While billions of people fly every year, most airlines do not make money. It may be because most of an airline’s cost is to its suppliers. If airlines can get a grip on their procurement costs, it could help them to realise profits. But this is easier said than done.
Barriers to reducing airlines procurement costs
Airlines do not have a vast pool of suppliers. Most airports have two caterers and two host system providers. Usually, cities have a single airport. Some of the costs that airlines incur are non-negotiable, including air traffic control costs, and fixed tariff at airports. Also, airlines get into long-term contracts with their suppliers, and these usually have hidden clauses and penalty fees, increasing the cost of the airlines.
Airlines also lack skills in category management. Most airline procurement teams are too passive in their approach and seen as a support function. So, rather than being strategic partners in procurement to minimise costs and optimise delivery, products, and services, procurement teams are called in late into the buying and sourcing process.
Improving airlines procurement
All airlines need a procurement strategy that is aligned with strategy. Above all, they need the right procurement professionals, who are well-versed in category management and can design innovative methods to manage different categories and supply chains.
When airlines have the right skill and talent in place, they can introduce tight cost control, become more efficient in procurement, and can work to proactively redesign their supply chain. They can attract new suppliers by assuring them volumes, which will level the playing field and also minimise the monopoly of the existing suppliers. By adopting these steps, airlines will enjoy cost savings in a strategic manner that they can pass on to their consumers.