Each year, more than a billion people fly nationally or internationally. However, airlines are still not making a profit, and this likely has something to do with the amount that airlines spend on their suppliers. If airlines can reduce their procurement costs, it could be possible for them to get back in the red.
Obstacles that airlines face
Airlines have to bear a few non-negotiable costs, such as fixed tariffs at airports and the costs of traffic control at these airports. Furthermore, airlines cannot pick and choose suppliers as they work with a small group of them.
The majority of airports have just two caterers and two providers of host systems. Usually, airlines prefer getting into long-term agreements with their suppliers, and most contracts have penalty fees and hidden costs that can drive the procurement costs of an airline through the roof.
Procurement professionals working for airlines often do not have experience and skills in category management, and procurement is considered a support function rather than a strategic one. Therefore, these professionals often fail to minimise costs and optimise the delivery of products and services.
It is essential that airlines have a procurement strategy that aligns with their overall strategy of the company. Also, airlines need to find the right procurement talent that know the ins and outs of category management. Such procurement professionals will be able to come up with innovative ways to manage different categories and take proactive measures to mitigate risks.
The right procurement talent will help an airline enforce cost control, make procurement more efficient, and will work to redesign the supply chain even if it means switching suppliers. At the moment, the limited suppliers have a monopoly, and airlines are not in a position to negotiate as a result. This can be changed by inviting other suppliers and assuring them that the airline will order large volumes. By doing this, procurement professionals working in airlines can level the playing field and remove the domination of a few suppliers.
If airlines are keen to save costs and enjoy profits, these are a few steps they can take. It will bring down the cost of procurement without affecting the quality.