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6 Reasons Why Your Airline Needs KPIs To Reduce Operational Costs

Every airline is currently looking for possibilities to reduce costs. And this isn't surprising. COVID-19, like no other crisis before, forces airlines to rethink their entire business models.

Most of the airlines forecast a bumpy and lengthy road until passengers numbers reach pre-COVID figures again. Although predictions vary from 3 to 5 years, it is evident that airlines face a challenging future.

Since airlines have only limited influence to stimulate demand in such a situation, cost reduction is the number one priority. First and foremost, airlines focus on primary cost reduction measures. Reducing staff, stepping back from aircraft orders, or provider streamlining, are just a few examples in that context.

COVID-19 Is Going To Impact Operational Process Heavily

However, it is obvious that COVID-19 is also going to impact operational processes massively. Here are a few examples:

  • Turn-around processes will be more complex and take longer due to extended cleaning processes.
  • Boarding and deboarding processes may take longer due to social distancing requirements.
  • Ad-hoc travel regulations add to the overall complexity.
  • Probably more busses are required to bring passengers safely to the aircraft or terminal.
  • Empty middle seat regulation potentially adds additional complexity.
  • Etc.

To make a long story short: Operational processes in a post-COVID time are likely to be much more complicated than previously. And here’s the problem: Simultaneously, airlines are forced to streamline operations and cut costs. 

Accordingly, airlines find themselves in a catch-22 situation. They have to reduce costs in an environment with growing complexity. Undoubtedly, this reflects a significant challenge for every airline. You don’t have to be Nostradamus to forecast that not every airline will tackle this challenge successfully. 

How Can KPIs Help An Airline To Reduce Costs

I’m actually not an airline operations expert. Accordingly, I can’t provide the necessary operational tips and tricks to streamline processes and reduce costs.

However, I have the firm conviction that only airlines that rely on comprehensive operational KPIs can successfully handle the situation. Why’s that? Here are six reasons why your airline needs operational KPIs to manage that situation successfully.

#1 — If You Can’t Measure It, You Can’t Improve It!

Pretty sure you heard that saying before. Peter Drucker, a management guru, once said this. And he is so damn right with it. How do you know whether or not you are successful unless success is defined and tracked? Accordingly, every improvement measure and every activity to reduce costs needs KPIs. Otherwise, you are relying on gut feelings. And believe me, the current situation is far too severe to act on beliefs.

#2 — KPIs Help To Identify Weaknesses Of An Airline. A Necessary Step To Reduce Costs

Although some actions to streamline and reduce costs might be evident, airlines won’t have a catalog of 100 measures right at the beginning. That means they will have to identify weaknesses and areas to improve. Again, KPIs are the perfect tool in that context. KPIs rationalize feelings. They provide hard facts and figures. And we all know, numbers don’t lie. 

Accordingly, airlines have to use KPIs to identify the areas that need optimization. And simultaneously, identify areas or processes that show weaknesses.

#3 — Don’t Underestimate The Motivational Factor Of KPIs

I consider KPIs as a vital instrument to motivate employees. A fact many airlines completely underrate. Let me give you an example. You identified a specific process you want to improve. Subsequently, you set up the necessary actions and KPIs to measure success. And let’s assume your entire operational staff is involved in that program. 

Now, imagine: After two weeks, you (and the entire ops team) can see how the KPIs are improving. Every day a little bit. The KPI literally shows that you are on the right track. It shows that the effort the entire team is putting into that program is paying off. From my point of view, a super-essential aspect of KPIs. That will lead to even more dedication and motivation for the entire team. Please, don’t underestimate that!

#4 — KPIs Give Context And Create Awareness For Cost Savings

Similar to the latter, KPIs additionally have another advantage that is often underrated. They can help to rationalize situations and provide context to your staff.

I give you a very practical example again. Every airline is aware of the fact that weak on-time performance leads to increased costs. Costs related to compensation payments, necessary re-bookings, meal or hotel vouchers, and on and on and on. And that’s exactly why airlines are paying attention to the on-time performance. 

However, for the majority of an airline’s employees, OTP is just a number. They are not aware of the costs behind it. But imagine a KPI that is not showing the OTP but a financial figure. A monetary value that calculates the costs related to today’s on-time performance. As a result, you don’t show 87.5% OTP, but $138,475 additional costs due to weak OTP.

I think you recognize the difference. This bold number of $138,475 creates real awareness and will inevitably lead to the fact that airline staff is aware.

#5 – Focus On The Important Measures To Reduce Costs

The current situation is a disaster for every airline. And actually a situation none of the airlines has ever faced before. From my perspective, there’s a huge risk contained in this situation. A risk that’s called “the more, the better.” What does that mean? Actually, this is something we all know from our private life. When we try to do dozens of things simultaneously, the risk of completing none of the tasks is quite high.

And the same accounts for airlines. Probably it isn’t necessary to initiate 20 different cost-savings measures. Perhaps the actions even contradict each other. In that context, KPIs are an essential tool to focus on the important. Here’s how you do that:

  • Identify an area you want/have to improve
  • Define KPIs that tracks the improvement (and don’t forget tip 3 and 4)
  • Set up measures that lead to an improvement of the KPIs

Subsequently, if a measure doesn’t improve the respective KPIs, you put them on hold.

#6 — KPIs Help Airlines To Make The Right Decisions

In line with the latter, KPIs also help to make the right decisions. I always think of KPIs as a framework that provides orientation for each decision.

Since you always have options, you should assess each option according to your most relevant KPIs. Is an option positively or negatively impacting a KPI?

Is Your Airline Already Relying On KPIs To Reduce Costs?

Always happy to get your feedback and thoughts. Hit me up on Twitter or get in touch on LinkedIn.

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Benjamin Walther

CEO, Frankfurt

Benjamin is Information Design's CEO and a proven content-maniac. Besides running a successful business and developing pioneering ideas, he's dedicated to writing blog posts and creating content.

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