Airline Benchmarking Performance Improvement

Ramakrishna Krovvidi
By

AGIFORS May 2005

Ramakrishna Krovvidi

Presentation Structure
1. Benchmarking: A refresher 2. Case study 3. Challenges, paradigms, and benefits 4. Benchmarking scope in airlines 5. Role of international institutes 6. Beyond benchmarking

AGIFORS May 2005

Ramakrishna Krovvidi

Benchmarking

A Refresher

AGIFORS May 2005

Ramakrishna Krovvidi

What is benchmarking?
Benchmarking is the continuous process of measuring products, services and practices against the toughest competitors or those companies recognised as industry leaders (best in class)
There are numerous essentially it involves
Learning Sharing information

definitions

of

benchmarking,

but

And adopting best practices to improve performance

AGIFORS May 2005

Ramakrishna Krovvidi

Why should we benchmark?

The purpose is to promote EXCELLENCE, generate new levels of performance, and new standards in the organisation

Load carried per employee: RTK/Emp

700
650
Industry LEADER Competitor

RTK/Emp ('000)

600

620

500

400

300 Year 1 year 2 year 3 Last Year This year

Annual trend

AGIFORS May 2005

Ramakrishna Krovvidi

Who should we benchmark with?

Internal benchmarking internal benchmarking is likely to meet with less resistance from managers Benchmarking with competitors (international benchmarking) those competitors who are performing better than us Best in the Industry with Industry leaders who achieved the best performance Cross Industry some measures could be compared with best performance of any industry e. g. Finance, HR measures

AGIFORS May 2005

Ramakrishna Krovvidi

Benchmarking

Case Study

AGIFORS May 2005

Ramakrishna Krovvidi

Case Study of Airline XX

Airline XX is selected for demonstrating the concepts Airline XX is IATA registered growing airline Airline XX is making profits year after year Sample data for 5 years Airline A, Airline B, Airline C, Airline Y and Airline Z are close competitors with Airline XX Analysis of Airline XX performance using Internal benchmarking International benchmarking

AGIFORS May 2005

Ramakrishna Krovvidi

Internal Benchmarking

AGIFORS May 2005

Ramakrishna Krovvidi

Right MeasuresInternal Benchmarking?

Airine XX: Capacity & Load carried per employee
900 800 700 millions 600 500 400 300 200 100 0 Year 01 Year 02 Capacity/Emp (ATKM) Year 03 Load/Emp (RTKM) Year 04 420 460 500 540 610 640 730 820

The measures indicate a positive trend But is it true the airlines manpower productivity is improving? Let us analyse with a different metrics... AGIFORS May 2005 Ramakrishna Krovvidi

Right MeasuresInternal Benchmarking?

Airine XX: % improvement over 4 years
140 120 percentage 100 80 60 40 20 0 ATK overal grow th in 4 years RTK grow th per em ployee 30 22

120 105

The measures indicate altogether a different trend Is the airline able to leverage economies of scale successfully?

Selecting appropriate measures and intelligent interpretation/modelling is vital in building effective Management Decision Support Tool

AGIFORS May 2005

Ramakrishna Krovvidi

Benchmarking with Competitors

International Benchmarking

AGIFORS May 2005

Ramakrishna Krovvidi

Manpower productivity: Airline XX Trend

Manpower per Aircraft
600

Year 5 Year 4

Load carried per em ployee ('000 RTKM )

550

245

500 248 450 245 250 400 240 350

Year 3 Year 2 Year 1

300

70 0

50 0

55 0

60 0

65 0

75 0

80 0

85 0

90 0

95 0

Capacity per employee ('000 ATKM)

Is airline productivity improving? Let us compare the recent performance with close competitors and analyse

AGIFORS May 2005

Ramakrishna Krovvidi

10 00

International Benchmarking
Manpower per aircraft : Year 5
Load carried per employee ('000 RTKM)
1000 900 160 800 700 600 500 245 400 200 300 200 340 100
30 0 70 0 50 0 60 0 80 0 90 0 20 0 40 0 11 00 12 00 13 00 10 00 14 00

