Airline's re-fleeting process, an opportunity or a trap?

Airlines re-fleeting process, an opportunity or a trap?

By Juwhra Salem/ Viewpoint

Published: Tue 17 Sep 2019, 3:54 PM

Last updated: Sat 28 Dec 2019, 9:20 PM

In the past months, I read about the Boeing 737 MAX crash in Indonesia, then in Ethiopia - Killing nearly 350 people in total. All B737 MAX aircrafts have now been grounded worldwide by many operators to avoid such situations and risks.
It is for sure bad news for Boeing, as well as for the airlines. Nevertheless, this article is not going to tackle anything related to B737 MAX, but it does explore the process of having new aircrafts added to the airline's current fleet or possibly replacing its whole fleet with them, and understanding if it is an opportunity or a trap for the airline.
I know the "Re-fleeting" term may sound Chinese at this stage, so I had better define it before I go on with my discussion.
Re-fleeting is a process where an airline orders new aircrafts or brings in replacements in order to replace older aircrafts.
Major airlines do invest a significant sum of money to get rid of their negative image in the field of aviation. An airline may end up with a negative image because of several reasons. The main reason would be because of its old aircrafts that cause many other issues. Some airlines decide to re-fleet to overcome these issues.
Re-fleeting brings different opportunities. An airline with new planes offers modern products and services, and enhanced efficiencies, making it an airline which passengers could look forward to.
The offered innovative standards in design, safety, reliability, and better appearance improves the airlines brand.
In 2009, Air India went through the re-fleeting process, a decision that was as a result of continuous complaints, and notable incidents. Nevertheless, this might be attributed to another reason which is the poor maintenance that was being carried out at the airline.
The induction of new aircrafts in fleet can also enable an airline to expand its network by introducing new domestic or international city pairs thus providing connectivity between two or more countries.
In addition to this, it would also help an airline in becoming efficient in its operations. It can expect to save on fuel costs, attract more passengers and push the airline into profits.
Re-fleeting an expensive process
Re-fleeting can be a trap. Especially in the absence of a proper planning. It is a very expensive process, factors like the market condition, company's financial status, among others, need to be considered in it. An airline could improve on its services, safety, and its brand by undergoing a major re-fleeting process. However, it may result in financial losses.
Inducting brand new aircrafts may not be enough to solve the airline's problems. With a new fleet and most of the time larger than the previous fleet size, airline's maintenance costs can increase, hence, worsening it's financial situation. Now, the airline would need to set up a maintenance facility in order to maintain the new aircrafts. Nevertheless, this is more applicable to the situations in which an airline purchases totally different aircrafts than its previous ones. Additionally, the airline will need to build its human resources' capacity and skills to handle and repairs these aircrafts, hence increasing not only the training cost, but also the cost of repairing these aircrafts, and leading to increased fixed costs.
This fleet renewal process may also bring the problem of excess capacity, especially if the airline didn't consider the current and future market conditions. When the available number of seats per aircraft is more than the number of people occupying those seats, the problem of excess capacity arises. Of course, operating flights with a very low load factor leads to increased costs.
Also, the re-fleeting process isn't always the solution to avoid incidents and accidents. Finally, this costly process might burden the airline with massive amount of loans, that might affect their ability to repay it. Consequently, this may make the airline unreliable to receive credit or loans, hence cry for financial assistance.
So now, is it an opportunity or a trap? I would say both. By the end of the day, the re-fleeting process is fraught with complexity, dilemmas and uncertainty. It is an art that blends engineering and commercial know-how, right future prediction, a good deal of intuition, and not to forget, good luck. If you noticed, Air India's time to go through re-fleeting was exactly during the Global Financial Crisis that started in 2008. How can replacing and expanding the fleet be an opportunity? Especially, when the travel and the airline industries were bleeding from losses and low-load factor! Bad luck, and wrong planning could be the reasons of why Air India is still financially suffering until today.
A final thought to start a new decision with you is: How can an airline leverage its strategic alliances (that hold the promise of cost reduction through economies of scale) and affect aircraft selection and acquisition decisions?
 Juwhra Salem is an Economic Affairs Specialist and an Aviationist by academic credentials. Views expressed are her own and do not reflect the newspaper's policy.
 




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