Revival of a sick airline: Silk Airline by Shweta Durge

PROJECT REPORT ON

REVIVAL OF A SICK AIRLINE: SILK AIRLINE

Submitted for the

Post Graduate Diploma in Aviation Law and Air Transport Management (PGDALATM)

Submitted by SHWETA PRAKASH DURGE April 2012

Revival of a sick airline: Silk Airline by Shweta Durge

ABSTRACT:
The world economy is changing rapidly. Current global economic conditions underline the importance of governments planning ahead and preparing for all eventualities. This includes putting in place strategies to build sectors of the economy which are crucial to ongoing economic growth. The global financial crisis has affected many international industries and its impact on aviation businesses is likely to be significant. Air transportation in India is under the purview of the Department of Civil Aviation, a part of the India's Ministry of Civil Aviation and Tourism. However, since the early-1990s, as part of a broader economic liberalization agenda, India has been in the process of opening up its civil aviation sector, including the airline industry, to private domestic and foreign players. This rapid growth of air traffic led to increased consumer demand and

expectations. Silk Airline incorporated in 1990, employing over 18,000 employees is based at 'Good Hope' and operates on major international trunk routes with a concentrated network in the Middle East with a fleet strength of 60 aircraft comprising mostly of B 777, B737, AB 320 and few B 330 Silk Air though enjoys world-wide traffic rights, the airline has been progressively reducing its route networking, resorting to code sharing and other cooperative arrangements for the past few years. Silk Air has been in the red for the past five years and is faced with growing inadequacies, thereby losing its image day by day. The project discusses the immediate remedial measures to be taken by silk air line to prevent it from bankruptcy.

BRIEF OUTLINE OF THE PROJECT:

Silk Airline incorporated in 1990, employing over 18,000 employees is based at Good Hope and operates on major international trunk routes with a concentrated network in the Middle East with a fleet strength of 60 aircraft comprising mostly of

Revival of a sick airline: Silk Airline by Shweta Durge

B 777, B737, AB 320 and few B 330 Silk Air though enjoys world-wide traffic rights, the airline has been progressively reducing its route networking, resorting to code sharing and other cooperative arrangements for the past few years. Silk

Airline has been in the red for the past five years and is faced with growing inadequacies, thereby loosing its image day by day. It is in need of immediate remedial measures to prevent it from bankruptcy

MAIN ISSUES INVOLVED:

Silk airlines is having so much of experience in airlines business, running from over 21 years. However as time passed by the airline went to into losses before analysing the main cause. The identified challenges are:

1. TOUGH COMPETITION: These days there is lot of competition from other airlines, who are offering tickets at a competitive price. They are also adopting new strategies to attract more passengers in the form of Low Cost Carriers (LCC). So in order to tackle the competition SILK airlines has not succeeded. The fleet of the airline has become old, with old furnishings and luxuries. Airlines like Kingfisher, Jet and various other airlines have created a scenario for this conventional airline to look back at the loss of Passenger, freight and mail traffic. Competition comprises of Quantity as well as Quality. Quantity refers to factors like route networks, Interlining, Frequency of operation, Asset utilization. Quality refers to the co-ordination between departments of Service, Maintenance as well as Healthy Industrial Relations. Frequency, Departure schedule on each route, Price charged in

Revival of a sick airline: Silk Airline by Shweta Durge

comparison of Airliner, products offered, service Quantity and Quality etc. form the pivotal areas in respects to competition.

2. AGING FLEET and LOW PROFITABILITY: The total fleet of the airline is 60. In this they have purchased B747-400, A300, A310 and 320 way back 15 years ago. After that they have not purchased any new aircraft except a few B-777. The aging fleet increased the cost of maintenance, in turn profitability of the company. As there were incidents of grounding aircraft because of lack of spares and other equipment. These aircrafts were not returning profits as seats were not getting filled. Returns per seat occupied are very low for the company, as it was following old procedures. The typical Ageing Aircraft challenges faced by Silk Airlines are, Technological obsolescence, Safety issues, Non availability of Spare parts, processes and tooling being no longer available, changed Logistic procedures, Suppliers out of the business, Budgetary limitations, Higher fleet utilization causing increase in the demand to cope with ageing structures.

LOW PROFITABILITY:Silk Airlines has been having reputation of flying passengers for more than half a century. But the airline has not been able to capitalize on that which will affect the profitability of the airlines. The profitability for an airline will depends upon many factors such as passengers experience, friendly attitude towards customers, filled up seats and optimum utilization of the available capacity in the aircraft. No seats should be left vacant in an airline.

