Operating private airlines efficiently
Monday, 11 February 2008
Imran Asif
AS the saying goes -- "better late than never"! It took the time till the state-owned airline found itself in a state of acute predicament, and more than 90% of the market of air travellers into and out of Bangladesh went into the captivity of foreign carriers that our government realised that it was about time that it finally supported private sector initiatives in the airline business.
Aero Bengal and Air Parabat came and gone, after having provided a dash of sub-standard services under the nose of the Civil Aviation Authority of Bangladesh (CAAB). GMG Airlines have been swimming against the tide through majority of its 10 years till date, almost wholesomely due to the regulations exercised by the government which explicitly discouraged private sector activity in the industry in the name of providing protection to Biman Bangladesh Airlines.
In recent months, three new private airlines have started their operations in Bangladesh to give company to GMG, at least in the domestic market. GMG now has a significant lead over others, having now spread its wings farther into the international routes. But in my opinion, each of these four private airlines has made one common mistake, that of ignoring the most important factor in today's airline business - efficiency. This mistake in a competitive marketplace is a perilous one, and from my little knowledge in the business I will attempt at explaining my reasons for thinking so, for each of these four private airlines - GMG Airlines, United Airways, Best Air, and Royal Bengal Airlines, and then talk a bit about the role of the government in the sector.
GMG Airlines: This airline, like I said before, fought a good lot of odds through at least its first seven years. The government was not keen to let them go international, and then they were initially allocated ridiculous destinations such as Guwahati et al. From 2007, they finally got the green to go to Bangkok, Kathmandu, and Delhi to add to the Calcutta flights they were already doing. To expand the fleet to do these routes, they leased in two McDonnell Douglas MD80s (S2-ADM and S2-ADO; CN/LN: 53147/2069 and 53481/2145; 1993 and 1996 build respectively) from Lion Air of Indonesia. Now, the MD-80s are great airplanes to fly on, but from an airline's perspective and fuel prices these days, these are pretty inefficient birds in terms of what they cost to operate. And this is the only reason why Lion Air is replacing its MD-80s with the newer B737-900ER aircraft. By comparison the MD-80 carrying approximately 160 passengers burn about 4,200 litres of fuel per airborne hour, whereas the B737-900ER while carrying approximately 215 passengers burn just about 3,000 litres of fuel per airborne hour. That is 30% more passenger carrying capacity, and 30% less cost in terms of fuel burn per hour.
Recently, GMG announced leasing in two Boeing 747-300s from Air Atlanta Icelandic (CN/LN: 23028/584 and 23030/593; 1983 and 1984 builds respectively) which as fine airplanes as they are, happen to be very fuel inefficient as well. GMG will have to bear for the exorbitant fuel costs of operating these vintage 24-year old Jumbos apart from the block-hour wet-leasing costs, while competing with major global airlines like Emirates on the Dhaka-Dubai route. It is going to be anything but a walk in the park for GMG.
But the brighter side is if GMG plans to renew its fleet with more efficient airplanes and act on that plan from now, it can have great new "fuel-sipping" birds in about two to three years' time, meaning that they will be able to let go of the "fuel guzzlers" that soon as well!
However, there is more that GMG must take care of to keep up its reputation. It was an alarming read in the newspaper a few months back stating that GMG was over-utilising their pilots, and therefore had compromised safety! Apparently, the matter was taken up by the South Asian part of the Cooperative Development of Operational Safety and Continuing Airworthiness Project (COSCAP), an initiative by the International Civil Aviation Organisation (ICAO), and eight pilots of GMG had been subsequently grounded by the Civil Aviation Authority of Bangladesh (CAAB).
There is a comprehensive document published by National Aeronautics and Space Administration (NASA) of the United States regarding crew duty and rest scheduling ("Principles and Guidelines for Duty and Rest Scheduling in Commercial Aviation"; NASA Technical Memorandum 110404) which is generally accepted by the global commercial aviation industry as the standards to adhere to. Over-utilising cockpit crews beyond the permitted level is anything but a display of efficiency.
