It is expected that by 2020, Low Cost Carriers together would command 50% of the market.
According to Frost & Sullivan's Asia Pacific Consultant of Aerospace & Defense Practice Soumyajyoti Basu, a sustainable business model has always been a cause of concern for Low Cost Carriers, and a big portion of that requires efficient cost handling. "Ground handling services is one of the important links of cost reduction strategies for the airlines. As competition increases, all the stakeholders, such as airports, airlines and the authorities, should find an optimum solution of ground handling services at minimum cost so that the aerospace industry as a whole is benefitted" Basu says.
While most airlines prefer having their own ground handling support, it is believed that having a dedicated single service provider at airports would help reduce cost. The dedicated service provider would have both economies of scale and synergy to reduce the charges. "However, different kinds of aircrafts and airlines require different kinds of services. A simple step of towing an aircraft becomes complicated when it comes to optimizing in time and cost. As the variety of aircrafts to be handled increases, so does the time and cost required for handling" Basu explains.
Different aircrafts have different configurations and hence standardization is not possible. It is imperative that a low cost airline which is looking to reduce both time and cost receives special treatment. As such, the first step would be to look into the possibility of standardization targeting only Low Cost Carriers.
"A dedicated ground handler for Low Cost Carriers can standardize their services suiting the configuration of A320/Boeing 737 design and their successors, "states Basu.
This would help in reduction of both costs and time required, ideally suiting the carriers. It seems that dedicated low cost terminals would be able to conform to both having a single service provider and being able to reduce costs through standardization.
Basu continues, "Ground handling services are varied and this is another bottleneck for time and cost management. Most of these services are taken care of by multiple service providers. This causes loss of efficiency due to the communication barrier between agencies. The need for vertical integration of the industry comes in here. If all ground handling services are provided by a single service provider, it would help in efficient time management and thus reduce the aircraft tarmac time".
He adds, "Moreover, the service providers would also be able to reduce their costs by exploring the various economies of scope achieved through vertical integration. Low skilled jobs can be performed by the same set of workers across the services. It would also enable combining sales and ticket offices and airport facilities including check-in counters, administration offices, flight operations departments and ground service facilities".
The increasing use of communication technology services in scheduling jobs is another possibility which is being put to use and needs to be extended to areas which have not been explored as yet. A robust software system for resource allocation reduces manual costs and increases efficiency. Though this increases the fixed cost, it reduces the variable cost component required for manual handling. Thus, with a little reach of scale, prices being offered can be reduced.
"Adopting lean operation best practices would also help in increasing efficiency and thus reduce cost. JAL Ground Services (JGS) has already adopted such a model that follows the Toyota Production System. More importantly, Lean operation techniques are suitable for standardized processes, which imply, similar models can be easily adopted for Low Cost Carriers" Basu continues.
Cost reduction does not mean reduction of quality or safety. Any step that would be taken for reducing costs should be taken without compromising on either of the two aspects. Process streamlining, adopting best practices, while keeping into consideration the points that are discussed would help in reducing costs for the ground handlers. However, the efforts cannot come only from the ground handlers. Basu concludes, "Carriers should take steps that are required for the ground handlers to effectively put into practice the efforts needed for cost optimization and reduction".
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