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ISG White Paper

Airline Outsourcing: Have the Airlines Outsourced All That They Can?

Harvey-Gluckman-sq
by Harvey Gluckman
Since 2001, the airline industry has reported operating losses of approximately US$30 billion. The string of losses has been attributed to a series of events — most notably terrorism, SARS, conflict in the Middle East, a questionable global economy and the incessant climb of fuel prices. The management teams of all airlines are confronted with this loathsome mix of unwanted and unwelcome challenges. In response, airline executives are battling internally to devise ways to reduce costs and create a more variable and flexible operating model. With these challenges, these teams have no choice but to explore every avenue to generate cost savings, and outsourcing opportunities may be high on the list.

Major airlines understand that without top-line growth, bottom-line profitability demands strong cost-cutting and innovative efficiency measures — and for most carriers, realizing
benefits from these efforts is absolutely time-critical. 

Despite gradual annual growth in passenger traffic and revenues during the past decade, profits have been erratic, and shareholder value has suffered, lagging that of the overall economy. Since 9/11, airline carriers have tried a number of measures, including attempts to “right-size” their fleets and schedules, but as the battle for customers has escalated, airlines have failed to strip all the excess capacity out of the marketplace, resulting in a weak revenue position.

Becoming more price-sensitive, both leisure and business travelers have begun to embrace travel substitutes such as video and teleconferencing. Although the low-cost carriers gained market share and customer loyalty during the beginning of this time period, even they are now are fighting to restore the profits lost to surging fuel prices. This ISG white paper examines how airlines, and legacy airlines in particular, must radically refocus and restructure their behavior and operations.