Lakshya 5

Kaizen’s Operations & Research Entity Presents

A Brief view on Airline Operations

By Shuchita Srivastava

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EDITOR’SLETTER

“"With Evolution, Changes happen in every part of the world every day, every time."”

Welcome to the fifth edition of “LAKSHYA”, our monthly supplement designed for people who dare to think above the average and believe in connecting the dots. In an age where technology has taken over every sphere, information is abundant and data is omnipresent, we have conspired to bring to you a collection of thoughtfully created and carefully curated pieces of work by some bright aspiring minds of ICFAI Business School, Hyderabad on the current trends and hot topics in the field of Operations Management and their relevance in different industries.

An airline is a company that provides air transport services for travelling passengers and freight. ... Generally, airline companies are recognized with an air operating certificate or license issued by a governmental aviation body. Airlines vary in size, from small domestic airlines to full-service international airlines. A flight dispatcher assists in planning flight paths, taking into account aircraft performance and loading, enroute winds, thunderstorm and turbulence forecasts, airspace restrictions, and airport conditions.

We look forward to providing you with some valuable insights and inculcate the passion for reading once again within you all. We hope that you enjoy this first issue and do let us know if there are any topics you’d like to see covered in the future.

Please write to us and become a part of this discussion Email ID: kaizenclub.ibs@gmail.com SUHAIL SHAIKH IT HEAD Kaizen – IBS Hyderabad

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CONTENTS

Cover Story: Just In Time: A Brief view on Airline Operations

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MARUTI Prefers CNG over Electric Vehicles

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The Final Months of Aditya Ghosh’s Tenure at IndiGo

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A Brief view on Airline Operations BY Shuchita Srivastava

Airline operations present a striking dichotomy. Each day, the airlines achieve the remarkable by safely moving nearly five million people more than 40 million air miles around the world. Often, however, they fail to deliver on the ordinary. Once the aircraft land, all too many of them taxi to a jet way and wait— perhaps for a ground crew to arrive and open a door or for the end of the traffic caused by another plane’s maintenance delay. Even standout, low-cost performers lose bags, keep valuable employees idle, depart late, and have billions of dollars in chronically underutilized aircraft and other hugely expensive assets.

These extremes coexist because airlines have historically focused on safety, aircraft technology, speed, geographic reach, and in-flight service attributes; on distinctive regulatory constraints and labor issues; and on the unpredictability imposed by weather and rapidly shifting demand. At the same time, issues such as route structures, excess capacity, pricing, and yield management compete with operations for the airlines’ attention.1As a result, the airlines haven’t given their operations factory like, industrial-engineering scrutiny. Great operators in other heavy industries have worked through these challenges to deliver low costs, high quality, and satisfied customers.

Yet up to 45 percent of an airline’s cost structure consists of maintenance, ground handling, in-flight services, call centers, and aircraft acquisitions (which are influenced by operational variables like aircraft downtime). One hundred years after the first powered flight, it’s time to start looking at the airlines as mature industrial

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companies and to apply proven manufacturing practices that can streamline their process-intensive activities. At stake is an opportunity to reduce overall costs

dramatically by using labor, materials, and assets more efficiently, to enhance the reliability of service, and to strengthen flight safety.

Our recent work in the trenches of maintenance and other operations at several airlines has shown us that they can simultaneously make breakthroughs in cost and quality while continually improving their performance in both areas—an achievement known as the "first paradox" of Toyota Motor’s lean-production system. Lean approaches, adopted by numerous industrial and service companies (including many that are heavily unionized and some, like hospitals and medicaldevice manufacturers, that are highly regulated), are well suited to the airlines’ challenges. As lean techniques eliminate waste, they also root out the no standardized work times, variable team structures, and highly asynchronous work flows that many airline executives now view as unavoidable.

The lean approaches of pioneering airlines have begun with the maintenance shop, which functions very much as a disassembly-assembly factory and displays a striking degree of waste and variability. Impressive maintenance results—30 to 50 percent improvements in aircraft and component turnaround times and 25 to 50 percent improvements in productivity (Exhibit 1)—are encouraging signs for the airlines’ other operational choke points, such as baggage handling, passenger loading, and customer service. Applying the philosophy and methods of the lean approach also creates new opportunities for outsourcing and in sourcing.

In any industry, companies that adopt lean techniques face difficulties, such as getting senior management committed to the effort, developing the talent pool to lead it, and avoiding the "pick-and-choose" lean-tool-kit approach, which in the end fails to address the root causes of problems. Yet precisely because the lean journey is difficult, the gains won by airlines that persevere with it are more likely to be truly differentiating and sustainable than those resulting from more imitable tactics, such as extracting wage concessions or cutting service. As the industry struggles through the most severe downturn in its history, now is the time to begin.

