Air Transport World

Finding the center

Joan M. Feldman

European scheduled airlines are trying to cut costs. One answer lies in outsourcing. But outsource what and how much, without enflaming employees, violating European labor law and changing the notion of what an airline is?

Advisers say companies must strip to their 'core competencies.' That is, keep what is strategic and separates them from the crowd, and buy in the rest. But even advisers differ over what is critical and airlines may not assess their own competence accurately. Employees see all functions as critical.

Wake Smith, vice president at SH&E, asserts that 'catering, ground handling, aircraft maintenance, information technology, sales and distribution, cargo and flight training have been identified as noncore. Europe is further along on some of these than others. Catering has gone furthest.' Most European majors outsource catering, mostly to Lufthansa and Swiss air, which have expanded that function. In fact, unlike the air line, SAirGroup's catering arm is profitable.

A consultant suggests that outsourcing means not just eliminating a function but also the opportunity to rationalize how it is provided, to save even more money. KPMG estimates that catering logistics represents 1015% of major European airline costs; food is 20% of that. Examples of other catering logistics elements are management of serving equipment such as dishes, recycling and the personnel who serve food. 'It's not an easy thing to do,' KPMG's Michel Moins says, 'but 99% of the time, it's a source of savings.' Interestingly, many European airlines have used savings on logistics to improve food quality.

While little argument exists over some noncore elements, debate exists over others. Smith even conditions his own list. 'Some part of information technology is strategic. Even if you go to the limit of a virtual airline, IT is still something you must do to a certain extent to beat your competitor. But as it becomes more sophisticated and beyond the ability of airlines to fund, they turn to outsourcing. Then, the decision is which portions are strategic and which are a commodity. …

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