Airline XX

Cluster 01 % Narrow-body fleet @ 35-50% % domestic capacity @ 3-8% Avg. distance flown per Pax (Km) <= 3000 Capacity per aircraft (million ATKs) Avg. aircraft utilisation (hrs) <= 10.5 Capacity per employee ('000) <= 500 Load carried per employee ('000) <= 400

180

Cluster 02

Airline Business Model

Almost all services inculded

Cluster 02 ZERO ZERO > 3000 >= 150 >= 11 >= 700 > 400 Excludes certain services (e.g. Catering)

175

Cluster 01

Capacity per employee ('000 ATKM)

Is the Airline XX productivity better than competitors? Is there an opportunity for the Airline XX to revisit its Business Model? AGIFORS May 2005 Ramakrishna Krovvidi

Benchmarking

Challenges

AGIFORS May 2005

Ramakrishna Krovvidi

Benchmarking Challenges
Business Model variations Differences in annual periods Accounting methodologies and data reporting Environment impact Identifying right measures Balancing lag and lead indicators appropriate analytical tools and techniques Management commitment & Leadership Employee engagement and motivation

AGIFORS May 2005

Ramakrishna Krovvidi

Benchmarking

Myths & Paradigms

AGIFORS May 2005

Ramakrishna Krovvidi

Myths & Paradigms?

Benchmarking is not: Copying or imitating others
In rapidly changing circumstances, good practices become dated very quickly. Also, the fact that others are doing things differently does not necessarily mean they are better

A quick fix, done once for all time Merely competitor comparison
The objective is to figure out how the winner got to be best and determine what we have to do to get there. Benchmarking is best undertaken in a collaborative way. The aim is to learn about the circumstances and processes that underpin superior performance

Spying or espionage Industrial tourism

AGIFORS May 2005

Ramakrishna Krovvidi

Benchmarking

Benefits

AGIFORS May 2005

Ramakrishna Krovvidi

What are the benefits?

Effective wake-up-call Identifying performance gaps Awareness about performance Learning from others experiences Willingness to share information and solutions Innovate and generate new ways of doing things Encourage individual and organisational learning Adopting best practices Many more.

AGIFORS May 2005

Ramakrishna Krovvidi

Benchmarking

Scope in Airlines

AGIFORS May 2005

Ramakrishna Krovvidi

Airline Scope
Financial Measures
Yield, Unit Cost, break even load factor, Value add and profitability

Operational measures
Load factor, seat factor, fuel consumption, crew productivity.

Qualitative and Customer Measures

On Time Performance, denied boarding, mis-handled bags, customer complaints, customer satisfaction.

People Measures
Average pay, Attrition, T&D investment, value add per employee

Process Measures Recruitment lead time, annual accounts closing lead time, Service delivery GAP analysis models
Benchmarking has become a management tool that is being applied almost anywhere..

AGIFORS May 2005

Ramakrishna Krovvidi

Benchmarking

Role of International Institutes

AGIFORS May 2005

Ramakrishna Krovvidi

Role of International Institutions

There is role for everyone
Airline Management:
and leadership Institutionalising the benchmarking process

All of us:

Promoting and changing mindset and paradigms working group standardise & regulate information needs R&D

AGIFORS:

IATA, ICAO, FAA:

Research Institutes: Vendors: Airline

developing appropriate tools Partnering in sharing information and

consortiums:

extending expertise

AGIFORS May 2005

Ramakrishna Krovvidi

Beyond Benchmarking..

AGIFORS May 2005

Ramakrishna Krovvidi

Beyond Benchmarking
Benchmarking is a process and not an end in itself Management through Key Performance Indicators Balanced Score Card Continuous improvement as the way of life Reengineering Six Sigma Embrace new systems and technology Invest in new capabilities and facilities Above all..Engage Employees

AGIFORS May 2005

Ramakrishna Krovvidi

Questions?
Contact: ramakrishna@emirates.com

AGIFORS May 2005

Ramakrishna Krovvidi