In the words of Charles Bukowski -“I heard an airplane passing overhead; I wished I was on it”, .Isn’t this something we all feel like doing amidst our ridiculously hectic schedules?

There used to be a time when the desire of airplane travel would simply remain a “constant” in economic terms, but today our generation stands witness to desire translating into ability.With the principles of affordability, accessibility and availability being the go-to mantra, industry folks have been experimenting with some of the most unconventional means of cost cutting. Competition has created a bandwagon of low cost carriers which have driven consumer sentiment in such a way that it leaves just one question in the mind of a prospective consumer, “Could you take a flight at the cost of a train ride?”

 Let’s get ourselves thinking like a rogue economist!

An Airline’s worst enemy is its fuel costs. If we consider all other factors constant,we can say that weight is the variable that drives fuel costs. Air carriers thus try to devise innovative ways to reduce weight which could have a direct impact on the reduction of fuel costs.

Swapping paper for iPads

Consider American airlines which replaced their 35 pound (15.9 kg)  flight manuals with  Ipads, saving 1.2 million dollars(1.2*106). An Ipad weighs around 1.5 pounds, and each manual was replaced by 2 Ipads(3 pounds) which saved the airline 32 pounds(14.5 kg).

As a good thumb measure,if mass is decreased by 14.5kgs, yearly fuel costs decrease by 1.2 million $.Cost per 1 kg in flight per year would hence be 1.2 x10^6/ 14.5 or nearly 830 thousand dollars.

Remember that pack of Roasted Peanuts?

That very endowment, today belongs to an era, which could be termed as “the good old days”. Its disappearence from the industry seems to be driven by an agenda which we as laymen don’t seem to have considered. Commonsensical thinking suggests that one less pack wouldn’t really save an airline anything substantial. But a simple number game reveals an enirely different picture.Assuming that a pack of nuts weighs 25gms(0.025kg), the equation shows that one pack of nuts costs around 2000$ a year. If one less pack of peanuts saves 2000$ of fuel costs a year, the total savings per flight would be  considerable.

Trimmer waists, lesser costs?

Irish low cost carrier Ryanair is well known for its cost reduction strategies. Recently, it incentivised flight attendants to get skinnier with an opportunity to feature in the Ryanair calendar. If one pack of peanuts could save 2000$ fuel costs a year, the management decided to  push“Kilo-Shedding” in it’s literal sense. Closer home,  Go-Air announced that it would recruit only female flight attendants solely on the grounds of being “lighter” than men.

Another strategy used by Ryanair was to reduce the size of its inflight magazines from A4 to A5, and incorporate the meal menu with the flight magazine. Even the smallest reductions in provisions help airlines cut down on fuel costs.

 

A Tale of  Two Toilets

Ryanair, in another controversial move predicted that by reducing the number of lavatories from 3 to 2, they could reduce air fares by around 5% and at the same time squeeze in additional seats.One can never ascertain, if the future of low-cost air travel will be sans lavatories, but for a capitalist what better than conserving big-bucks. If a flight has 80 passengers with no lavatories a savings of 24kg is certain, if it is assumed that each passenger produces 300ml bodily fluid on an average . The very same equation reveals fuel cost savings of 1.98 million $. Although a complete elimination of lavatories goes beyond the ethics of hospitality, scaling down the number did help Ryanair in its cost cutting adventure.

One less olive a day keeps the costs at bay

The once boutique Air India recently discontinued serving salads to its economy class passengers driven by suggestions from the cabin crew. The move by Air India closely resembles the experience of American Airlines whose strategy to remove the olive from their salad enabled it to save over 40,000 $ in 1987.

A behavioural observation of passengers ignoring the olive in the salad made way for this move. Another airline that saved big bucks through a meal based revolution was Northwest Airlines that saved 500,000$ by cutting its lime into 16 pieces.

A Cost Cutting Revolution

Cost cutting does not necessarily coincide with a lower level of innovations. In 2003 the concept of “vertical seats” was conceptualised by airbus. This novelty in the seating structure caught the fancy of many airlines as it could lead to a 21% increase in passenger capacity and also reduce prices up to 44%. Even though the move failed to “take-off” due to opposition from authorities regarding safety issues, it  paved the way for innovation in tandem with cost cutting.

Flash Sales

When Air Deccan, India’s first low cost carrier chose R.K.Laxman’s “Common Man” as its mascot, its motto was to empower every Indian to fly. The carrier  in 2005 announced that it would release 3,300 tickets for Re1 and 6500 tickets priced at Rs 500.

 

Flash Sales have become increasingly common due to rising competition among low cost carriers and can also lead to profits. In the airline model, unlike other businesses, the seats that go unoccupied cannot be carried forward to inventory. Flight sales not only stimulate demand but also help airlines maximise occupancy. Seats being offered at fares as low as Re1 or Rs500 are a product of consumer segementation through price discrimination. Further, the idea of pre-booking can generate working capital for the cash-strapped airlines.

When higher prices are charged for later bookings it increases the Revenue Availible Per Seat Km(RASK) which is an indicator of profitability. RASK is obtained as a ratio of Operating Income to Available Seat Kilometres (Passenger carrying capacity). A higher RASK is associated with a higher level of profitability.When higher prices are charged for later bookings, it increases the Operating income, which in turn increases the profitability, arising from a higher Revenue Available Per Seat Km(RASK).Besides, if the discounted tickets sell out in one direction of a two way trip, one ticket is purchased at regular fares which compensates for the lower revenue generated through discounted fares.

Flash sales today have become increasingly common among low cost carriers even during peak seasons. Lower fares do not characterize a lower level of profitibility, but are rather significant of a win-win situation. So, the next time you manage to get on a plane for as low as Rs500, think of the principle of “Pareto Optimality” where you are better off, but not at the cost of the other.

These cost cutting measures are sustainable as long as they yield greater performance but not at the cost of consumer satisfaction. Though consumers are provided with minimum on-air luxuries, they seem to have succumbed to the ways of the industry, preferring the benefit of lower costs over greater comfort.

 

Stepping foot in the cold confines of the aeroplane, my mind harkened back to the time when I used to be welcomed aboard by that lady in red with an enchanting smile and a refreshing tray of towelettes. Munching on that pack of roasted peanuts after which I’d be served  a diverse meal, comprising of my favourite black olives. Today as I took off into the troposphere I could feel the void, as  if I had been deprived of all that paraphernalia and glamour associated with flight. As I glanced through the hues of blue mid-air,there is one slight consolation -it cost only 500 bucks though!

 

-Tanya Dias

 

Further Reading

https://www.slideshare.net/mobile/jauhari_akash/case-study-on-air-deccan-the-marketing-mantra

http://www.thehindubusinessline.com/todays-paper/tp-marketing/common-man-to-endorse-air-deccan/article2176621.ece

http://iimb.ac.in/~rishi/Indian%20Airline%20Industry%20in%202008%20v2.0.pdf

https://www.mckinsey.it/file/7521/download?token=IRcN3HD0

http://www.financialexpress.com/industry/air-india-salad-cut-loss-making-indian-airline-inspired-by-story-of-american-airlines-that-saved-40000-by-cutting-one-olive-from-every-meal/715400/

http://theweek.com/articles/476632/ryanairs-7-most-ridiculous-costsaving-ventures

 

 

 

 


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