United Airways & Royal Bengal Airlines: I am putting these two airlines together because they have two identical factors between them: both are formed/funded by expatriate Bangladeshis in the UK and both are operating just one DeHavilland Dash-8-100 airplanes each (Serial Number: 366 and 225; and 1993 and 1990 builds respectively for United and Royal Bengal). The reason why both chose this aircraft lies in the fact that cockpit crews and engineers for this aircraft are already here in Bangladesh, thanks to GMG's operation of the type for 10 years.
Operating an airline with a single aircraft always calls for trouble, especially if one has to compete with other players in a market offering insufficient customers. The inevitable result is either insufficient revenue generation due to under-optimal utilisation or compromised maintenance forcing the planes to keep flying. Both United Airways and Royal Bengal Airlines will have to live up to this challenge and act smart to get their acts together!
Best Air: I was surprised to hear Best Air saying during their pre-launch press-briefings that their Boeing 737 was a very fuel-efficient and safe airplane! The Boeing 737-200 belongs to the "classic" generation of the 737 family, and is powered by a pair of the vintage P&W JT8D-15A engines (older version of the similar ones powering the MD-80s operated by GMG) which are far from being fuel-efficient by today's standards.
The very aircraft that Best Air acquired (Line # 1039) was built in 1984, is about 24 years old today, and is obviously expensive to maintain for the reason that older planes are more difficult to find spares for. One could argue that Northwest, the major US airline, still operates a large number of DC-9s which have an average age of about 35 years. But the reason for that are many: they operate hundreds of those birds which are not easy to replace overnight; gradual replacement allows for 'cannibalisation' of the retired ones to find spares for the active planes; and last but not least these aircraft are "paid-for" and this have little or no capital cost to the airline anymore. None of these reasons is applicable for Best Air, and even with a decent load factor on every flight these birds will be very hard to make money out of given its exorbitant operating and maintenance costs.
Role of the Government: To make the lives of the airlines more difficult than it already is, the Government, while claiming to be 'encouraging' the private airlines, actually have two policies to take down any competent airline point-blank:
(i) The price of jet fuel here in Bangladesh is 40% higher than the world market prices, due to the ridiculous duties imposed on it. For any airline today, at least 70% of the total operating cost is represented by fuel, and with this 40% mark-up due to duties it would be impossible for any Bangladeshi airline to compete effectively with international carriers. This cost is escalated even higher by the operation of fuel-inefficient aircraft.
(ii) The government has imposed a 10% import duty on aircraft and spares from the current fiscal year, which is yet another example of thoughtless policymaking. Capital costs are already high in airline business, and with the imposition of this import duty along with the duties on jet-fuel the government is simply digging steep graves for all Bangladeshi airlines. Imposition of such ridiculous duties, with all the talks about better business et al, is nothing less than an explicit example of hypocrisy.
If the government really means any good for the Bangladeshi airlines - Biman and private airlines alike, it should wake up the next morning with the intent of doing whatever necessary to get the duties off from jet-fuel, aircraft, and spares. That would literally be one good morning!
To sum it all up, I would only like to reiterate what I had said earlier: the private sector activity in the airline business is inspiring, but they must realise that prolonged inefficiency in their fleet and operations will challenge their sustainability severely in the longer run.
There is also a need to understand the economics of demand & supply and its relationship with pricing, along with the accounting term called 'cost of goods sold'. Getting into price wars may not always be the best thing to do, as it has been lately (e.g. Best Air and Royal Bengal offering a one-way Dhaka-Chittagong fare of BDT 3,900 and BDT 3,520 respectively), and attention to product innovation would perhaps yield greater revenues.
Now is the time when these private airlines can combine their efforts together to bust the bubble of obstacles from within, and flutter their wings into the skies. To make that happen though, operating efficiently will have to be business as usual.
