CASE STUDY: Airline Start up

Project Brief

AirAustralsia is a company looking to establish a low cost airline to cater for the
Australasian market and is seeking a feasibility study to determine the feasibility of a
supply chain being set up to support the business venture.

Background Context

“The global airline industry continues to grow rapidly, but consistent and robust
profitability is elusive. Measured by revenue, the industry has doubled over the past
decade, from US$369 billion in 2004 to a projected $746 billion in 2014, according to
the International Air Transport Association (IATA).
Much of that growth has been driven by low-cost carriers (LCCs), which now control
some 25 percent of the worldwide market and which have been expanding rapidly in
emerging markets; growth also came from continued gains by carriers in developed
markets, the IATA reported. Yet profit margins are razor thin, less than 3 percent
overall.
In the commercial aviation sector, just about every player in the value chain — airports,
airplane manufacturers, jet engine makers, travel agents, and service companies, to
name a few — turns a tidy profit. Yet it’s one of the enduring ironies of the industry
that the companies that actually move passengers from one place to another, the most
crucial link in the chain, struggle to break even.
Airlines need to make large and ongoing improvements to operate more efficiently.
With few exceptions, the most successful airlines are those with the strictest cost
controls. The biggest (albeit cash-intensive) lever to reduce costs lies in fuel efficiency,
as jet fuel typically accounts for 40 to 55 percent of operating expenses.
Cost reduction can also be achieved through enhancements in organizational structure,
operating model, and work practices. In particular, legacy airlines have often built up
complex processes over decades that cost far more than the streamlined processes of
the LCCs.” (Price Waterhouse Coopers, 2015)

“The aviation industry in Australia has a long history and currently it has a number of
airlines operating within the country and all over the world. The importance of airlines
in Australia has grown very rapidly because the country is an island and also has a
thriving economy. Defunct airlines and planned airlines are the two types of airlines
which are in operation in this country. The main sectors of the Australian civil aviation
industry are the international airlines sector, general aviation sector and its safety and
the domestic regional airlines sector. The aviation industry of Australia also comprises
of some small segments like hand gliding, gliding, autogyros and ultra-light aircraft.

“The international airlines in Australia carry cargo and passengers to and from various
parts of the world. The total number of international airlines which provides services to
Australia is 49. As Australia is an island more than 90% of the visitors to this country
come by air. The total annual average of passengers who come to Australia from around
the world is about sixteen million. Though airlines are the main carrier of passengers
in Australia the freights are mostly carried by the ships to various destinations”.
(Australia Net, 2007)
The potential growth of the business and commercial markets within China suggest a
growth in demand for air travel around the region. As part of any business development
there are a number of areas that need to be explored in order to establish the business
case for the venture. An essential part of the business being considered is the logistics
and supply chain that is required to ensure the continuity of business. This is even more
the case as the model that the company is looking to adopts is one of low cost and this
inevitably puts greater pressure on the margins that the company is looking to pay for
goods and services. The company have a range of areas to consider in relation to supply
chain and are looking for a consultancy to provide an independent feasibility study
within this area. The main aspects that have emerged from initial investigation are a
need to understand:

• The current local supply chain to support the business and its capacity
• Current logistics infrastructure to support the airline growth oppose to competition
• Environmental analysis to support CSR operations
• Problem solving and business tools application

AirAustralasia understand the highly competitive nature of the modern airline industry
and so are keen to ensure that they have a clear examination of the issues that will
inform the supply chain requirements to run the business.

Client Requirement

The client is looking for a consultant to provide a report in critically discussing how
they would addresses the above aspects with a clear analysis of the supply chain
required to support the setting up of a low cost airline within the Australasian market,
meeting the aims and objectives identified.