3. POOR ON TIME PERFORMANCE: The flight data sheets indicate that the Silk Airlines is poor ontime performance (OTP). The primary reason for

Revival of a sick airline: Silk Airline by Shweta Durge

poor on time performance is ageing fleet and incapability to reduce the run time affairs both in the air and the ground as well. Effective mechanism between man and machinery is lacking in Silk Airline, resulting to inordinate delays in flights.

4. LACK OF LEADERSHIP: The airline was running very well under the leadership of the old CEO around 4 years back. The change of leadership along with bought many changes. As there was no immediate appointment of an experienced CEO. So there were pressures from different Financial Institutions for repayment of debt, oil companies are asking for their payments, as fear of lack of good leadership was in the minds of shareholders of the company.

5. UNHEALTHY INDUSTRIAL RELATIONS: Industrial relations include management of both internal and external affairs of company or industry tactfully. It includes business tactics especially for airlines business like capacity expansion, route structure; code sharing etc. SILK Airlines once enjoyed Monopoly in the skies as it was the market leader showing ways to others about running airline. It was maintaining healthy relations with all other associated Aviation related Vendors and Suppliers. But as amount of losses have increased payments to the vendors got delayed, travel agents were not paid their commissions. Vendors are not ready to supply spares.

6. INADEQUATE CASH FLOW: Due to Lack of Good Leadership and unhealthy relations with government, Financial Institutions and banks led to the lack of funds to run the airline. All banks and other financial institutions are not happy with the way the company was running as there was no way to

Revival of a sick airline: Silk Airline by Shweta Durge

arrange funds, because the land bank the company was holding were already mortgaged. No correct responsible person is there to stand and run the airline. The shares of the company had fallen steeply these days and no investors are ready to invest. This led to poor or even nil cash flow.

STRATEGIES TO MEET THE CHALLENGES:

1. MARKETING TECHNIQUES: Innovative marketing techniques should be adopted to attract more and more passengers to fill up the total available seats. For an airline, one vacant seat is revenue lost forever. Seats should be priced accordingly to increase the revenue yield. The main objective of Silk Airline must be for Selling the right seats for the right customers at the right price.

2. AIRCRAFT MAINTENANCE: Another problem is by way of aircraft maintenance. Silk Airlines has been outsourcing its maintenance to other maintenance companies. Silk Airline is having an aircraft fleet of 60 aircraft. Hence there is a need to start in-house maintenance facilities for its aircraft. Most airlines today have entered alliances to share the burden of operating costs. Formation of joint ventures by induction of partners capable of providing technical, financial and marketing inputs, change in product mix, improving marketing strategy, etc. may be looked upon. Silk Airlines should look for this option as by these alliances it can use the expertise of ground crew and the maintenance staff. The Company should try to minimize the non-operating cost and try to increase customer satisfaction which in turn creates customer loyalty and together combining these factors will result in the profitability of the airlines.

Revival of a sick airline: Silk Airline by Shweta Durge

3. PUNCTUALITY: Research shows that major airlines with above average punctuality rates have been more profitable than those with lower than average punctuality performance. Research on the performance of major airlines suggests that there is a positive correlation between on-time performance and operating profit. Despite the increasing attention that Silk Airlines paid to punctuality the airlines on-time performance is still far below satisfactory levels. Punctuality is a key leadership challenge throughout the organization and should rank high on the management agenda from strategy and planning all the way to front-line operations.

4. CHANGE OF LEADERSHIP: There is an immediate need to appoint a responsible person i.e. CEO, who is having experience to handle in these situations.

5. LOW PROFIT ROUTES: The airline should boost its profit margins by eliminating low-profit routes, parking unused airplanes and flying planes closer to capacity than ever before.

6. LOWER COSTS: The airlines may hang on to planes and even expand their networks to create more revenue to cover their high fixed costs. It is also recommended to walk away from aircraft leases or allow redundant planes to be re-possessed. Fewer planes mean lower fixed costs. Different strokes for different folks shall be the pricing strategy. This shall cater for the common man and as well as the elite. First come first serve basis shall be maintained so as to give the early bird, cost benefits.

Revival of a sick airline: Silk Airline by Shweta Durge

7. LOW COST CARRIER MODEL: It has been planned to convert some of the busy short haul flights to single class low cost model as to garner maximum revenues. However being the national carrier, the legacy model shall continue in most of the international routes.

8. CODE SHARING: Presently Silk Airlines has discontinued many routes owing to various factors. Some of these would be restored while the rest would be considered by partners and alliances by means of code sharing. This would work both ways and would increase traffic and improve reach of the Airlines tremendously.

