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“Adapt or die” - airlines warned

(KUALA LUMPUR, 05 December 2005) Timothy Ross, head of the Centre for Asia Pacific Aviation’s financial analysis unit, called on carriers to outsource labour-intensive activities to locales where manpower costs are lower, and identify non-flight revenue sources to reverse a worrying downward trend in earnings.

“Never before have so many people flown, and never before have airlines lost so much money”, said Mr Ross, speaking on a panel exploring retailing and outsourcing strategies at the Centre’s Outlook Summit in Kuala Lumpur.

Mr Ross predicts that maintenance services will be the “next heavy thrust in outsourcing”, with recent discussions by Qantas and Air New Zealand about moving MRO activities offshore perhaps ushering in an industry-wide trend. (NB: a full report is contained in the Dec-05 edition of the Centre’s Airline Investor Monthly publication).

On the revenue side, Mr Ross held up the example of Ryanair, which earns approximately 15% of its revenue through streams other than ticket fares, as a model to emulate. Mr Ross says this is a lesson obviously learned by Air Asia, which generates 8% of its revenue through non-core activities in only its fourth year.

Adding his voice to the discussion on outsourcing and revenue diversification was Avinash Vashitha, Managing Partner of technical advisors, neoIT, who showed how carriers can save millions by sending functions from a surprising number of areas – including back office operations to loyalty programme maintenance – to any one of the overseas markets that has become the “best in breed” in a niche outsourcing arena.

Similarly, Bruce Musick, head of airport retail operator, Sky-Serv Holdings, showed how joint projects in the area of airport food & beverage and duty-free retail can reverse the traditional pattern of airport and airlines being blood rivals, to one in which they are profitable collaborators.

The Outlook Summit continues today, with the focus switching to restructuring.

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