Aviation management - Operational Rescue Plan for Air France

[Operational Rescue Plan for Air France] By Insert Your Name Presented to Instructor’s Name, Course Institution Name, Location Date Due  Table of Contents  TOC \o "1-3" \h \z \u  HYPERLINK \l "_Toc360951249"
Company Overview  PAGEREF _Toc360951249 \h
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Findings  PAGEREF _Toc360951250 \h
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Potential impacts of a global economic crisis on Air France  PAGEREF _Toc360951251 \h
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Air France’s operational and financial issues  PAGEREF _Toc360951252 \h
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Fleet  PAGEREF _Toc360951253 \h
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Routes  PAGEREF _Toc360951254 \h
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Resources  PAGEREF _Toc360951255 \h
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Critical factors for survival & recommendations  PAGEREF _Toc360951256 \h
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Short and medium term responses  PAGEREF _Toc360951257 \h
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Routing system  PAGEREF _Toc360951258 \h
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Budget flights  PAGEREF _Toc360951259 \h
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Secondary airports  PAGEREF _Toc360951260 \h
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Reduced turnaround  PAGEREF _Toc360951261 \h
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Flexible schedules  PAGEREF _Toc360951262 \h
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Long-term responses  PAGEREF _Toc360951263 \h
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Maintaining a uniform fleet  PAGEREF _Toc360951264 \h
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Fuel efficiency and hedging  PAGEREF _Toc360951265 \h
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Promotional activities  PAGEREF _Toc360951266 \h
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Strategic partnerships  PAGEREF _Toc360951267 \h
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Synchronising operations  PAGEREF _Toc360951268 \h
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References List  PAGEREF _Toc360951269 \h
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Appendix 1  PAGEREF _Toc360951270 \h
16   Company Overview Air France, variously referred to as Air France-KLM following its 2004 take-over of KLM, constitutes one of the greatest and largest airlines in the world. The establishment of Air France can be traced to the October 1933 merger of several smaller French carriers into a single airline. Although the head offices of the airline are situated in Tremblay-en-France, Paris, its operations centre or main hub is based at Charles de Gaulle Airport, a location that offers unrivalled connection opportunities to the airline. Air France is a member of the SkyTeam group, a membership that offers the airline access to some of the most far-reaching hub networks in the globe (Jones, 2008 p. 2). With a yearly flight record of over 77.4 million travellers to different destinations across the world and annual revenue of over 25.6 billion Euros, the airline in collaboration with KLM has transformed itself into a global leader in domestic, regional and international air transport (Air France-KLM, 2012). With regard to assets, Air France has one of the youngest airliner fleets in the world comprising of Airbuses, Boeings among other world-class planes, each of which has an average fleet age of less than 10.3 years. In terms of routes, the airline flies a considerable number of domestic destinations within France and international destinations across all the continents. The major focus cities of the airline with reference to routes comprise of the Paris-Orly, Merseille-Provence, and the Lyon-Saint Exupery hubs (Noack, 2013). Consequently, these hubs enhance the domestic, regional and international reach capacity of the airline. Air France also owns such assets as lounges that are open to special categories of its passengers and high-end travellers (Jones, 2008 p. 8). Findings Potential impacts of a global economic crisis on Air France A worldwide economic crisis has the capacity to considerably alter both the national and the global economic landscape. The global economic upheaval does not only cause economic recession and disrupt the manner in which markets operate and relate with one another but also alters the bargaining power and consumption of the consumers. This constrains the global demand for certain goods and services as people try to limit their expenditure to mitigate the effects of the crisis (Obstfeld, Cho, & Mason, 2012 p. 1). In the airline sector, such an economic crisis is likely to have significant implications on the operations of an airline. Admittedly, the current global economic upheaval will automatically constrain the demand for both leisure and business air travel within France and to other parts of the world. Being the principal national flag carrier and the largest air transport provider in the country, Air France is expected to experience massive air ticket cancellation and a marked decline in bookings as travellers avoid the relatively costly domestic and international air travel during the economic recession. Consequently, the operations of the airline are likely collapse due to under-booking of almost all the scheduled flights, thereby necessitating cancellation of some of the flights, suspension of flights to the most affected destinations and reduction of the personnel to cut on operational costs. As such, the Air France management should develop a comprehensive operational rescue plan to revamp the business and operations of the airline by ensuring efficiency and profitability. This paper seeks to develop a