The author is an aviation industry consultant, and has previously worked on projects with The Boeing Company, Honeywell Aerospace, and FAA's Operational Evolution Plan (OEP) in 2004-2005
AS the saying goes -- "better late than never"! It took the time till the state-owned airline found itself in a state of acute predicament, and more than 90% of the market of air travellers into and out of Bangladesh went into the captivity of foreign carriers that our government realised that it was about time that it finally supported private sector initiatives in the airline business.
Aero Bengal and Air Parabat came and gone, after having provided a dash of sub-standard services under the nose of the Civil Aviation Authority of Bangladesh (CAAB). GMG Airlines have been swimming against the tide through majority of its 10 years till date, almost wholesomely due to the regulations exercised by the government which explicitly discouraged private sector activity in the industry in the name of providing protection to Biman Bangladesh Airlines.
In recent months, three new private airlines have started their operations in Bangladesh to give company to GMG, at least in the domestic market. GMG now has a significant lead over others, having now spread its wings farther into the international routes. But in my opinion, each of these four private airlines has made one common mistake, that of ignoring the most important factor in today's airline business - efficiency. This mistake in a competitive marketplace is a perilous one, and from my little knowledge in the business I will attempt at explaining my reasons for thinking so, for each of these four private airlines - GMG Airlines, United Airways, Best Air, and Royal Bengal Airlines, and then talk a bit about the role of the government in the sector.
GMG Airlines: This airline, like I said before, fought a good lot of odds through at least its first seven years. The government was not keen to let them go international, and then they were initially allocated ridiculous destinations such as Guwahati et al. From 2007, they finally got the green to go to Bangkok, Kathmandu, and Delhi to add to the Calcutta flights they were already doing. To expand the fleet to do these routes, they leased in two McDonnell Douglas MD80s (S2-ADM and S2-ADO; CN/LN: 53147/2069 and 53481/2145; 1993 and 1996 build respectively) from Lion Air of Indonesia. Now, the MD-80s are great airplanes to fly on, but from an airline's perspective and fuel prices these days, these are pretty inefficient birds in terms of what they cost to operate. And this is the only reason why Lion Air is replacing its MD-80s with the newer B737-900ER aircraft. By comparison the MD-80 carrying approximately 160 passengers burn about 4,200 litres of fuel per airborne hour, whereas the B737-900ER while carrying approximately 215 passengers burn just about 3,000 litres of fuel per airborne hour. That is 30% more passenger carrying capacity, and 30% less cost in terms of fuel burn per hour.
Recently, GMG announced leasing in two Boeing 747-300s from Air Atlanta Icelandic (CN/LN: 23028/584 and 23030/593; 1983 and 1984 builds respectively) which as fine airplanes as they are, happen to be very fuel inefficient as well. GMG will have to bear for the exorbitant fuel costs of operating these vintage 24-year old Jumbos apart from the block-hour wet-leasing costs, while competing with major global airlines like Emirates on the Dhaka-Dubai route. It is going to be anything but a walk in the park for GMG.
But the brighter side is if GMG plans to renew its fleet with more efficient airplanes and act on that plan from now, it can have great new "fuel-sipping" birds in about two to three years' time, meaning that they will be able to let go of the "fuel guzzlers" that soon as well!
However, there is more that GMG must take care of to keep up its reputation. It was an alarming read in the newspaper a few months back stating that GMG was over-utilising their pilots, and therefore had compromised safety! Apparently, the matter was taken up by the South Asian part of the Cooperative Development of Operational Safety and Continuing Airworthiness Project (COSCAP), an initiative by the International Civil Aviation Organisation (ICAO), and eight pilots of GMG had been subsequently grounded by the Civil Aviation Authority of Bangladesh (CAAB).
There is a comprehensive document published by National Aeronautics and Space Administration (NASA) of the United States regarding crew duty and rest scheduling ("Principles and Guidelines for Duty and Rest Scheduling in Commercial Aviation"; NASA Technical Memorandum 110404) which is generally accepted by the global commercial aviation industry as the standards to adhere to. Over-utilising cockpit crews beyond the permitted level is anything but a display of efficiency.
