Working With Airlines - Part 2
How can airlines & their suppliers work together to achieve better results, faster?
Airlines use a remarkably deep and complex supply chain to ensure passengers reach their destination safely, on-time and at profit. Yet carriers often fail to buy what they need and winning new contracts is costly and inefficient for suppliers.
Last time (click here) I explained that airline procurement suffers three headaches:
(i) Suppliers do not really understand airlines and individual buyers do not see wider business requirements
(ii) Discussion focuses too much on information transfer and too little on value and fit
(iii) Because airline buyers are so busy, the main competitors for a supplier are not their commercial rivals but other projects.
In the end procurement often increases costs, fails to achieve goals and destroys value through taking too long. Today’s article presents three prescriptions to make things better, with a common theme that suppliers able to focus their sales pitches on growing revenue may be at an advantage.
Prescription 1:
Suppliers should understand how their product fits in with the airline’s fleet and network
Airlines can help by sharing information that is almost public domain
An airline’s core product is it’s network. Plush seats, bargain fares and tempting ancillaries mean nothing if passengers cannot go where and when they want. Airlines with sound fleet and network planning can monetise their network more effectively than others and suppliers (no matter how large or small) who show that they help make this happen will be at an advantage.
Perhaps a new component or insert reduces maintenance time, not just cutting costs but allowing the airline to operate more flights and earn more revenue. Software improving forecast accuracy may help dispatchers get more flights out on time with the same effect. And airlines considering comfy business class beds will be able to earn higher fares if their flights are overnight rather than during the day.
Great suppliers who think beyond the traditional limits of their product to show the airline a genuine revenue contribution closely aligned with their fleet and network will be more likely to engage with the buyers and win deals. Working with a revenue management expert like me can really help suppliers get started - if that’s you please get in touch (oliver AT ransonpricing DOT com).
Airline buyers can play their part too, showing suppliers past the NDA stage details about the schedule and fleet that are not commonly available but might as well be. Planned schedules and seat maps for example may not be released yet, but they will be soon and knowing about them can help suppliers ensure they provide what is really needed. Galley loading plans are not in the public domain either but can easily be observed onboard, so showing suppliers what space is available will help caterers ensure their proposal is technically feasible. Airlines who share more information with their suppliers will get better results from their procurement, faster.
Prescription 2:
Suppliers should define success criteria for trials that facilitate a buy/no-buy decision
Airlines can help by ensuring their staff are fully aware of and motivated by new products
Scientists perform experiments to test whether or not ideas will work in practice and the same principle is helpful for airline procurement. Suppliers who are able to deploy their product in a limited manner to give airline buyers a taste will quickly generate data showing their impact. Of course this is harder for some things like seats and galleys (which need to be focused grouped) than it is for catering products or software that are simple to demonstrate. Suppliers who can find a way to follow this principle should be at an advantage.
Airline buyers on the other hand can help by ensuring that when new products or services are being evaluated the staff involved are aware of the tests and motivated to give them a good showing. For example, the industry is full of stories about new catering products trialled but shown to be unsuccessful not because passengers did not like them but because cabin crew were not aware that they were available. Do not let this happen to your project!
The hypotheses that a supplier develops that are aligned with the revenue growth principles in prescription one are a great place to start. Airlines who help suppliers validate their assumptions and create a revenue-focused investment case together are more likely to enjoy successful projects. Airline buyers should talk to their revenue teams about how to conduct these experiments, but sometimes bringing in an external revenue expert can help get things moving if your revenue managers have not done similar work before - if that’s you please get in touch (oliver AT ransonpricing DOT com).
Prescription 3:
Suppliers should provide messages clearly showing how their product or service benefits an airline and it’s passengers
Airlines can help by showcasing what the supplier has provided
One of the greatest difficulties in airline procurement is the high level of technical analysis conducted. In some cases it can be hard to see the wood for the trees – what such a buying decision would mean for the airline and it’s passengers gets lost in the discussion.
It is up to suppliers to develop bite-size, meaningful messages that communicate the benefits and value of their product or service. But airline buyers can help too by ensuring that stakeholders in the purchase always have access to the item in question in a tangible form that they can experience and use themselves. Where airlines focus clearly on the results rather than the process projects are more likely to be successful.
Showing the revenue contribution of a certain product or service in the ways I described in prescriptions one and two above is a great place to start - if the airline does not buy soon the money is lost! All of a sudden taking time costs money and that’s a good incentive for everyone to get things done quickly.
oliver AT ransonpricing DOT com