practical operational rescue plan that can enable Air France to navigate through the current worldwide economic storm. The report accentuates financial and operational issues while paying special attention to the routes, fleets and resources of the airline. It also prioritises and identifies critical factors for short, medium and long-term survival of the airline besides providing handy recommendations to the senior management of Air France. Air France’s operational and financial issues Fleet As one of the largest airlines in Europe, Air France has some of the most extensive operations. This owes in part to its numerous destinations, partnership with KLM airlines and its distributed core businesses in passenger services, cargo transport as well as maintenance and engineering operations. The wide range of business operations and the desire to ensure efficiency in service delivery compels the airline to maintain one of the most expansive aircraft fleets in the globe. Currently, Air France has over 249 aircrafts. These comprise of 74 Boeing 747s and 777s and 175 Airbus A318s, A319s, A320s, A321s, A330s, A340s and A380s. The airline also has plans to further expand its fleet by purchasing two more Airbus A380s in the near future. As shown in appendix 1, these figures exclude over 195 airplanes leased to other regional and national operators associated with the airline. Nonetheless, Air France maintains a young fleet of aircrafts, a strategy that helps the airline to reduce operational and maintenance costs. Additionally, the considerably low average fleet age also enhances the productivity and efficiency of each of the aircrafts by reducing the turnaround time between flights. Over the years, the airline has limited its fleet to Airbuses and Boeings, thereby significantly minimising disruptions, high maintenance costs and inefficiencies associated with a fleet comprising of different types of airplanes (Noack, 2013). Thus, given the current global economic situation the airline needs to thoroughly review its fleet to eradicate avoidable high maintenance costs and other challenges it presently faces. Routes By and large, Air France routes can be subdivided into two major categories, that is, long-haul and short/medium-haul routes. Of the two, the long-haul route is the most important section of the company given the fact that it generates about two-third of the airline’s passenger revenue. According to statistics, Air France’s long-haul division serves almost 80 international destinations that are distributed over 52 countries. Additionally, the long-haul network is run by the companies own crew and aircrafts, an element that sets the airline apart from other operators whose long-haul business rely on partners. As such, the long-haul route personnel comprises of 5,200 airfield personnel, 2,350 navigators, and 11,750 cabin staff, employees who amount to 19,300 in total. With regard to fleet, the route is serviced by a total of 105 aircrafts which comprise of 36 Airbuses and 69 Boeings (Air France, 2013 p. 1). In the year 2012, the route served over 15 million travellers to various destinations. About 32 percent of the passengers travelled for business and the remaining 68 percent for leisure. As shown in the Table 1 below, all the long-haul passengers made between 1 to over 6 long distance trip annually (Air France, 2013 p. 2). Table 1: Number of long-haul trips per annum
Source: Air France (2013 p.2) Consequently, the current worldwide economic upheaval is likely to have a significant negative effect on the long-haul business of the airline due to possible reduction in the number of passengers requiring such services. Generally, long-haul trips tend to be more expensive than the short-haul ones and hence, potential customers are likely to avoid them in an attempt to cut back on their expenditure. Similarly, a significant proportion of the 32 percent of passengers who travel for business is likely cancel their overseas trips altogether due to reduced business activities during the economic downturn (Air France, 2013 p. 2). According to Obstfeld, Cho, & Mason (2012 p. 20), economic recession negatively affects international trade leading to a considerable reduction in exports, business interaction between countries and general global downturn. Business executives and other business travellers using the airline may to call off their business trips until the global economic situation improves. Equally, the 68 percent of leisure passengers are also likely to scrap their travel plans until after the economic recession. As demand for air transport among this particularly critical customer segment declines, the airline’s long-haul activities will be dealt a heavy blow rendering a huge proportion of the vast long-haul personnel redundant (Air France, 2013 p. 2). On the other hand, the short/medium-haul activities of the airline encompass national and regional flights within France and Europe respectively. Although this route serves the important function of supplying the long-haul route with passengers, it is currently recording substantial deficits, a situation which is expected to worsen given the prevailing universal economic crisis. Like the long-haul route, this route usually serves leisure travellers touring such destinations as the Mediterranean, Paris and other regional cities. Leisure passengers represent a high-growth customer segment for the airline and hence, a significant source of income for the medium range operations of the firm. Unfortunately, the ongoing economic turmoil is likely to cripple leisure travel leading to subsequent disruption of the route’s operations. Similarly, regional business travel utilising the short/medium-haul network is also set to decline and hence, the need to address the impending operational crisis (Air France News, 2011). Resources The main source of revenue for Air France is passenger transport. In the year 2012...