Alaska Air – The OM Blog by Heizer, Render, & Munson

OM in the News: Measures of Airline Quality

As airlines shrink personal space in cabins, they are also finding other ways to aggravate travelers: Flight delays, cancellations, lost baggage and complaints all increased last year. U.S. airlines canceled nearly 66,000 more flights and the percentage of canceled flights jumped to 2.7% from 1.9% the previous year. The number of complaints filed with the DOT shot up 26% last year. Although airlines have been investing in new technology to help boost reliability, the U.S. air transportation is still fragile. A few disruptions triggered airline meltdowns, and old equipment is failing more often under increased passenger loads: Southwest says its baggage belts suffered a lot of breakdowns that left luggage in huge piles. Airlines lost or delayed more than 2.1 million bags, a 17% increase over the same period a year earlier.

In The Wall Street Journal’s annual scorecard of airline service (Jan. 14, 2016), which tracks 7 different key measures of airline performance, Alaska Airlines and Virgin America, perennial good performers, placed at the top of rankings. Alaska has invested in satellite based technology that helps it keep flying in fog and other bad weather. Its customer surveys onboard planes helped reduce complaints, and a 20-minute delivery time guarantee on getting bags to carousels has forced improved baggage handling. (We feature Alaska in our upcoming video case series that is available this spring).

Virgin America credits a generous employee incentive program that offers a 3% bonus for high scores in customer satisfaction surveys, aircraft operations and safety, and on-time performance. United and American occupied the bottom two rungs of the scorecard for the 4th straight year. This month, though, United will be rolling out new software for gate agents to better set the time to close the door to a departing flight. Flight attendants will also get hand-held computers that let them report broken parts inside cabins easily.

Classroom discussion questions:

1. What tools in Chapter 6 can the airlines use to measure and improve quality?

2. Why do you think Alaska and Virgin America rank high so often?

OM in the News: The Outsourcing Trend at Airlines

Airline representatives at U.S. airports increasingly aren’t employees of the carriers they represent, reports The Wall Street Journal (July 8, 2014). United Continental Holdings, for example, will soon outsource jobs at 12 airports to vendors who will perform the duties at lower cost. The change impacts 635 workers in areas including check-in, baggage-handling, and customer service. Part of a broader effort by United to cut costs, it reflects how big U.S. airlines are using vendors to handle key jobs at most airports, a trend that can reduce expenses but also risks hurting customer service. American, Delta, and Alaska Airlines are among the carriers that already outsource a large share of this work.

Passengers often don’t realize the check-in agents they deal with at airports don’t work for the airline they are flying. Often, at smaller airports, the same workers may represent multiple competing carriers.

United pays such workers from $12 to $24 an hour, while some vendors start workers at $9 an hour and don’t offer health coverage or travel benefits. Outsourcing the work will save United $1.6 million to $3.5 million per airport a year. “It does make economic sense,” said an industry consultant. “It’s not a $40,000 job to load bags. Cleaning planes is not a $20-an-hour job. But the outsourced work offers no career path, no loyalty. By its nature, it’s temporary, until the next bid comes up.” Indeed, the transition can be bumpy. When Alaska Airlines decided to use Menzies Aviation to handle ramp jobs at its Seattle hub in 2005, the shift was marked by misplaced luggage, late flights and an incident in which a damaged aircraft had to make an emergency landing. But the problems eventually were corrected.

In some cases, airlines are outsourcing airport work to their competitors. United last year turned over 500 jobs to a unit of American Airlines. United has said that as many as 30 more airports may be targeted for outsourcing, based on their higher expenses when benchmarked against competitor airport costs.

Classroom discussion questions:

1. What are the advantages and disadvantages of outsourcing in this industry?

2. Do customers care which system is used?

OM in the News: From Alaska to Allegiant–Airlines Differ in Efficiency

Airlines are always obsessing over fuel costs. It’s a crucial aspect of their business, after all, and accounts for 1/3 of their operating expenses. So you might think that all the major airlines do roughly the same things to minimize their fuel use. But that doesn’t seem to be true. The Washington Post (Sept. 21, 2013) reports that there’s actually a surprising amount of variation in how airlines burn fuel. It ranked the 15 biggest U.S. airlines by fuel efficiency and found very large disparities, as seen in the attached graph.

The least efficient airline, Allegiant Air — a low-cost carrier that targets smaller airports — used 26% more fuel than the most efficient, Alaska Airlines, to achieve a similar level of transport.

So why is there such a huge disparity? Here are a few possibilities:

— Differences in technology: About 1/3 of the variation likely comes from the fact that different airlines use different technology — they don’t all deploy the most advanced, efficient aircraft. Allegiant, for instance, has a fleet of McDonnell Douglas aircraft that dates back to the 1970s. Alaska Airlines, by contrast, uses newer Boeing planes that have technologies like “winglets” to reduce fuel burn.

— Differences in operations: Technology can’t explain all the disparity in fuel efficiency. Some airlines, like Southwest, manage to operate older aircraft quite efficiently. Other airlines, like Virgin, have newer aircraft but are relatively inefficient.

— High oil prices don’t necessarily drive fuel savings. The most efficient airlines aren’t necessarily the most profitable. Allegiant was the least-efficient airline in 2010 but also the most profitable. That’s because it tends to serve airports that other airlines neglect, giving it more leverage to raise prices on routes.

Classroom discussion questions:

1. What is the difference between efficiency and effectiveness? (see p.13 in Chapter 1)

2. Why does this issue matter?

OM in the News: The Self-Service Airport

Airlines are laying the groundwork for the next big step in the increasingly automated airport experience: a trip from the curb to the plane without interacting with a single airline employee, writes The Wall Street Journal (Aug.28, 2012).

For years, travelers have been checking in online or at airport kiosks and airlines have been converting paper boarding passes into electronic ones. Now carriers are turning to technology that enables travelers to check their own bags and scan those boarding passes, a topic we discuss in Chapter 5 on service design.

At the airport of the near future, “your first interaction could be with a flight attendant,” said Ben Minicucci, COO of Alaska Airlines. Alaska Air has been at the forefront of self-service in the U.S., recently introducing self-tagging of baggage in Seattle and San Diego with 8 more airports planned this year. Airlines say the technology will quicken the airport experience for travelers—shaving 1-2 minutes from the checked-baggage process alone—and freeing airline employees to focus on fliers with questions.

Airline-employee unions say the machines are a way for carriers to cut staff by outsourcing pre boarding tasks to fliers. But a recent survey found self-boarding appeals to 70% of passengers and almost as many travelers want to tag their own bags. Self-tagging and self-boarding have each been implemented in 115 instances around the world.

U.S. airlines and airports are catching up to their counterparts in Europe, where Lufthansa began testing self-boarding in the late 1990s. That airline officially implemented the technology last year in its three main hubs in Germany, where customers have readily adapted to it. “A lot of our passengers are frequent fliers who really prefer not to talk with staff all the time,” says Lufthansa. Last month in Las Vegas, JetBlue Airways became the first U.S. airline to officially implement self-boarding gates, where fliers scan their own tickets to board the plane.

Discussion questions:

1. In what ways can OM make airline check-in/boarding more efficient?

2. Will the concepts described become standard procedure in a decade? Why or why not?