I am never able to understand some acts of the corporate world and from my limited means of understanding find them to be absolutely stupid. One such news is the grand announcement by Go Air in today's Times of India -
Let us look into this issue. They say that every additional kilo costs the Rs. 3 per flight hour. So, for a Mumbai Delhi flight (accounting for the congestion) the cost would be Rs. 6 per trip. A male purser according to the article weights around 20 kg more than a female purser. Assuming a flight has 4 male pursers and replaces them all, the benefit would be Rs. 480 per flight. Assuming a cost of Rs. 4000 per ticket and 180 passengers per flight, the saving would be 0.07% of the revenue. The fuel savings from reducing magazine pages would be even lesser.
The airline hopes to save Rs. 2.5 crores - 3 crores using this. Assuming the Rs. 480 savings per flight and 360 days in a year, the savings would require Go air to have around `175 flights of 2 hours each everyday. This is almost double their existing flight plan.
My first objection is that these supposed inefficiencies have been brought into focus because of the rupee depreciation. A Non Value Adding activity is a Non Value Adding activity irrespective of the rupee price. Even if this fairy tale of savings was true, that it was not done earlier is a mark of inefficient management team at Go Air. Why wait for the dollar to be worth Rs. 60 to reduce the potable water tanks or install sharklets? These items would have served the firm in reducing costs irrespective of the rupee dollar exchange rate.
In terms of cost reduction by reducing assets, it is important to understand the behaviour of costs. For the fight pursers, there is of course the cost of their salary and benefits. But, there is sometimes a much higher cost for their control and management. There are a set of people who create the schedules for these pursers, people who monitor them, people who train and recruit them, etc. In a hypothetical situation that a flight can be managed without the pursers, the cost benefit would be significantly higher than the Rs. 3 per kg per flight hour or the direct salaries of the pursers. This is because the entire set of activities related to the flight pursers could be junked.
All other cost reduction would be very minor and have a very limited impact on the cost performance of the firm. Given that the complete elimination of the activities would not be possible, the focus must then shift to maximising the impact of the activity. The airlines would save a lot of money from eliminating the inflight magazine. But, if that cannot be done, it might be prudent to increase the pages of the magazines, increase customer satisfaction, and thus increase the load factor.
All the savings being talked here are what i call nano savings. To expect these nano savings to save the firm would be very amateur. However the business world has always been fond of such hypothetical fables. Even if one customer chooses not to use the service because of such measures the benefit from days of such nano savings would be lost. One social media savy customer who does not get water to drink may cause a huge PR mess for the firm. The point - especially in times of recession, such nano savings are not at all worth the risks they create. Creating higher customer satisfaction and retention should be given much higher importance than such nano savings.
GoAir opts for female crew to save fuel
http://timesofindia.indiatimes.com/business/india-business/GoAir-opts-for-female-crew-to-save-fuel/articleshow/20805888.cmsLet us look into this issue. They say that every additional kilo costs the Rs. 3 per flight hour. So, for a Mumbai Delhi flight (accounting for the congestion) the cost would be Rs. 6 per trip. A male purser according to the article weights around 20 kg more than a female purser. Assuming a flight has 4 male pursers and replaces them all, the benefit would be Rs. 480 per flight. Assuming a cost of Rs. 4000 per ticket and 180 passengers per flight, the saving would be 0.07% of the revenue. The fuel savings from reducing magazine pages would be even lesser.
The airline hopes to save Rs. 2.5 crores - 3 crores using this. Assuming the Rs. 480 savings per flight and 360 days in a year, the savings would require Go air to have around `175 flights of 2 hours each everyday. This is almost double their existing flight plan.
My first objection is that these supposed inefficiencies have been brought into focus because of the rupee depreciation. A Non Value Adding activity is a Non Value Adding activity irrespective of the rupee price. Even if this fairy tale of savings was true, that it was not done earlier is a mark of inefficient management team at Go Air. Why wait for the dollar to be worth Rs. 60 to reduce the potable water tanks or install sharklets? These items would have served the firm in reducing costs irrespective of the rupee dollar exchange rate.
In terms of cost reduction by reducing assets, it is important to understand the behaviour of costs. For the fight pursers, there is of course the cost of their salary and benefits. But, there is sometimes a much higher cost for their control and management. There are a set of people who create the schedules for these pursers, people who monitor them, people who train and recruit them, etc. In a hypothetical situation that a flight can be managed without the pursers, the cost benefit would be significantly higher than the Rs. 3 per kg per flight hour or the direct salaries of the pursers. This is because the entire set of activities related to the flight pursers could be junked.
All other cost reduction would be very minor and have a very limited impact on the cost performance of the firm. Given that the complete elimination of the activities would not be possible, the focus must then shift to maximising the impact of the activity. The airlines would save a lot of money from eliminating the inflight magazine. But, if that cannot be done, it might be prudent to increase the pages of the magazines, increase customer satisfaction, and thus increase the load factor.
All the savings being talked here are what i call nano savings. To expect these nano savings to save the firm would be very amateur. However the business world has always been fond of such hypothetical fables. Even if one customer chooses not to use the service because of such measures the benefit from days of such nano savings would be lost. One social media savy customer who does not get water to drink may cause a huge PR mess for the firm. The point - especially in times of recession, such nano savings are not at all worth the risks they create. Creating higher customer satisfaction and retention should be given much higher importance than such nano savings.
