractual obligations, loss recovery and many more.

Other self-induced inefficiencies include operational and planning oversights, errors and omissions, poor management practices, organisation, training, communication and airline culture, which are rarely assigned as causes of operational disruptions. These problems need to be observed and analysed as a part of a wider context, which will be described later.

Management, organisation and communication

When operations don’t go according to plan, we see airline managers seeking answers to the wrong questions. They look at reams of unreliable data about delays and their reasons, expecting to find answers for poor operational performance, without realising that they are not looking in the right place. They cannot hear the right signals from the noise made by ‘delay reporters’. Delay meetings are a good example of how much valuable management time is wasted on analysis of insignificant delay events that could be resolved at an operational level. They often include simultaneously occurring but unrelated problems, solutions, goals, interests and concerns. So, a meeting called to discuss disruptions, including senior executives, may become a discussion about staff absenteeism, a dysfunctional computer unit, ...