Airports Manpower Planning Case Study and Best Practice

AGIFORS

Airports Manpower Planning Case study and Best Practice

Sadiq Gillani, Vice President

May 2009

Confidential – not for third party distribution © Seabury Aviation & Aerospace 2009

Seabury Aviation & Aerospace

With over 175 professionals, Seabury is the largest global advisory practice dedicated to the aviation and aerospace industries

Founded in 1995, Seabury Group provides Management Consulting, Investment Banking and Corporate Reorganization advisory services to the aviation and aerospace industries

Seabury professionals have an unparalleled range of expertise in:

- Strategy consulting; cost reduction; contract negotiations & outsourcing; organizational effectiveness; process improvement; supply chain optimization; M&A advisory; business planning; network and alliance optimization; fleet selection, acquisition and financing; and, investment and recapitalization

Recent or current clients include Airbus, Air Canada, Aveos, Etihad, jetBlue, Frontier, Goodrich, Northwest, Onex, Qantas, Malev, South African Airways, Safran, ST Aerospace, US Airways and Virgin Atlantic

The majority of our recent consulting engagements relate to operational performance The majority of our recent consulting engagements relate to operational performance improvement, business planning and / or corporate-wide restructuring- Comprehensive operational benchmarking across all key functions and cost reduction implementation- MRO productivity and supply chain optimization- Manpower/labor cost optimization across MRO, Flight Ops, Airports, Catering and Call Centers- Business plan development, review and revision for all types of airlines and investors, in all geographies- Corporate-wide restructuring / transformation of both distressed and successful carriers

Seabury’s proprietary suite of performance measurement and analysis, network, fleet and schedule planning tools are considered the best globally for in depth analysis, multiple

Confidential – not for third party distribution © Seabury Aviation & Aerospace 2009 2

p g g y p y , pscenario modeling and supporting rapid decision making

Seabury Airports capabilities

Seabury has a wide range of Airports capabilities

Build comprehensive transformation plan to improve relative cost positionDevelop outsourcing strategy for functions within home marketDevelop labor or union negotiations

Reduce labor cost through review of labor standards, leave planning process, absenteeism and rosteringcapabilities

Manpower

Strategic advisory

Ancillary

Develop labor or union negotiations strategy

Identify cost savings or process improvements within:

capabilitiesImprove rostering through optimizing labor mix, cross utilization, penalty hour staffing, shift lengths and shift patterns

Airports

Manpower planning

Ancillary services

Review airport flows, staffing levels, processes,

within:GSE: equipment levels & maintenanceCabin cleaning: cleaning spec, rostering & outsourcing

Operational improve-

ment

M&A / due diligence

g , p ,productivity and efficiencySupport implementation of automation and realisation of benefitsImprove mid-handled bags and bag revenue collection

Lounges: footprint, expenses & access

Conduct due diligence

Client profitability and pricing

Evaluate client profitability to identify unprofitable clients

and bag revenue collectiong

to assess value from acquiring competitor or merging with partnerEvaluate disposal of in-house Airports


Determine cost competitiveness of in-house Airports business

Case study: Airports Turnaround

Seabury recently conducted a major transformation of a large network i ’ Ai t di i i

Situation ResultsMajor network carrier with a large ground operations business also serving third party

1. Identified $50M of profit improvement initiatives across the division

carrier’s Airports division

operations business, also serving third party clients (5500 employees; $0.3B labor cost) Client faced a 25% pure labor rate disadvantage compared to other ground handlers as well as gaps in productivity

initiatives across the division

2. Implemented complete transformation of manpower planning at 6 major ports

Identified a further 7% of labor cost Airline was about to go through labor negotiationsSeabury was engaged to develop a plan to reduce labor cost and improve market competitiveness

savings from a port-by-port reviewImproved coverage of work to enhance serviceDeveloped and conducted skills transfer of a 4 person central competitiveness transfer of a 4 person central manpower planning teamImproved leave planning process

3. Developed a labor transformation strategy to outsource non core

ApproachConducted an in-depth 12 month review to identify, validate and plan initiatives to

d l b t 4 j h b strategy to outsource non-core functions and achieve market labor rates for all new hires