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From Camry to cockpit When airline executives talk operations, more often than not they focus on the features that distinguish their industry from others. Yet an airline orders material just as a factory does, and it sequences work, deploys workers to specialized tasks, commits itself to quality levels, and at regular intervals turns out the equivalent of products—serviced and airworthy aircraft. Conversely, like airlines, factories face variability when large orders roll in unexpectedly, equipment breaks down, or snowstorms interrupt supplies.

For all these reasons, the factory floors of strong operators hold important lessons for airlines. Toyota’s lean-production system is legendary: the company’s cars routinely win quality awards, its capital efficiency is extraordinary, and a lot of its plants have breakeven points at 30 to 40 percent of capacity. Many close cousins of the companies in the airline industry—Airbus UK, Boeing, Bombardier,

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Lockheed Martin, Pratt & Whitney, Sikorsky Aircraft—have strategic lean programs in place.

Underlying lean techniques are four principles: the elimination of waste, the control of variability, flexibility, and the full utilization of human talent. These principles have enormous relevance for organizations concerned with safety, customer service, and unpredictable events such as weather. Companies that embrace lean really begin to see things differently. Our work with several international carriers and with a European third-party maintenance provider has provided a glimpse into this tremendous opportunity.

In spite of the strong cost-cutting efforts of the airlines, they still harbor large amounts of what lean practitioners define as waste: anything that doesn’t add value for end customers. Waste starts with the utilization of aircraft and other kinds of infrastructure, which often falls below 50 percent. Passengers see a part of this problem in the form of empty gates, avoidable tarmac delays, and idle planes.

Behind the scenes things really get interesting: engines worth $20 million languish on 40-day journeys through overhaul lines; cavernous hangars suffer from chaotic layouts; awkwardly choreographed hangar dances feature aircraft worth as much as $150 million.

Valuable and highly skilled employees routinely spend a large part of their time on low-value activities or just plain waiting (Exhibit 2). The arriving traveler watches in frustration as a baggage carousel remains empty for 30 minutes because of a lack of handlers. Dozens of stranded travelers fume while a single clerk processes them. In maintenance hangars, mechanics spend far more time chasing parts than repairing aircraft. Moreover, airlines struggle to tailor the level of staffing or the pace of work to their service demands efficiently—despite the predictability of many tasks, such as the removal of wheels. In some maintenance shops, 20 to 30 percent of the mechanics’ time is spent in the break area; in others, actual clocked person-hours are 30 percent lower than scheduled hours.

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Standard operating procedures exist, but the airlines generally focus on what regulators such as the US Federal Aviation Administration (FAA) require them to do, not on how to do it efficiently. Thick manuals outline tasks but without standardizing sequences, processing times, or best practices. Passengers experience this problem firsthand in the form of check-in and loading procedures that vary from airport to airport or even gate to gate. The absence of operating standards often breeds inefficiency in spite of workers’ best efforts to carry out required tasks and meet regulatory standards. We’ve seen two mechanics using different tools— one half as effective as the other—to remove a panel from the underside of a fuselage.

The suitability of lean techniques to meet these and other challenges presents the airlines with a ray of hope. What exactly would a lean airline operation look like and deliver?

A view from the trenches When organizations implement the lean approach, they bring to life its core principles through a distinctive operating system, management infrastructure, and

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mind-set. Getting these humming takes time. Toyota embarked on its journey 50 years ago and only in the 1970s reached a stage we would recognize as lean, made possible by its well-known suite of specific, practical tools, such as kanban, "fast changeover," "standard work," and hoshin kanri. Airlines are just getting started.

The pioneers are focusing first on maintenance, generally the second-largest operating expense after fuel. Maintenance has dramatic ripple effects on other operations through its ability—or inability—to service aircraft on time.

The journey to great operations The idea of 25 to 50 percent improvement opportunities is enticing, but airlines shouldn’t underestimate the magnitude of the task; truly lean companies like Toyota are rare for good reason. Projects and events that aren’t inspired by broader transformation goals lead to what we saw at one airline: a maintenance shop that dramatically reduced the number of tools it needed but didn’t know how that achievement affected turnaround times or aircraft utilization rates. Even with the right goals in place, adopting individual lean techniques won’t get airlines far unless they tackle more difficult issues, such as standardizing their work and changing the role of their frontline supervisors. Underpinning such efforts is a commitment from the top to a cultural change emphasizing, above all, the identification of waste, rigorous problem solving by the front line, and a focus on fully utilizing aircraft and other assets. In our experience, two things are central to achieving this mind-set shift: a trial that serves as proof of concept for the complete system and the rigorous development of lean skills among middle managers.

