Complimentary Peanuts?

Earlier this week an article on AviationWeek made me stop to think.

Alex Cruz the CEO of the IAG owned Spanish low cost carrier Vueling had clearly made a big impression on the members of IAG's Board as he was invited to take over as CEO of the much larger British Airways following the departure of Keith Williams.

In accepting the job Alex had accepted the significant challenge of taking his experience of low cost airlines and translating that to the benefit of the more traditionally operated BA.

The article goes on to highlight an increasing trend for legacy type airlines to be recruiting experienced managers from LCC's in the hope of tapping into their low cost know-how and help to drive greater profit margins.

30-years on from the advent of disruptive low cost carriers in Europe and still the legacy carriers are trying to adjust and learn to compete more effectively. So poaching experienced LCC managers strikes me as an eminently sensible approach.

That got me thinking….applying the same logic, what could business aviation operators learn by hiring an experienced manager from an LCC?

On the face of it a comparison between a typical EasyJet or Ryanair flight and a chartered private jet is a quite a leap to make. An £89 return flight with peanuts, snacks and a variety of drinks all available to be purchased at a nice margin to the operator versus a £15,000 all you can eat type charter to a fashionably trendy European destination where all the other private jets and the beautiful people like to hang out!

Now the relative costs don’t really bear any sort of comparison, or do they? When you stop to think about it the fundamental principle of any business is to provide the highest possible quality service (or product) at the lowest possible cost; whilst selling it at the highest price the market will support. If you get that right, then you create a positive margin and if you do that consistently a year end profit should follow.

Low cost carriers as the name implies focus on operating costs and account for them in a forensic manner to which I suspect most business aviation operators can only aspire. Sure a typical business aviation operator doesn't have the luxury of a revenue management team to fall back on but even so....

But stop and think for a moment, a small or medium sized business operator might in reality only operate 3 or 4 flights a day, so surely given that reduction in scale there should be sufficient resource available to manage those critical costs.

In my mind the issue of cost control is embedded in the company culture of an LCC from top to bottom from the day an employee joins to the moment they finally leave the door. Without a vision and culture that to support and promote the ethos of low cost operations the effectiveness (and profitability) would surely be effected.

And here is the question....how can a business aviation operator tackle the problem and embed a culture of cost control at the heart of the business? It's easy to say but much harder to do. After all the world of private jet charter isn't your usual low cost environment and doesn't generally attract low cost sort of clients. Equally your typical staff member at a business aviation operator (with the obvious exception of the flight and cabin crew) isn't able to draw on their own experiences of the charter product and so how do they judge the benefits of low operating costs in a high cost environment?

I think we can probably assume that most operators have the big stuff taken care off (although we should never assume as the well known phrase reminds us!). Fortnightly fuel invoices and insurance premiums amongst the other big ticket items quickly focus the mind on cash flow, but how often do we get beyond that?

Its all to easy to get swept away with the glamorous perception of the industry. Is saving £5 on the price of a bottle of champagne worth the effort of negotiating or changing a supplier for? If you were in an LCC then the simple answer would be yes absolutely, why haven't you done it already?

The reality is that competition is only an Avinode quote away and margins are tight with profit even more elusive, blink or look away for a moment and a catering order made in haste can wipe away a big chunk of a flights margin. Especially when a pre-flight trip to the local supermarket could have had the opposite effect by enhancing the margin on the flight.

Don’t forget about those frighteningly expensive bags of frozen water delivered to the aircraft door by a very well appointed FBO delivery truck at that achingly fashionable celebrity hangout. Expensive water!

Buy it low and sell it high and keep the difference. Easy to say harder to do. It has to from the top down with nobody in any doubt about the need to focus on managing and reducing costs.

Let's also never confuse low cost with cheap service, low cost should be associated with good value and can still represent the highest levels of service that our clients would naturally expect.

It's all relative and nobody here is suggesting you start charging for peanuts!