Bringing Biman into green zone

At a press briefing a year ago in New Delhi Mr Kevin Steele, the then CEO of Biman Bangladesh Airlines which had been incurring losses since 2008, expected that the national flag carrier would reach the break-even point in the current financial year (FY), 2013-14, and return to profitability the following year after cutting its losses from $ 75 million in the FY 2010-11 to $ 25 million in the FY 2011-12.
The Biman has to recognise the need for a radical change to ensure its survival and profitability. A number of factors are needed to be addressed to achieve that end. At this stage policy making and operating expenses are the main factors that need to be addressed to minimise the losses or to reach at least the break-even point. When it comes to policy making, it actually depends on the present government's mindset about sustainability of it. For example, whether the government should provide subsidy for the loss-making airline or privatise it, is completely an issue to be handled by the policy makers.
This scribe is concerned about how soon it can at least come to a break-even point in the current situation. What the problem is with its profitability should be taken into consideration. As it is a losing concern, it does obviously mean that the operating expenses are higher than revenue. According to the ICAO preliminary figures, the world passenger traffic in terms of RPK (revenue passenger-kilometres) calculated based on the total scheduled services increased by +5.2 per cent in 2013 compared to 2012, the fourth consecutive positive growth for the air transport industry since 2009. So, there arises no question over the RPK. Actually we have problems with operating expenses. As per the available data the following is a breakdown of the percentage of operating expenses of a typical airline:
1.    Landing and associated airport charges (4.1 per cent)
2.    Flight Crew (7.4 per cent)
3.    Fuel and oil (12 per cent)
4.    En-route facility charges (2.4 per cent)
4.      Station expenses (10.8 per cent)
5.     Passenger services (10.5 per cent)
6.     Ticketing, sales and promotion (16.4 per cent)
8.     General administrative and other expenses (12.2 per cent)
9.     Maintenance and overhaul (10.1 per cent)
10.    Depreciation and amortisation (7 per cent)
11.    Others (7.1 per cent)
In general, we have to consider the fixed costs (such as building rents, lease payment, maintenance of properties, utilities, insurance, interest on loans, etc.) and variable costs (such as aircrew salaries, fuel, landing fees and passenger refreshments). This scribe has no information about the breakdown of expenses of the Biman Bangladesh Airlines as there is no financial report available on its web page.. However, we can be close to those figures. So, cost-control effectiveness such as fuel efficiency and labour productivity as well as improvement of value chain (partnering or co-sharing with other service providers) are critical financial issues for the Biman. On the other hand, active yield management and multiple brand strategies could be the other challenges for its revenue enhancement.
In the long run, we have to concentrate on productivity improvement and reducing unit costs and also managing risks including currency and oil price volatility. In this case, we can go for low-cost carriers (LCC) as ICAO indicates that the global aviation network carried 3.1 billion passengers on 33 million scheduled departures (preliminary figures) in 2013 and by 2030, the current projections suggest, those numbers will nearly double. For example, Ryan Air, EasyJet and Tiger Airways (Australia) have taken the advantage of creation of a common aviation area.
Revenue optimisation is also critical for any airline business. We have to think about revenue optimism and side by side with it the minimisation of costs. If your airline regularly has empty seats aboard a fully-booked aircraft, this is not good news. Moreover, the cost of operating a flight will be the same, whether the flight is full of passengers or empty. But the income from that flight is proportionate to the seats sold. The seats are a perishable commodity. They have no value at the end of a flight. Therefore, airlines have to sell as many seats as possible for each flight. To remain competitive, airlines must react quickly to ever-changing market conditions and customer expectations. We needed a solution that would be easy to implement, would require minimal maintenance and would complement our existing systems. We also have to bear in mind that an airline's revenue not only comes from carriage of passengers but also from cargoes, mail and other services.
So, we simply need an integrated passenger management solution that includes reservations and inventory so that the systems provide inputs to each other in a manner that best supports the airline's business goals. There are some benefits of this integration in terms of better decision-making and reduced errors, which ultimately result in better overall yield performance with reduced revenue losses. So, we need to put in place proper revenue management to maximise our flagship's profitability and the policy makers must think about how to overcome this flagship's losses and turn it into a profitable entity in the long term, as most of the airlines around the world maximise profits or at least maintain the break-even point.
In theory, there are proven links between customer retention and profitability. So, when a company consistently delivers superior value and wins customer loyalty, the market share and revenue also go up. We have to have those characteristics by offer competitive prices, sophisticated customer service, maintain flight schedule and create a value chain and obviously it will have a long-term positive impact on our national flag carrier.
Dr Mohammed Hossain is a lecturer in Accounting at Griffith University, Australia.
mohammed.hossain@
griffith.edu.au