4. Demonstrated that third party Airports

reduce labor cost across 4 major hubs, as well as outstationsReviewed service levels, headcount levels, rostering, outsourcing and labor strategyAssessed financial benefits, operational


p y pcontracts were priced at 15% below the parent airline and identified unprofitable clients to exit

, pimpact and IR sensitivity of potential changesDeveloped implementation pan

4

Levers to reduce labor cost

Seabury used a combination of strategies to improve the labor cost position

Labor cost control

Labor productivityLabor rate

Labor negotiation Labor sourcing

Process and service level

design

Operations management

Manpower planning

Wage rate Outsourcing Automation Labor d d

Day of ops l i

Benefits

Work rules

Labor caps

strategy

B-scale

Part-time labor

Temps

Process re-engineering

Cross utilization

standards

Demand-capacity matching

planning

Risk / disruption management

AbsenteeismLocal roster agreements

TempsService level specification

Shift & roster design

Leave planning (sick, training, vacation)

Overtime usage

Performance management

5

vacation)

Client situation

The client faced up to a 25% pure labor rate disadvantage vs. other ground handlers (excluding productivity or seniority impact)

Average ramp employee payslip ($ per hour)

All

4036.1

34.7

30 8

AllowancesShift penaltiesOvertimeBenefitsBase pay

3030.8

27.825.3

Base pay

10

20

0Airline X Vendor

AVendor

BVendor

CVendor

D


A B C D

6

Client situation

The parent airline was paying a 15% premium relative to other airlines using the carrier’s ground handling services – subsidizing competitors

Cost per transit ($)

City 1 City 2 City 3City 1 City 2 City 3

6000

7000

5360

6245

5579

3000

4000

5000

2682

368835403269

44504557

3165

3818

476521%

23%

28%

22%

6%

7%

1000

2000

3000 2682 22%

B747 B767 B747 B767 B747 B767

0Airline ZClientAirline XClientAirline YClientAirline ZClientAirline YClientAirline XClient


Ramp Check-in Cleaning Load control Value add

Labor transformation plan

We developed a comprehensive labor transformation strategy to improve the titi f th b i

Consolidate to a core set of services and ports where it can use scale and service advantage to be parent airline’s vendor of choice:

competitiveness of the business

advantage to be parent airline s vendor of choice:- Deliver quality and scale of service which cannot be replicated by alternative vendors- Deliver ongoing cost reductions to the airline, with the long-term goal of market

competitiveness

Review and exit functions where it is unlikely to become competitive and where Review and exit functions where it is unlikely to become competitive and where exit is feasible

Implement a market rate for new hires as the driver of true long-term cost competitiveness for retained functionsp

Deliver airlines’ desired customer experience and operational performance, particularly through above-wing process redesign and infrastructure investment

Address manpower planning and productivity as the primary drivers of short- to Address manpower planning and productivity as the primary drivers of short to medium-term improvements in service levels and cost

Build a team and organisation which has the ability to deliver real and sustainable business improvement


Labor transformation plan (1 of 2)

Seabury worked hand-in-hand with the client to develop and implement a

1. Consolidate to core services and ports

2. Exit functions where subscale and feasible

3. Enhance manpower productivity

comprehensive rationalization and internal improvement plan

Examined each area of the business (by port, function, parent airline vs. 3rd party) to determine gap to full potential,

l d f

Based on strategic plan developed, drew up detailed implementation plans for exit of selected non-core functions

Conducted port-by-port manpower planning reviews:- Reviewed labor standards to

ensure accurate assessment including assessments of:- Baseline productivity

- Labor rates vs. competitors

Accounting for financial,

- Cabin cleaning

- Second tier port ramp handling

- All third tier port services

Activities included:

of demand

- Optimized labor mix

- Revised headcount levels to better cover demand

D l d t t t it g

industrial, political and operational factors, determined optimal strategy for each area- Including which areas to

Activities included:- Analytical and strategic support

for full RFP process in functions / ports to be exited

- Financial evaluations of one time costs (redundancy and

- Developed strategy to exit surplus employees without redundancies

- Improved labor management processes (e.g. annual leave, sick leave recruitment Including which areas to

retain in-house vs. outsource, where to change labor mix, which third-party contracts to retain vs. exit

time costs (redundancy and setup of new operator) and run-rate savings associated with each exit

