Aer Lingus - Cost and KPI Benchmarking Study
Nyras was approached by the CEO of Aer Lingus 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.
Nyras used its standard 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) the cost base was allocated into eight, well-defined cost categories. The same exercise was completed for two other European airlines to provide a like-for-like basis for comparison. Appropriate adjustments were made for foreign currency exchange differences and the varying sector lengths of the airlines. Nyras engaged with representatives from across all functional areas and, in particular, with finance staff in order to fully understand the cost and operational data collected.
An initial high-level benchmark review highlighted the areas of relative cost competitiveness. From this output, the client requested shallow dives into four areas of the cost base showing where the greatest competitive disadvantage was in comparison to the benchmarked airlines. Nyras then completed a more detailed review of their airline’s sales and distribution, airport charges and ground handling costs, engineering and maintenance plus 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, the Nyras team was able to identify specific cost reduction opportunities and estimate the overall profit improvement potential.
We provided the client’s senior management with a detailed analysis of its cost competitiveness. This then helped inform our recommendations regarding areas that required management attention alongside suggestions as to how the airline could realise profit improvements. Considerable cost savings in the region of €60–80m were identified.
As a result of this benchmarking exercise, Nyras was engaged 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.