What cost reduction measures would you implement and why?
Under tough business environment, your low cost carrier (LCC) is in financial difficulty. As the CEO of this LCC, you however believe that if the airline manages to control the cost, your airline can survive. You therefore decide to reduce the operating expanse including the labour cost but you would avoid lay-offs. What cost reduction measures would you implement and why?
In airline industry, the cost can break to two parts: fixed cost and variable cost. And there is very hard to cutting off of the fixed cost which is including the cost of fuel, landing fees, insurance, etc. because these costs are necessary.
If we have to control the operating cost, I suggest that we should control the labour cost first. Labour cost typically range between 30-40% of total operating expense for airline. Labor is the second biggest cost item to an airline. Also, it is more flexible.
However, if we reduced the labour expense by lay-offs, it would cause out negative effects which will affect the business. When we decided to lay-offs, the decision may hit staffs morale. And it would diminish the quality of their service.
What enables us to make a profit despite our low rates are methods for substantially reducing costs without greatly diminishing the quality of our service.
And here are some methods about cutting cost without diminishing the quality of service: outsourcing, cut the extra bonuses, cut the Medicare, cut long tip allowance, slow down the promotion and the voluntary administration.
Certain airlines have responded to the burden of wages and employee benefits by contracting out, or outsourcing services. The first and the most useful method is outsourcing. For example: ground-handing services and maintenance services. Outsourcing is any task, operation, job or process that could be performed by employees within your company, but is instead contracted to a third party for a significant period of time. Hiring a
In airline industry, the cost can break to two parts: fixed cost and variable cost. And there is very hard to cutting off of the fixed cost which is including the cost of fuel, landing fees, insurance, etc. because these costs are necessary.
If we have to control the operating cost, I suggest that we should control the labour cost first. Labour cost typically range between 30-40% of total operating expense for airline. Labor is the second biggest cost item to an airline. Also, it is more flexible.
However, if we reduced the labour expense by lay-offs, it would cause out negative effects which will affect the business. When we decided to lay-offs, the decision may hit staffs morale. And it would diminish the quality of their service.
What enables us to make a profit despite our low rates are methods for substantially reducing costs without greatly diminishing the quality of our service.
And here are some methods about cutting cost without diminishing the quality of service: outsourcing, cut the extra bonuses, cut the Medicare, cut long tip allowance, slow down the promotion and the voluntary administration.
Certain airlines have responded to the burden of wages and employee benefits by contracting out, or outsourcing services. The first and the most useful method is outsourcing. For example: ground-handing services and maintenance services. Outsourcing is any task, operation, job or process that could be performed by employees within your company, but is instead contracted to a third party for a significant period of time. Hiring a