- Optimal timing and sequencing, based on industrial and political

sick leave, recruitment, training)


pfactors

9

Labor transformation plan (2 of 2)

Seabury worked hand-in-hand with the client to develop and implement a

C d d b h k

4. Implement market labor rate for new hires

5. Improve operational performance

6. Build team and organization

comprehensive rationalization and internal improvement plan

Conducted benchmarking of rates / grades of client airline’s employees against those of their competitors

Worked as part of a joint S b / li t t t

Client had recruiting freeze in place for 3 years- Created higher cost position

through reliance on overtime

Caused deterioration in

Created central manpower planning team to conduct more analytical and standardized process across all ports

Seabury / client team to determine all potential options for introduction of market rates for new employeesRegrade functions

- Caused deterioration in service levels

Developed plan to recruit 280 part-time staff

Client had invested $50M

Developed plan to improve quality of management team

Setup project office to ll- Regrade functions

- New labor vehicle (new fleets or JV)

- Wage concessions

- B Scale for new hires

Client had invested $50M in a new ‘silver-bullet’ rostering system, but had not successfully implemented itRequired skilling up of central

manage all initiatives centrally

Substantially bolstered communications program to ensure that employees

- Wage freeze

Evaluated each option against a matrix of legal, industrial and financial metrics

- Required skilling up of central manpower planning team

- Ensured that work demand and staffing are systematically matched so as to enhance operational as

to ensure that employees and stakeholders were kept well informed throughout change process


Developed labor rate strategy

to enhance operational as well as financial performance

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Manpower optimization

Optimizing manpower productivity requires a comprehensive review across 4 main areas

Manpower optimization

1. Demand forecasting

4. Leave management3. Rostering2. Labor supply

Schedule

Passenger behavior

Full-time

Part-time

Shift patterns

Relief lines

Vacation

Training

Process design

Service levels Temporary labor

Overtime

Risk management Absenteeism

Systems Performance management

Standards B-scale

Third party work

Capabilities

management

11

Third party work

1. Demand forecasting

Demand is generated from application of standards to the current flight

20

Ramp Demand

Seasonal flight scheduleKey factors:- Disruption

schedule in dynamic areas and compared to roster

10

15

Heads Demand

Current

Proposed

p- Load factors- Destinations- Passenger arrival profile

Ti f

0

5

- Time of day/week

5:00 8:00 11:00 14:00 17:00 20:00 23:00

Labor standards RosterKey factors:- Service levels- Airport layout

Key factors:- Union agreementsAirport layout

- Accuracy of standards- Consistency of standards

agreements- Roster sociability- Fatigue


2. Labor supply: part-time

There are 3 main sources of permanent labor and also have 5 other levers to

There are three main types of permanent labor available

manage the operation

Ramp example

Full-time, Part-time, Temporary

In addition, managers have other levers to manage the operation without adding permanent labor, which

60

70

without adding permanent labor, which often result in higher cost:

Increasing overtime

Bringing in contractors, for which no approval is required

40

50

ads

approval is required

Working part-time labor as full-time, providing sub-optimal usage of that group

Not fully covering demand

20

30

Hea

Not fully covering demand, deteriorating operational performance

Denying leave requests, contributing to a build up in leave backlog

In most airport divisions there is a

0

10

5:00 10:00 15:00 20:00


In most airport divisions there is a shortage of labor, resulting in higher cost through using these levers

8 hr shift better covered by PT

Demand8 hr FT shift

2. Labor supply: overtime

Overtime is often inappropriately used to cover sick leave rather than

40Employees on OT (heads) Other

5%

operational disruptions

30

40 5%

Sick+leave49% Uncovered work

27%

Operational19%

20

30

10Oth

4:00 8:00 12:00 4:00 8:000 Operational

Uncovered workSick+leaveOther


4:00 8:00 12:00 4:00 8:00

3. Rostering tools

Seabury’s experience with rostering tools is that they are powerful planning and operations management systems, but IT systems do not intrinsically produce savings

Benefits LimitationsBenefits Limitations

• Increased transparency and granularity of cost drivers and

ti l f

• Not an automated solution –Rosters manually designed

d t t i hi hl operational performance

• Ability to validate and cost rosters with a given set of parameters

and strategies highly dependent on user controlled parameters (incl. work standards, shift structures)

p

• Real time workforce management to adjust for operational changes

• Significant benefits require a change in planning philosophy and procedures (e.g. relief coverage, overtime usage, service level tolerance)• Improved integration with

other management information systems

service level tolerance)

