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Outsourcing activities for airlines: Qantas
International airlines have experienced highly volatile trading conditions in recent years as high fuel prices, intense completion, economic recession and unexpected crises (such as 9/11) have affected their levels of profitability.
Assessing the relative costs or strategic benefits of outsourcing in the airline industry is therefore likely to be challenging (Rieple and Helm, 2008). The factors involved are complex; full information about costs is hard to gather and the circumstances being considered are dynamic rather than static. Nevertheless, many airlines have considered outsourcing some of their activities (Al-Kaabi et al., 2007 and Hsu and Liou, 2013), particularly in relation to maintenance, repair and overhaul (MRO), but also in relation to sales and marketing, ICT support and technical support.
Specialist companies such as Navitaire, based in Minneapolis, Minnesota (a wholly owned subsidiary of the major GDS system Amadeus), have emerged to aid airlines and other companies in facilitating the outsourcing of some of their functions. Navitaire claims to have helped over 50 airlines, particularly low-cost carriers and start-up airlines, by assuming responsibility for many key processes, including reservations, internet and direct distribution, flight operations and operations recovery, loyalty schemes and revenue accounting.
For example – Australian airline Qantas (which has a major code-sharing agreement with Emirates) has endured poor recent performance with an operating loss being recorded in 2013. Consequently, the airline has focused strongly on its cost base, and one of the operational moves it has made is to announce during 2013 that it was shutting its heavy maintenance base at Avalon Airport in the state of Victoria with the loss of up to 300 jobs. Although the airline continues to have maintenance facilities at Sydney and Brisbane, it was reported (Creedy, 2014) that where the aircraft fleet sizes are small or sub-scale, like the Airbus A380, Qantas would carry out heavy maintenance at overseas providers such as Singapore, Hong Kong or the UK because it was not economically feasible to carry out the work in Australia.
Sources: Adapted from www.navitaire.com, www.qantas.com.au, Al-Kaabi et al. (2007), Creedy (2014), Rieple and Helm (2008) and Hsu and Liou (2013).
1. List three advantages of outsourcing for an organization.
2. The above short case illustration listed a few areas with the airline that could be outsourced. What are two other areas (departments, positions or job duties) that can be outsourced.
3. List Porter’s five forces