9. EMPLOYEE-AIRCRAFT RATIO: The only single parameter which should drive sustainability of an airline is employee to aircraft ratio since that defines the fixed costs and therefore the breakeven point. The modern technology in the air as well as on the ground makes so many people redundant. Silk Airlines has been upgrading the technology in the air but has failed to catch up with cost advantages of technologies available for operations on the ground. The management has failed to monitor the values important for running an airline and performance to contain various ratios crucial for airline operations within preset limits and overcome the deficiency.

10. IMPLEMENTATION OF CORE CAPABILITIES:

The hub-and-spoke

delivery system has become the new standardized operating system and is the order of the day. It has three central features. First, there are cost savings to airlines form better capacity utilization. Load factors are now in the low to mid-sixties, up from a level in the low to mid-fifties before deregulation.

Revival of a sick airline: Silk Airline by Shweta Durge

Second, there is greater concentration at the hub airport. A third feature is that more destinations are served nonstop from each hub. Several waves of incoming and departing flights occur each day that greatly increases the number of sources and destinations between which passengers can flow with at most one intermediate stop.

11.INFORMATION TECHNOLOGY: It needs no mention that advances in computer technology, particularly with respect to the reservations systems, have expanded the industry's core capabilities. Today's systems quote fares, allow seat selection, and issue boarding passes and also provide car rental information and enable travellers to make hotel reservations. Strategic developments in pricing have also been made possible by computer

hardware and software advances. The company may introduce simple peak and off peak pricing schemes. The intricate fare structure is driven by different supply and demand characteristics.

12.ORGANIZATION AND MANAGEMENT: Silk Airlines needs drastic changes in its organizational structure. It needs to adopt a matrix kind of organizational structure, wherein each one on the role of the company will be responsible to each other. Then only the orders and instructions and

delegation of responsibilities will move in a chronological order.

13.PERFORMANCE MEASUREMENT-AIRLINES: The Company pays salaries and wages to the staff in order get their services and work contribution to achieve its objectives and ultimate mission. Hence, it is imperative on these incumbents to make their contribution effectively and efficiently. This can be ensured by adopting various measures to monitor

Revival of a sick airline: Silk Airline by Shweta Durge

the performance of employees. The employees recognition must be done on the basis of their contribution towards organizational objectives.

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14.COST CUTTING: For any venture to be successful, especially in the time of crises, the foremost is to cut down additional costs. This could be done by cutting down all the bonuses and allowances in a reversible fashion. The employees must be taken into confidence before implementing this step.

15.CUSTOMER RESPONSE:

A two way communication is a must and

customers should be encouraged to voice their opinions and suggestions. This can be done by emails or telephony.

16.PURCHASE/LEASING OF FUEL EFFCIENT AIRCRAFT: Currently the average age of the fleet is touching 18 years. Not only are the ageing aircraft consuming more fuel but also are heavy on recurring maintenance. New fuel efficient and modern aircraft (787/350) need to be inducted in a span of 5 years. Keeping in mind the high cost of outright purchase the airline can think of sale and lease back strategy.

Revival of a sick airline: Silk Airline by Shweta Durge

CONCLUSION: Observations of the industrys performance following oil

shocks and global recession in the 1970s and 1980 give good reason to expect the industry will return to growth as the broader economy recovers in the medium and longer term. In particular, improved navigation and surveillance systems, will allow more flexible and efficient routes to be flown and will provide greater awareness of other air traffic and potential airspace conflicts in-flight. Both ground based and satellite based systems will play a part in our future air traffic management system. Technologies and systems such as Automatic Dependent Surveillance Broadcast (ADS-B), Global Navigation Satellite Systems (GNSS), Airborne Collision Avoidance Systems (ACAS), Approach with Vertical Guidance (APV) and Wide Area Multilateration (WAM) will increasingly become available. Government agencies, in close consultation with industry, will need to decide on an approach to the introduction of new technologies that ensures maximum safety and minimizes transitional risks. As far as possible, developments should be compatible with those overseas, ensuring maximum interoperability and avoiding unnecessary costs in equipment and training. High fuel prices and load factor adding that the bad patch is almost over and we are looking forward to growth now. The remedies will raise some hopes of revival.

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REFERENCES:
1. www.aita.org 2. www.icao.int
3. www.wikipedia.com 4. Dr. P.C.K. Ravindran, Airport Management World Class & Beyond

Revival of a sick airline: Silk Airline by Shweta Durge

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