Cost and KPI benchmarking study
The CEO of Aer Lingus approached our team to carry out an in-depth benchmarking exercise to compare the airline with industry ‘best practice’ at leading low-cost and leisure carriers. Aer Lingus had made significant progress in optimising its operational processes and realising productivity improvements over the previous few years, and the management wanted to evaluate progress and identify further opportunities. The scope of work was aimed at identifying major differences in cost performance within its short-haul and long-haul businesses through comparison with a peer group.
We used our proprietary cost benchmarking methodology to enable a ‘like-for-like’ comparison against the benchmark airlines. After gathering the airline’s management accounts, operational data and route results (splitting the cost base between short-haul and long-haul), we allocated the cost base into eight well-defined cost categories.
We completed the same exercise for two other European airlines to provide a like-for-like basis for comparison. We made appropriate adjustments for foreign currency exchange differences and the varying sector lengths of the airlines.
We engaged with representatives from across all functional areas, such as finance, to fully understand the cost and operational data collected. An initial high-level benchmark review highlighted the areas of relative cost competitiveness. We used this information to conduct further analysis of four key areas of the cost base where we identified the greatest competitive disadvantage in comparison to benchmarked airlines.
Our team then completed a more detailed review of their airline’s sales and distribution, airport charges, ground handling costs, engineering and maintenance, and fixed overheads. As part of this project, we also completed an external turnaround benchmarking study and a detailed internal process review.
The final stage was to complete bridging analysis for each seat cost category, which helped explain the main drivers of any relative cost competitive advantage or disadvantage. From this analysis, we were able to identify specific cost reduction opportunities and estimate the overall profit improvement potential.
We provided Aer Lingus’ senior management with a detailed analysis of its cost competitiveness. This informed our recommendations regarding areas that required management attention alongside suggestions as to how the airline could improve profitability, identifying cost savings in the region of €60–80m.
Due to this benchmarking exercise, Aer Lingus re-engaged our team on three follow-on assignments: assisting with an MRO review, a catering cost efficiency project and the project management office for a major efficiency programme in ground operations.