Airlines are having a good year in terms of high demand. However, that has led to increased challenges relating to two areas of their highest costs: fuel and labor. Regarding the latter, airlines’ labor costs have been steadily escalating over the past several years, placing added pressure on profit margins. International Air Transport Association‘s (IATA) Chief Economist Brian Pearce estimates that higher labor costs will take airlines’ 2017 profit margins to approximately 8%, which is down from 2016. Understandably, the airlines are continuing to focus on new workforce management approaches that will help them contain costs. One area which is receiving a lot of attention is centralized vs. decentralized workforce planning. INFORM GmbH spoke with one of its own top Workforce Management Consultants and former Operations Manager George Schuver (GS) about this timely topic.
Q: What is the current status of airlines using a centralized vs. decentralized approach regarding their workforce planning?
GS: Fifteen to 20 years ago, workforce planning was primarily managed at the local level with each station doing their own planning. Now, in North America, for example, the top six largest airlines are all deploying centralized planning at the corporate headquarters level. This is a function of both a greater awareness of the advantages centralized planning provides, and the fact that airline workforce management planning tools have continue to mature to better meet the airlines’ needs.
Q. Why is airline workforce management so challenging?
GS: It is an extremely demanding task with many moving parts. To meet high service levels, there is a constant need to assign qualified staff to various tasks, many of which are subject to the volatile nature of industry workloads. There are always flight cancellations and changes, aircraft changes, fluctuating passenger and baggage load factors, as well as numerous human factors such as employee sickness, schedule preferences, team preferences, etc. All of these can wreak havoc on airline operations and profits. Only with effective, well-organized processes in place can some of these unavoidable factors be mitigated.
Q. What processes in particular come under the heading of workforce management?
GS: From an overview standpoint, we’re looking at demand planning and budgeting. By demand planning, we’re looking at such criteria as: What is the expected volume for a future period for the various drivers including number of flights, passengers and baggage. Also being considered is what workload is generated by these drivers and at what time, as well as what staff will be need during the given timeframes. As for budgeting, manpower is being evaluated in terms of availability in the months and weeks ahead, at what levels of full-time and part-time employees, and how does this correlate with the workload. Also factored in are sickness rates, training and vacation schedules. Under these broader categories of demand planning and budgeting come specific processes, including: recruiting, vacation planning, long-term, medium-term and short-term scheduling, dispatching, time management/payroll preparation, and training.
Q. Can you drill down a little further as to the questions that must be considered when developing an optimized workforce planning strategy? For example, let’s look at some of the commercial analyses that must be conducted.
GS: When it comes to strategic commercial analyses, an airline might look at how acquiring a new airline would impact its workforce planning. Or, what impact the opening or closing of a new station, terminal or runway might have, and if a new station, terminal or runway did open, how would the airline’s workforce management model have to change?
Q. What about the recruiting process?
GS: This is fairly straightforward and focuses on projecting the number of employees needed for a future period of time, what skills they must have, what training might be needed, and what is the current availability of full-time and part-time staff. If training is required, the considerations are: when to schedule the training; employee on-boarding; certification requirements and when staff certifications will be expiring, etc.
Q. Can you speak about employee scheduling?
GS: There’s a review process of whether employee scheduling requires modifications to long-term rosters, what commitments can be made to employees on a long-term basis, when employees should be expected for work and when can they have days off, how to accommodate employee preferences in terms of schedules, day and night shifts, vacations, etc.
Q. Overall, the planning seems to require a real balancing act?
GS: Yes. That’s exactly it. Whether we’re talking about employee scheduling, dispatching or time management, a well thought out and executed balancing act is required.
Q. You mentioned that previously, a decentralized approach was the norm. What has held back more airlines from applying a more centralized approach?
GS: The belief is that centralized planning takes power away from the city or field locations. They lose control and feel like corporate headquarters, “Big Brother,” is in charge, and that there is little insight into what their specific location needs. From a financial perspective, you will never find an airport operator that believes they are over-staffed. They always want more people and to be prepared for the worst-case scenario. However, since financial decisions are made at the corporate level, having staff standing around just to be available in case they’re needed is looked at as a cost factor that can be reduced. To avoid the misconception regarding centralized planning and feeling of a loss of control, there needs to been a lot of communication and coordination between the groups. Some airlines are very good at this and do it much better than others. The key to making it work is transparency and open communication.
Q. When centralized planning works, what are the financial implications?
GS: Without question, there are increased costs associated with poor planning. Conversely, effective workforce management planning substantially reduces costs. How much depends on the level of sophistication currently. If an airline is transitioning from a manual process, or a less robust software tool, the benefit can be quite large when switching to a fully optimized software tool. It all depends on the airline and how it has been previously handling planning.
Q: What are the top benefits an airline derives from an effective centralized planning approach?
GS: Lower labor costs and increased employee efficiency are what it is all about. Applying workforce management optimization software enables an airline to get a higher performance from their employees and takes away the personal agenda for better operations. Additionally, consistency is now being applied to rule standards and shift standards whereas before you could have the same exact airplane flying from Dallas to Los Angeles, for example, but with different rules and team sizes at each station. With a centralized planning tool in place, there is now a consistent approach to these standards. Overall, it addresses critical long-term strategic challenges, while optimizing workforce management and end-to-end processes for improved productivity, staff satisfaction, customer service and fiscal integrity.
Q: While each airline has its own metrics and commercial considerations, are there some common tendencies that a centralized planning approach effectively addresses?
GS: Yes. For instance, budgeting is typically and intrinsically a management and decision-oriented activity, and usually centrally coordinated. Recruiting and training emanate from classic HR functions and are often organized in central units, whereas employee scheduling processes may be handled on a decentralized basis, except when considering long-term staff scheduling which benefits from a more centralized approach. Other functions that are usually decentralized include dispatching, which is usually organized per station due to requirements relating to unexpected contingencies and the need to obtain employee consent for overtime, for example, to meet ad-hoc changes. Time management and payroll processes also benefit from a leaner organization model which is largely centralized, while exceptions can be handled by supervisors in the individual locations.
Q. It seems that the many variables involved in workforce management requires a strategic approach to organized planning that is ideally advanced with optimization software. Is that the general takeaway here?
GS: Yes. While we always must consider the individual business models and current status of each airline, bringing order and organization to the workforce planning process is essential. The best results come from optimization solutions that can help an airline balance all critical criteria and facilitate planning, centralized and decentralized where needed, to help reduce unnecessary labor costs, while also promoting consistency and higher standards of operations, productivity, customer service and workforce satisfaction.