CASE STUDY: Airline Start up Project Brief AirAustralsia is a company looking to establish a low cost airline to cater for the Australasian market and is seeking a feasibility study to determine the feasibility of a supply chain being set up to support the business venture. Background Context “The global airline industry continues to grow rapidly, but consistent and robust profitability is elusive. Measured by revenue, the industry has doubled over the past decade, from US$369 billion in 2004 to a projected $746 billion in 2014, according to the International Air Transport Association (IATA). Much of that growth has been driven by low-cost carriers (LCCs), which now control some 25 percent of the worldwide market and which have been expanding rapidly in emerging markets; growth also came from continued gains by carriers in developed markets, the IATA reported. Yet profit margins are razor thin, less than 3 percent overall. In the commercial aviation sector, just about every player in the value chain — airports, airplane manufacturers, jet engine makers, travel agents, and service companies, to name a few — turns a tidy profit. Yet it’s one of the enduring ironies of the industry that the companies that actually move passengers from one place to another, the most crucial link in the chain, struggle to break even. Airlines need to make large and ongoing improvements to operate more efficiently. With few exceptions, the most successful airlines are those with the strictest cost controls. The biggest (albeit cash-intensive) lever to reduce costs lies in fuel efficiency, as jet fuel typically accounts for 40 to 55 percent of operating expenses. Cost reduction can also be achieved through enhancements in organizational structure, operating model, and work practices. In particular, legacy airlines have often built up complex processes over decades that cost far more than the streamlined processes of the LCCs.” (Price Waterhouse Coopers, 2015) “The aviation industry in Australia has a long history and currently it has a number of airlines operating within the country and all over the world. The importance of airlines in Australia has grown very rapidly because the country is an island and also has a thriving economy. Defunct airlines and planned airlines are the two types of airlines which are in operation in this country. The main sectors of the Australian civil aviation industry are the international airlines sector, general aviation sector and its safety and the domestic regional airlines sector. The aviation industry of Australia also comprises of some small segments like hand gliding, gliding, autogyros and ultra-light aircraft. “The international airlines in Australia carry cargo and passengers to and from various parts of the world. The total number of international airlines which provides services to Australia is 49. As Australia is an island more than 90% of the visitors to this country come by air. The total annual average of passengers who come to Australia from around the world is about sixteen million. Though airlines are the main carrier of passengers in Australia the freights are mostly carried by the ships to various destinations”. (Australia Net, 2007) The potential growth of the business and commercial markets within China suggest a growth in demand for air travel around the region. As part of any business development there are a number of areas that need to be explored in order to establish the business case for the venture. An essential part of the business being considered is the logistics and supply chain that is required to ensure the continuity of business. This is even more the case as the model that the company is looking to adopts is one of low cost and this inevitably puts greater pressure on the margins that the company is looking to pay for goods and services. The company have a range of areas to consider in relation to supply chain and are looking for a consultancy to provide an independent feasibility study within this area. The main aspects that have emerged from initial investigation are a need to understand: • The current local supply chain to support the business and its capacity • Current logistics infrastructure to support the airline growth oppose to competition • Environmental analysis to support CSR operations • Problem solving and business tools application AirAustralasia understand the highly competitive nature of the modern airline industry and so are keen to ensure that they have a clear examination of the issues that will inform the supply chain requirements to run the business. Client Requirement The client is looking for a consultant to provide a report in critically discussing how they would addresses the above aspects with a clear analysis of the supply chain required to support the setting up of a low cost airline within the Australasian market, meeting the aims and objectives identified.
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