Some of Australia’s major airlines have been named amongst the most efficient in the world according to a recent study conducting at the University of Sydney Business School’s internationally recognised and respected Institute of Transport and Logistics Studies (ITLS), which also measures rail and bus services. A total of 150 airlines were ranked using a new formula to measure efficiency based on passengers per number of aircraft, seat kilometres flown, fleet, staffing levels, perceived service levels, and profitability.
The top 20 of this 150 including Qantas, which has long been one of the country’s most popular domestic and international carriers, said to have ranked near the top in all of the aforementioned single efficiency measures. Virgin Australia also performed well in each category – not as well, but “better than average”, according to Associate Professor Rico Merkert
The study also measured how well positioned each airline was to manage fluctuations in the market and volatile oil prices, resulting in these Australian airlines also being named amongst the most resilient in the world, as well as being two of the safest.
“Both engage in fuel hedging”, said Merkert. “They also engage in foreign exchange hedging as quite a lot of their cost and debts are services in US dollars. They also hedge interest rates and to some extent cash flows”.
Merkert implied that the young age of the Qantas and Virgin fleets, uniformity in the type of aircraft flown, and the number of aircraft in operation, gave the two Australian airlines an advantage in unit costs and operational efficiency over many carriers”.
The question of what really drives airlines efficiency was addressed throughout the study, finding that the common thought of large, high quality products leading to repeat business, loyalty, higher yields, and great profits was not necessarily always correct.
“Virgin America for many years was featuring very high in all quality rankings but never made much profits out of that exercise. At the other end of the spectrum you have Ryanair, providing a very low level of service but cheap fares and customers come back and they make huge profits,” offered Merkert, speaking on findings which indicated that airlines can actually become too big to operate efficiently sometimes, often as a result of a merger – often seen as a positive step since capacity is taken out, synergies are leveraged, and yields and profitability are improved.
Once you get to a certain size, and we’re talking about 200 billion ASK (Available seat kilometre) you get airlines that actually experience dis-economies of scale such as the airline that resulted from the merger of US Airways and American,” he explained.