Yet these difficulties come with a silver lining: the potential for successful lean practitioners to achieve truly distinctive cost and quality structures. When airlines make cuts, they typically focus on reducing wage, food, and other supply costs that they can easily control—and that competitors can easily match. As deep as recent cost-reduction efforts in the United States and Europe have been, an airline that fully embraced lean operations could slash its overall costs by a further 5 to 10 percent. And even as competitors contend with the expiration of temporary labor concessions, lean operators will extend their edge through continual

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improvement. In other process-, labor-, and capital-intensive industries, the superb operators win. In the airline industry, the pendant is still up for grabs. Airlines isn’t unique; they can embark on the same lean journey that has taken operational leaders in other industries to great heights. It won’t be easy, but it will differentiate the determined few that preserve.

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MARUTI Prefers CNG over Electric Vehicles BY Yogisha Kapoor

The future may still be electric for Maruti Suzuki but getting there might involve a liberal dose of compressed natural gas (CNG). For months now, as the Narendra Modi government has waffled on a plan to kick start electric vehicles (EVs) in India, Maruti Suzuki, the country’s largest carmaker, has insisted it will all rest on a single factor: affordability.

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This keenness for CNG stems from the company’s expertise in this fuel segment, combined with the unpredictable trajectory of battery prices and the peculiarity of the automobile market itself.

“The Indian market is different from any other market in the world,” RC Bhargava, chairman of Maruti Suzuki, said last week. “Because we have 75% of our cars that are under 4 meters and under Rs 5 lakh (around $7,500) in terms of price. There is no market in the world which has this kind of dominance by small cars.”

Given the current level of battery prices, converting these small cars into EVs, according to Bhargava, would more than double the cost of the vehicles.

“Now, on a Rs5 lakh car, you add an extra cost of Rs6-7 lakh, I don’t think anybody would buy it,” he explained. “So, affordability becomes a huge, huge problem.”

Not all gas And that is why Bhargava is bullish on CNG, a fuel cleaner than diesel, and one that Maruti Suzuki already has expertise in. “That technology already exists. The cost increase of a CNG car compared to a petrol car is very small, around Rs40,000,” he said. “So, customers buy it happily.”

Maruti Suzuki currently sells around 74,000 CNG vehicles a year, a number that could be much higher if the fuel was more readily available, the company feels. New Delhi, for instance, has around a million CNG vehicles but fewer than 450 refilling stations.

“The problem is I can increase it (manufacturing) subject to the increase in distribution of CNG becoming wider. I can’t tell a customer to buy a CNG car and then stand for one hour to refill,” Bhargava said. The problem becomes more acute for inter-city travel since CNG is only available in some 1,200 stations across a dozen Indian states, servicing up to three million vehicles.

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So, Maruti Suzuki is now in conversation with the government and oil companies to widen the CNG network. “We will try and work out a joint program with the oil companies,” Bhargava said. “They expand the sales outlets; we expand the production of CNG cars.”

But analysts are unconvinced, describing the push for CNG as a short-term investment.

“CNG is a messy technology and delivers nothing more than a stop-gap arrangement considering it is a fossil fuel,” said Deepesh Rathore, director at automotive advisory firm Emerging Markets Automotive Advisors. “The future is EV and the sooner we build a consensus around it, the better it would be for auto companies and the government.”

Maruti Suzuki, majority-owned by Japan’s Suzuki Motor Corporation, is giving electric cars a serious shot. Suzuki is already in partnership with rival Toyota to develop an India-specific EV. It is also setting up a $180 million lithium-ion battery factory in Gujarat to manufacture the single-most expensive component of any EV. “There is a very strong school of thought which believes that battery prices will come down to half their present price. There is another school of thought which says this will not happen,” Bhargava said. “I don’t know what is going to happen.”

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The Final Months of Aditya Ghosh’s Tenure At IndiGo BY RAYMAN KAUR

Last week, Aditya Ghosh decided to quit Indigo, India’s largest airline, after heading it for a decade. InterGlobe Aviation, which owns and operates IndiGo Airlines, informed the stock exchanges on April 27 that Ghosh, the company’s president and whole-time director, was stepping down. Rahul Bhatia, its co-founder, has taken over as interim CEO. Ghosh’s unusual journey with IndiGo began as its lawyer in 2004. A law graduate from Delhi University, he worked for J Sagar Associates where InterGlobe Enterprise was his client. Impressed by his work, Bhatia inducted him in 2007 and promoted him as CEO the very next year following the exit of the then chief Bruce Ashby.

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Under his leadership, IndiGo became the most successful Indian airline, commanding a market share of 39.5%, as of March 2018. In the OctoberDecember quarter, it reported a net profit of Rs762 crore ($114.8 million), up by 56% from the same period last year.

