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(originally published by Booz & Company)


Flight for Survival: A New Operating Model for Airlines

Some airlines are already experimenting with rolling hubs. To fully realize the cost reduction opportunities created by this approach will necessitate fundamental changes to airport operations.

• Implement Tailored Business Streams (TBS) to simplify ground-based operations for the majority of passengers.  In practice by other industries, TBS’ basic principle is to segment operations into distinct business streams: Specialized processes are created to handle routine and complex activities separately, and to match the capabilities of these distinct operations with the value for which customers are willing to pay. That often entails standardizing or “industrializing” the routine and stable processes, while segmenting and isolating the parts of the operation that are more complicated and variable.

“With a lower cost structure, the large airlines would be better positioned to launch a marketplace battle against low-cost carriers.”
In the case of the airlines, self-induced and customer-driven complexity is significant and unnecessarily increases costs for both business and leisure customers. If the airlines embraced TBS and streamlined their core processes to focus on the simple needs of the lion’s share of their customers and made the service more intuitive (so that infrequent travelers would need less handholding), airports could approach a zero touch environment. Services such as lounges for business travelers and retail shops for the traveling public would, of course, remain.

The point is most passengers do not need long, multiple interactions with airline staff, and they would appreciate getting through the airport rapidly. Passengers would arrive at the airport, check in themselves and their baggage with minimal assistance from airline staff — or, even better, not need to check in at all — pass through security, and board the plane. Dedicated processing staff would deal with the very small percentage of travelers who need to change itineraries, connect to a different airline, or request other special services. And customers requiring such extra services (except for perhaps the most frequent flyers) would potentially pay for them. Such new procedures would be system-wide, cascading from reservations to front-line staff functions. Significant cost benefits would arise from the reduced check-in and gate staff. Overall, the resulting product would be no less valuable, but the organization delivering it would become much more streamlined.

• Create separate business systems for distinct customer segments.  While simplifying their business model, large carriers have to be careful to retain the loyalty of their most profitable and loyal customers by providing more differentiated amenities, lounges, and services than they offer today. This could mean separating both airport and onboard experiences into two (or more) classes, focused on either leisure or business passengers. The purpose would be twofold: to provide more specialized services and to achieve pure business streams. Experiences in other industries suggest that mingling complex and simple operations that have distinct objectives and missions often results in a migration to the highest cost level and lowest service standard. At the extreme, this differentiation might involve distinct aircraft and terminals for the two types of customers; at a minimum, it would likely require a greater degree of product demarcation than is currently provided.

“It will be important for large carriers to retain the key service advantages they have over low-cost carriers, including destination breadth, superior loyalty programs, and cost-effective onboard amenities.”
Leisure travelers are important, even if they’re not as profitable as business travelers. Consequently, the aim of cost cutting by changing the business model is to serve all customers better by providing a more efficient and less time-consuming experience. It will be important, therefore, for large carriers to retain the key service advantages they have over low-cost carriers, including destination breadth, superior loyalty programs, and cost-effective onboard amenities.

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  1. “Airlines: A New Operating Model — Providing Service and Coverage Without the Cost Penalty,” by Tom Hansson, Jürgen Ringbeck, and Markus Franke, November 2002. Click here.
  2. “Catching Travelers on the Fly,” by David Newkirk, Brad Corrodi, and Alison James, s+b, 4Q 2001. Click here.
  3. “Airports as Engines of Economic Development: Great Airports Are Critical for a Region,” by Cyrus F. Freidheim and B. Thomas Hansson, s+b, 3Q 1999. Click here.
  4. Airine Merger Integration — Take-Off Checklist,” by Tom Hansson, Gary Neilson, and Sören Belin, January 2001. Click here.
  5. “Punctuality: How Airlines Can Improve On-Time Performance,” by Alexander Niehues, Sören Belin, Tom Hansson, et al., May 2001. Click here.
  6. “Out of the Hangar into the Boardroom,” by Daniel Lewis and Mercedes Mostajo Viega, April 1999. Click here.
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