Renny Asyita Ramadya, Senior Manager Aircraft Acquisition, Citilink Indonesia
I have been in the airline industry for about 8 years now and I go straightly to this industry right after I finished college. As an undergraduate from Engineering major, I started my career as a flight performance engineer which is focusing on aircraft performance monitoring and enhancements with fuel efficiencies as the main goal. As a flight performance engineer, I worked a lot with data and numbers, and accuracy is a requirement. I learned to be thorough and enhanced my analytical instinct. Furthermore, I then had a chance to upgrade myself and expand my knowledge through Aircraft Fleet Management. Aircraft Fleet Management consist of interest across three different department which are technical, commercial, and legal. It seems a lot to take in, but I may say that is the beauty of it. I learned how to equalize technical logics for the ease of operational matters with the cost effects, however without putting aside the ordinance to ensure that the business is still on the right track. In particular, I have been working in Low Cost Carrier airline, and this has been another exciting challenge to work in aircraft fleet management.
Low Cost Carrier may have been a very popular terms within airline industries nowadays as it is considered a breakthrough compare to the conservative airline business model. LCC business is focusing on how to create an affordable flying experience for everyone. Until today there is still a paradigm around the society that LCC is about low quality service and product provided. Though cost efficiencies is the core of this business model, safety still sits in the highest priority.
On the other hand, we are very familiar with the full service airline as the conservative airline business model. This business model providing comforts and excellent services with variety of seat classes to give the best experience of flying. Providing excellent services for passengers will be followed by high production cost which will affect the ticket fares, and to survive among LCC’s without any innovations is certainly a great challenge.
Fuel cost in an uncontrollable factor since it has a global standardization in aviation, and Maintenance cost is uncompromised factor as “Safety first” is always the motto in airline industry. So, it left us with a question, “where do the efficiencies come from?” It can comes from many factors, such as network strategy, digitalization and paperless policy, artificial intelligence implementation, and ofcourse one of them is from the aircraft, which is the main device that supports the entire operations, as we generally refer as the fleet cost.
Airline business inevitably requires a high capital to procure the aircrafts and leasing scheme is very common within the industry. Aircraft Leasing has been a very established business over the years, and currently more than 40% of total aircraft operated globally are leased. Leasing scheme seems to be a convenient solution for airlines, since it requires less capital compare to purchasing the aircrafts. It also offers the flexibility of short term leasing to facilitate seasonal operations. However, having an all-leased fleet is not also become the best solution in running an airline. This is where fleet management has its role to discover the most suitable scheme and fleet structure to be aligned with designated business plan.
If we try to look into a bigger picture, we may see various kind of fleet ownership structure adopted by various airlines around the globe. For example, Delta Airlines, a large airlines with more than 800 fleets, only has 12% of its total aircraft leased. This composition is followed by other large airlines such as Southwest Airlines, RyanAir, Lufthansa and Chinese Eastern with leased aircraft composition of not more than 25% of the total fleet. On the other hand, for medium to small airlines (less than 100 fleets), they usually have leased aircraft of more than 50% from the total fleet operated. However, there are large airlines who has leased aircraft around 40% from the total fleet, and there are medium airlines who owned almost 90% of the fleets operated. Furthermore, in average, large airlines commonly has around 35% of Leased aircrafts in their fleets, meanwhile medium-small airlines have an average more than 55% Leased aircrafts in their fleets.
Despite of the fleet size difference, those airlines also implement different kind of business models. Its either full service airlines, as the conventional airline business model or LCC, as the breakthrough business model. Apparently, the fleet ownership structure doesn’t differ that much within the two business models, the percentage of leased aircraft for both of them varies between 20-35% in average. Either full service airlines or LCC has their own strategy for fleet ownership structure whether focusing on sustainable growth with minimum capital and high flexibility of utilizing various aircrafts for short term periods or expanding the assets and have the benefit of “exploiting” without the limitations that usually bonded within leased aircrafts.
One thing that I noticed has quite a significant effect on the fleet ownership structure is the geographic distribution of the airlines. Country aviation regulations surely has an important role in determining the fleet ownership structure. The airline has to adapt with basic “ground rules” constructed by the particular country's authority where they operated. In Russia there are some airlines who leased 100% of their fleet, meanwhile in Indonesia an airline is not allowed to operate without certain amount of owned aircraft as stated in the local aviation regulations. Those regulations is also related to the taxation policy concerning customs and imports as for the time being, US and Europe dominating the aircraft manufacturing industry. Other things to be considered is the economic state of the country, a country with a stable economy and prime credit rating will have more amenities in owning an aircraft.
Nevertheless, numbers of aircrafts, type of business models, and region of operations will not have the same impact in all airlines, and it will generates certain strategies to be implemented in each one of them. Some airlines may prefer to have the privileges of managing their owned aircraft though it requires great capital and some others may prefer to avoid the necessity of high capital and be creative to manage the limitation of leased aircrafts.
In brief summary, fleet management in airline industry has to be aligned with airline visions and strategy in order to gain highest profitability. A proper implementation of fleet management can have a great impact in fleet cost. Furthermore, fleet cost can be constructed and managed with many approaches. There are no exact science to be applied and each airlines can have different idealism to achieve the most efficient fleet cost.