FlagCarrier, a major international airline, had recently encountered financial challenges: reduced sales due to increased competition on international routes, increased fuel costs, and constraints on capital introduced to discourage acquisition of planes not manufactured domestically. In addition, focus on domestic and international business travelers revealed the importance of frequency share for each affected route and cost per plane mile versus cost per available seat mile.
To lift its financial results, the company needed to improve its fleet management which is a critical component of financial performance in the asset-intensive airline business.
FlagCarrier evaluated whether the company should proceed with exercising purchase options on 15-20 new long-haul aircraft and the impact and desirability of grounding up to 60 older, short to medium range aircraft. An added dimension to this consideration was that the potential new aircraft was manufactured overseas and existing aircraft targeted for retirement were domestically manufactured.
FlagCarrier sought P&C’s guidance to help assess these options and to provide an unbiased, detailed solution as part of an overall turnaround strategy.
P&C recommended restructuring the fleet and using a blended acquisition strategy, engaging both domestic and a single overseas manufacturer based on objective aircraft performance criteria essential to meeting industry benchmarks.
Given the tradeoffs between acquisition, operating, and maintenance costs, the optimal time to own/operate newly manufactured aircraft is during years 20-30 of their lifespan. With older, narrow-body aircraft in service well over 25 years and numerous, wide-body aircraft in service for 25-30 years–a restructuring of the fleet was needed.
Specific actions identified were to:
By implementing P&C’s recommendations, FlagCarrier realized $148M in annual savings; gained the improved reliability and customer satisfaction from a newer, more streamlined fleet; and leveraged a best-of-breed fleet strategy to maintain geo-political harmony.
*We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real.