IndiGo has consistently performed well over the years. It was the only Indian airline to report a profit even in 2013 when high global fuel prices and a weakening rupee had wreaked havoc on the industry.

The airline was awarded for its best on-time performance and for being the best place to work for 10 years in a row. Besides, it also won the Skytrax world airline award eight consecutive times in the low-cost airline in central Asia and India category.

Buoyed by the success, it is looking at expanding its wings to fly longhaul international flights. In January, it reportedly sought the aviation ministry’s nod to fly to Frankfurt, Paris, Gatwick, Manchester, and Birmingham beginning October 2018 and to Brussels, Rome, Milan, and Zurich from 2019.

Yet, in the last six-months, the company has run into rough weather, lurching from one problem to another. Here is a look at the tumultuous phase just before Ghosh’s exit.

All fall down Safety concerns In February and March, the aviation regulator directed IndiGo to ground eight of its flights due to safety concerns.

IndiGo’s plan to sustain and improve its profitability was pinned on its new fleet of A320 Neo planes from Airbus. IndiGo had ordered 530 of those aircraft from Airbus since 2011 as it consumes between 15% and 20% less fuel than its predecessor.

However, the plans came undone, even if temporarily, after some of the aircraft which ran on the Pratt & Whitney engines were grounded due to cooling and durability issues since 2016.

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These aircraft can accommodate about 15,000 passengers and have resulted in huge losses for the IndiGo. Mark Martin, CEO of aviation consultancy firm Martin Consulting, had told Quartz earlier that the airline may be losing up to Rs7.2 lakh in revenue per aircraft per day. With eight of its aircraft down, IndiGo had to cancel several flights over many days, resulting in bad reviews.

Brand image Over the years, IndiGo had emerged as the top pick for Indian flyers but its image took a beating in recent months. On Nov. 07, 2017 a video of IndiGo ground staff manhandling a passenger on the tarmac went viral. The incident took an ugly turn when the company decided to sack the whistle-blower on the pretext that he had instigated the assault. In January 2018, a parliamentary panel report pulled up the airline after several incidents of discourteous and rude behavior by its staff were reported, according to a Hindu Business line report. “…a particular airline has grown exponentially, (it) should deploy a proportionate amount to the training of (its) staff instead of misbehaving and manhandling the passengers or blaming the youngsters from tier-II and III cities and government schools,” the report said.

Earlier, this month, another passenger was asked to get off a flight because he complained of mosquitoes.

Questionable on-time strategy IndiGo is believed to be the fourth most punctual airline, globally.

However, the parliamentary panel asked if this impressive record is because it may have been gaming the system, the Hindu Business line report said. The issue was earlier also raised by the directorate general of civil aviation, India’s aviation regulator.

“It was brought to the notice of the committee that the flying time of IndiGo from Indore to Delhi is two hours whereas in other airlines, it is only

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one hour and 35 minutes. IndiGo is adopting a longer flying time in various sectors of their flights just to bolster their on-time performance,� report added.

Legal battle The airline was embroiled in a legal battle with the Delhi International Airport (DIAL) since November. Authorities there had directed airlines operating from Terminal-1 to partially shift their flights to Terminal-2 for some time to make way for some construction activity. Instead of following the orders, IndiGo decided to take DIAL to court as it was concerned it would spark confusion among its customers.

The carrier lost the case.

And more‌ IndiGo was also the first company to formally express interest in buying the debt-ridden Air India. Its plan was to acquire the international operations of the government-run carrier. However, the government clarified that it would not sell Air India piecemeal. So, earlier this month, IndiGo dropped out of the race saying it lacked the capability to turn Air India around.

Yet, investor confidence in IndiGo has remained intact. Since November 2017, the stock has gained over 13% on the BSE.

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ABOUT US:

The word “Kaizen”, where “Kai” = change “Zen” = good, simply means “change for better”. In English Kaizen is typically applied to measures for implementing continuous improvement. It is an approach to activity organisation based on common sense, self-discipline, order and economy and is a strong contributor and fundamental part of a lean production process model in lean manufacturing. Kaizen- The Official Operations Club of IBS Hyderabad believes in relishing in the essence of "Constant Change and Evolvement" and hence we, as an organization work willingly for the betterment of the student community. KORE- Kaizen’s Operations and Research Entity, one of our primary wing which flaps to cater to the needs of students and motivate them to soar high by polishing their technical competencies. KORE’s area of expertise includes Case Based Research, Consultancy, Live Projects and Workshops.

LAKSHYA, an initiative taken by KORE primarily focuses on the concepts of operations management and various articles based on the day to day operations and logistics of an organisation - KAPIL MITTAL

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LAKSHYA is an academic print and is not for any commercial sale.

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