An olive changed everything; the

American Airlines lesson to reduce costs

The executives of other companies were stunned. They didn’t give credit to the results reported by the airline. Years after, American
Airlines did it again with another action that had better results.

This action, which seemed to be insignificant in which none of the passengers

noticed when they ate the salad, made it possible to reach the objective which
was to reduce costs and at the same time give an example of austerity to the
business World.
July 31, 2016, 10:25

Mexico City. In 1987 American Airlines (AA) stopped adding an olive -they took one off- in the
salads they served on board during each flight, which saved them $ 40,000 per year for each plane.
This action, which seemed to be insignificant in which none of the passengers noticed when
they ate the salad, made it possible to reach the objective which was reduce costs and at the same
time give an example of austerity to the business world.
The executives of other companies were stunned. They didn’t give credit to the results reported
by the airline. Years after, American Airlines did it again with another action that had better results.

In 2007, AA replaced the heavy beverage carts on board with others, nine kilograms lighter,
which meant a decrease of 190 kilos and the fuel consumption of their Boeing 777 and 54 kilograms
in the MD80.

The estimate on savings reached by the US airline in fuel was 2.8 million dollars per year,
according with estimates made by other companies.

With knowing the results, the American Airlines’s experience is a story full of easy decisions and
actions, with obvious results.

However, after this became a documented and known anecdote, there are companies who
don’t know how to reduce costs and generate savings, which produced the creation of new
companies specializing in this subject.

This is the case of the Expense Reduction Analyst company (ERA), founded in London in 1992,
which currently helps owners and managers of other companies to find savings by managing their
categories of expenses and suppliers.

The company leader in the analysis and reduction of operative expenses, found a large niche
market of the large number of companies that need to reduce their costs but don’t know how to do
it and need help.
 Sylvia Perales, consultant partner of ERA, says that one of the most common inconvenience that
make companies spend more than necessary is because they have a petty cash. They use that
money to buy whatever they can think of.
The problem, according to the expert, is that they often use that money to buy products that are
not allowed, like pens or fashion paper clips, which are usually unnecessary.
"We also see that the documentation requirements for these expenses are not correct. Most of
the times there is no formal invoice with the corresponding fiscal characteristics, or also they don’t
have the required approvals to make other acquisitions.”
"In some companies we have also detected some purchases of items that are not allowed by the
regulated processes, for example we have found the purchase of a common detergent when, due
to the type of activities, the company requires a specific detergent" she says.

As a conclusion, she warns that in both large and small companies it is difficult to have an
adequate magnifying glass to control those "minor expenses", but when you put all of them together,
they can represent a significant expense of the non-deductible tax expenses.

The lesson for companies and for people is that the saving of expenses can occur with the proper
actions. Although these actions may seem insignificant, they can both reduce costs and achieve
savings.

Author: Excelsior.com.mx
QUESTIONS

1. Specify what type of cost or expense is the olive and the weight of the
beverage carts.
2. It is estimated that the reduction of costs or expenses obtained
represents 20% of the item of costs or expenses to be defined, which
also represents 30% of the sales structure. How much is the real
reduction?
3. If you were elected as the Operations Manager, what other savings
proposals would you give to AA?
4. Specify four actions to generate savings of your currently company.
5. Specify three ratios or KPIs that you would place in your company to
control costs.

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