1 st Airline Cost Conference. A Strategy for Survival and Success. Richard W. Creagh, AOCTF Chairman Executive Advisor Ukraine International Airlines

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1 1 st Airline Cost Conference A Strategy for Survival and Success Richard W. Creagh, AOCTF Chairman 1 Executive Advisor Ukraine International Airlines Montreal - March 6, 2013

2 Content Problems within the Industry IATA Cost Task Force objectives Getting back to Profit - Ukraine International experience Expanding our activity to help each other 2

3 The Airline Industry Most Exciting Most Competitive Least Profitable LOOK AT THE RESULTS 3

4 Airline Financial Performance Cumulative ROI 0 Cumulative Historical Profits NEGATIVE Airlines going though EXIT GATE 4

5 It is a Battle for Survival Competition is excessive Chasing market share Chase market with lower fares Below Cost Selling Losses Liquidity Problem Survival of the Fittest 5

6 EXCITING We want to be Survivors, So must get among the Fittest Where can we get help? and from each other 6

7 IATA s Mission is to Represent, Lead and Serve its Members Airline Operational Cost Task Force Excellent initiative much needed Data collection and data sharing When you are competing, you need to know your relative cost position YOU CANNOT MANAGE WHAT YOU DO NOT MEASURE 7

8 BUT... Measurement is not enough It should be followed by real Management Actions It s always possible to do better! 8

9 Let us learn from each other Moving AOCTF to the next phase by Sharing Best Practice and Sharing Cost Initiatives and Using our Joint Power (via IATA) to Reduce Costs 9

Changes in economy, competition, changes in strategy Fell off the Perch

10 Ukraine s Flag Carrier Sharing experience Founded 1992 Track Record Excellent Net Profits 10 successive years BUT Pride Comes Before a Fall Changes in economy, competition, changes in strategy Fell off the Perch Yields Down Cost Up mirrored the Industry Problem 2010 => Loss $25m, 2011 => Loss $55m 10

11 STREAMLINE UIA Profit Recovery Program Finance Fuel Commercial IT Fleet HR TEAMS Airports and Handling Sales Costs Logistics Operati ons and Crew Technic al 11 Work/Action Groups created 11

12 UIA Profit Recovery Program 2012 Program was top down Covered every function in the Airline VP s in every Action Group Ownership and Commitment in-house No Exceptions Nothing was Sacred Joined IATA s Airline Operational Cost Task Force 12

13 Streamline Actions - Examples Program Exhaustive >100 Actions Fuel Winglets/Flap Mod Commercial Cut out Bleeders Airports/Handling Tender for Services Technical reduce engine overhaul HR Productivity Finance Credit Lines Fleet Purchase of leased aircrafts Sales Direct Logistic Pay bar Operations MTOW IT Communications *many actions are cross functional 13

14 UIA 2012 Results Small Operating and Net Profit BUT from AOCTF we discovered that we are far from Best Process must be continuous and integrated into routine management behavior 14

15 All Airlines have Similar Problems All Airlines have their own Programs Exhaustive Exhausting Cannot do everything all the time Must Prioritize Use Pareto Principle 80% Benefits come from 20% Actions and seek help! 15

16 How can IATA help? Reduce ATC, ETS and Airports Costs AOCTF and Airline Cost Conference Expand Role and Value of this Task Force Use IATA s Power to Jointly Challenge and Influence Fuel Prices talk them down GDS and Communications Charges Airport Connecting Times increase 16

17 How can we help each other? Share Data with AOCTF Share Best Practice Share Ideas if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas G.B.Shaw

18 Thank you for your attention!!!

Airline Operational Cost Task Force (AOCTF) Airline Cost Management Group (ACMG) Klemen Ferjan, MBA Cost Management Consultant, IATA Operations

Airline Operational Cost Task Force (AOCTF) Airline Cost Management Group (ACMG) Klemen Ferjan, MBA Cost Management Consultant, IATA Operations Maintenance Cost Task Force (MCTF) 1 Airline Cost Conference