SCDATA | GCPS System

Value Chain Analysis - Aviation Industry

220620233-BI&CS

Ravi Shankar NRK

Learner, Business Intelligence & Competitive Analysis

Peer Graded Assignment Industry Analysis - Mini Project

1

1/12

Value Chain Analysis - Aviation Industry

1. The airline industry can effectively utilize value chain analysis to uncover avenues for value creation, cost reduction, and gaining a competitive edge. This strategic tool aims to comprehend the movement of goods and services within an organization and ascertain the value added at each stage.

2. The airline industry's value chain encompasses various sectors such as aircraft and engine original equipment manufacturers (OEMs), lessors, airports, air navigation service providers, and airlines themselves.

3. Value chain analysis is an invaluable tool for the airline industry to identify opportunities for value creation, cost reduction, and competitive advantage. By thoroughly examining the value chain, airlines can uncover areas where costs can be reduced, the customer experience can be improved, and profitability can be increased.

2

2/12

Industrial Comparison - Profitability

3

Pre-pandemic, the aviation value chain as a whole generated a financial loss of approximately $5 billion a year between 2012 and 2019.

3/12

Industrial Comparison - Growth

4

4/12

Industrial Comparison - Financial Health

5

5/12

Industrial Comparison - Efficiency

6

6/12

Industrial Comparison - Profitability

7

7/12

Industrial Comparison - Profitability

8

8/12

How value creation shifted during the pandemic

9

Pre-pandemic, the aviation value chain as a whole generated a financial loss of approximately $5 billion a year between 2012 and 2019. This situation was driven by large airline losses as airlines were consistently the weakest link in the chain—generating an economic loss of around $18 billion a year. Airlines' under-performance has its roots in factors such as low entry barriers, high exit barriers, sensitivity to external shocks, the fragmented nature of the industry, and a more concentrated supplier landscape, to name a few. This creates a highly challenging environment and has to led to uneven distribution of profits across the value chain. It’s not surprising that amid lockdowns and travel restrictions, all sectors making up the aviation value chain generated significant losses in 2020 and 2021. As in previous years, airlines showed the greatest losses, at around $175 billion in 2020 and $104 billion in 2021.

9/12

10

While most sectors suffered, the notable exception was air cargo carriers and freight forwarders where supply-demand imbalances (undersupply coupled with sustained demand) led to increases in yields, and value creation. Air cargo was a clear, and much-needed, area of relief during the pandemic. In fact, global air cargo tonnage was roughly 7 percent higher in 2021 than in 2019. In 2021, of the nine value-creating airlines in the sample, seven had significant or pure-cargo operations.

Of the other sectors, those with greater shares of fixed costs, such as airports, suffered more than those with a more variable cost base, such as ground handlers.

10/12

How to expand Value to all Participants?

As the aviation value chain is only as strong as its weakest link, all sectors that make up the chain have an interest in one another's ability to perform. It may be possible to strengthen the value chain for everyone, enhance performance of the value chain as a whole, and ensure financial sustainability and value creation for all. Doing so will likely require greater collaboration and cooperation from individual companies across the various sectors. Companies could consider taking the following actions to expand value creation for all participants:

Working together to improve service and reliability to attract customers.
Pursuing opportunities for greater data and insights sharing across the value chain.
Removing inefficiencies in the value chain.
Working together on decarbonization.
Collaborating to meet ever-changing demand and customer requirements.
Enhancing resilience and robustness.

11

11/12

Enhancing Profitability and Competitiveness by deriving benefits of Value Chain Analysis

1. Identifying Cost Reduction Opportunities: Through value chain analysis, airlines can pinpoint areas where costs can be minimized and efficiency improved. This entails identifying strategies to reduce fuel consumption, optimizing maintenance schedules, and enhancing supply chain management.
2. Enhancing Customer Experience: Value chain analysis allows airlines to identify areas where the customer experience can be enhanced. By refining baggage handling processes, reducing lost or delayed bags, and improving in-flight services, airlines can bolster customer satisfaction and loyalty.
3. Increasing Revenue: Value chain analysis aids airlines in identifying opportunities for revenue growth. This involves recognizing potential new routes and destinations, refining pricing strategies, and developing innovative products and services to attract and retain customers.
4. Improving Operational Efficiency: Through value chain analysis, airlines can identify areas for operational efficiency enhancements. Optimizing flight schedules, reducing aircraft turnaround times, and minimizing delays are key focus areas that can lead to improved efficiency and reduced costs.
5. Gaining Competitive Advantage: Value chain analysis helps airlines identify ways to differentiate themselves from competitors and gain a competitive edge. This can be achieved by developing unique products and services, elevating customer service standards, and enhancing the airline's brand image.

12

12/12

Value Chain Analysis - Aviation

Primary Modal