United Airways & Royal Bengal Airlines: I am putting these two airlines together because they have two identical factors between them: both are formed/funded by expatriate Bangladeshis in the UK and both are operating just one DeHavilland Dash-8-100 airplanes each (Serial Number: 366 and 225; and 1993 and 1990 builds respectively for United and Royal Bengal). The reason why both chose this aircraft lies in the fact that cockpit crews and engineers for this aircraft are already here in Bangladesh, thanks to GMG's operation of the type for 10 years.
Operating an airline with a single aircraft always calls for trouble, especially if one has to compete with other players in a market offering insufficient customers. The inevitable result is either insufficient revenue generation due to under-optimal utilisation or compromised maintenance forcing the planes to keep flying. Both United Airways and Royal Bengal Airlines will have to live up to this challenge and act smart to get their acts together!
Best Air: I was surprised to hear Best Air saying during their pre-launch press-briefings that their Boeing 737 was a very fuel-efficient and safe airplane! The Boeing 737-200 belongs to the "classic" generation of the 737 family, and is powered by a pair of the vintage P&W JT8D-15A engines (older version of the similar ones powering the MD-80s operated by GMG) which are far from being fuel-efficient by today's standards.
The very aircraft that Best Air acquired (Line # 1039) was built in 1984, is about 24 years old today, and is obviously expensive to maintain for the reason that older planes are more difficult to find spares for. One could argue that Northwest, the major US airline, still operates a large number of DC-9s which have an average age of about 35 years. But the reason for that are many: they operate hundreds of those birds which are not easy to replace overnight; gradual replacement allows for 'cannibalisation' of the retired ones to find spares for the active planes; and last but not least these aircraft are "paid-for" and this have little or no capital cost to the airline anymore. None of these reasons is applicable for Best Air, and even with a decent load factor on every flight these birds will be very hard to make money out of given its exorbitant operating and maintenance costs.
Role of the Government: To make the lives of the airlines more difficult than it already is, the Government, while claiming to be 'encouraging' the private airlines, actually have two policies to take down any competent airline point-blank:
(i) The price of jet fuel here in Bangladesh is 40% higher than the world market prices, due to the ridiculous duties imposed on it. For any airline today, at least 70% of the total operating cost is represented by fuel, and with this 40% mark-up due to duties it would be impossible for any Bangladeshi airline to compete effectively with international carriers. This cost is escalated even higher by the operation of fuel-inefficient aircraft.
(ii) The government has imposed a 10% import duty on aircraft and spares from the current fiscal year, which is yet another example of thoughtless policymaking. Capital costs are already high in airline business, and with the imposition of this import duty along with the duties on jet-fuel the government is simply digging steep graves for all Bangladeshi airlines. Imposition of such ridiculous duties, with all the talks about better business et al, is nothing less than an explicit example of hypocrisy.
If the government really means any good for the Bangladeshi airlines - Biman and private airlines alike, it should wake up the next morning with the intent of doing whatever necessary to get the duties off from jet-fuel, aircraft, and spares. That would literally be one good morning!
To sum it all up, I would only like to reiterate what I had said earlier: the private sector activity in the airline business is inspiring, but they must realise that prolonged inefficiency in their fleet and operations will challenge their sustainability severely in the longer run.
There is also a need to understand the economics of demand & supply and its relationship with pricing, along with the accounting term called 'cost of goods sold'. Getting into price wars may not always be the best thing to do, as it has been lately (e.g. Best Air and Royal Bengal offering a one-way Dhaka-Chittagong fare of BDT 3,900 and BDT 3,520 respectively), and attention to product innovation would perhaps yield greater revenues.
Now is the time when these private airlines can combine their efforts together to bust the bubble of obstacles from within, and flutter their wings into the skies. To make that happen though, operating efficiently will have to be business as usual.
The author is an aviation industry consultant, and has previously worked on projects with The Boeing Company, Honeywell Aerospace, and FAA's Operational Evolution Plan (OEP) in 2004-2005