Joint buying takes flight

18 January 2010

19 January 2010 | Jake Kanter

International airlines are looking to cut costs through joint procurement following a tumultuous year for the industry.

Carriers have been heavily hit by falling passenger numbers in the economic downturn and are exploring ways of making cutbacks in 2010.

CPOs at British Airways (BA) and Monarch Airlines have touted collaboration as a possible solution, but admitted co-sourcing is not easy.

It follows the announcement this month that two of Asia Pacific’s biggest budget airlines, Jetstar (part of Qantas Airways) and AirAsia, have entered a joint procurement agreement.

In what is thought to be a first for low-cost carriers, the companies will aim to save around A$200 million (£114 million) by purchasing engineering and maintenance goods and services together, as well as ground handling services. They will also pool inventory arrangements for aircraft components and spare parts.

Marcus Fromm, an aviation expert for consultancy Accenture, said it was a striking signal to the market and he expects similar deals between other airlines this year.

CPOs at UK airlines are hoping to meet and share ideas with a view to collaborating, according to Craig Cherry, head of procurement at Monarch. “These are incredibly testing times and we all have to be as nimble, dynamic and innovative as possible,” he said.

Cherry stressed the talks were very “top-level” and at an early stage, and that there are many barriers to joint procurement such as reservations about sharing commercial information.

Tim Richardson, head of procurement at BA, said that every six months he meets with counterparts in the Oneworld Alliance – a group of 11 carriers including American Airlines and Cathay Pacific – to discuss combining spending power.

The carriers have done deals on ground handling and maintenance and are exploring other categories on which they can collaborate.

“The biggest challenge is specification,” Richardson said. “For example, we have enormously different specifications for hotel rooms and if we can’t agree, you can’t put the deal out to tender.”

Accenture’s Fromm said alliances such as Oneworld started as a marketing ploy, but have become a useful way to pool spend and cut costs in the downturn. “It is not surprising collaboration is on the agenda this year. It makes economic sense,” he said.

 

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