• Talented planners and operational managers, not the system, are necessary to t l t d t i t i

15

translate data into savings

3. Rostering tools

Maximizing manpower planning benefits from new roster tools requires a complete reorganization

Prepare Leverage toolImplement tool

• Revise standards and performance levels across ports to ensure consistency and best

ti

• Provide in-depth training for resource planners and allocators and manpower planning and management

• Conduct a rigorous port-by-port re-rostering to achieve a step change in manpower optimization

practice

• Conduct time-and-motion studies to determine standards for check-in, gate, baggage cabin and ramp

• Provide support during the initial period to make sure planners are able to use system effectively

• Use the system to pro-actively monitor and manage performance of workforce and planners

baggage, cabin and ramp activities

• Review passenger profiles and behavior (e.g likelihood of checking baggage)

• Define and implement leave planning best practice across all ports

E t l t l f

• Keep standards up-to-date and consistent by regular revisions (e.g. for process, technology or passenger

• Review service levels (e.g. check-in wait times)

• Revise manpower requirement for static

• Ensure central control of new procedures and standards

• Define responsibilitiesh l d

behavior changes)

• Hold regular training and best practice workshops for system users

16

requirement for static work areas (e.g. ticketing, baggage room, ticketing)

within planning process and develop central manpower planning team

y

4. Leave management: absenteeism

Absenteeism is often highly predictable and can be actively reduced

Absence by time of day (Wash)

Port B examplePort A example

One day absences (Transport)

294300

Sick leave 25

30%

Absence by time of day (Wash)

Sick leave is highest on

non-penalty day time shifts

One day absences (Transport)

156

188200

250Sick leave

is lowest on penalty

weekends20

25

58

98

156139141

100

150

10

15

ThFri

58

0

50

Sat SunMon Tue Wed Thu Fri2:00 6:00 10:00 14:00 18:00 22:000

5

MonTueWedThu


Several initiatives can be introduced to reduce absenteeism

4. Leave management: absenteeism

Initiative Details

Issue clear communication of what is

th i d

Ensure everyone understands the leave policy and that it will be strictly enforced going forward: reason, notice & proof

t b t blauthorised vs. unauthorised

must be acceptable

Launch ‘first contact’ scheme

Provide nurse as point of contact for people that are sickImprove tracking and recording of sick by individual

fCentral leadership & tracking of improvement within each dept.

Port Manager to take ownership for sick leave reductionSick leave in each department by supervisor to be tracked

Make supervisors accountable for reducing

Obtain supervisor’s signature after incident, providing employee accountability with face to face contactaccountable for reducing

sick leaveemployee accountability with face to face contact

Send out letters to those with high Bradford scores or low sick leave

Send out regularly letters notifying that management is concerned with recent absences or grateful for their strong attendance

Reduce overtime through increased relief staffing

There is clear correlation between working overtime and sick leave


Detailed staff communication is needed to inform employees of new enforcement and program should be driven from the Port Manager

Leave lines should be inversely proportional to expected passenger traffic

4. Leave management: vacation

y p p p p gfactor throughout the year

Leave lines Load factor

50 100%

Load factor 2007

30

40

60

80

FT leave linesPT leave lines

20 40

3/3/2008 6/2/2008 9/1/2008 12/1/20080

10

0

20

3/3/2008 6/2/2008 9/1/2008 12/1/2008

Manpower optimization: results

Savings from manpower planning optimization came from across all of these areas and amounted to an overall 10% reduction in labor cost

10.3%

0.7%

Sources of identified savings in a recent project (as % of baseline cost)

0.8%

1.0%

1.0%

1.5%

1.3%

2 1%

1.9%

2.1%

Headcount levels

Overtime Shift lengths

Shift penalties

Policies & procedures

Part-time/full-time mix

Process redesign

Total Savings

Re-grading


Questions?

Sadiq Gillani

d C lVice President, Consulting

Seabury Aviation & Aerospace

1350 Avenue of the Americas, 25th Floor

New York, NY 10019

[email protected]

21

Web: www.seaburygroup.com

Documents

Airports Manpower Planning Case Study and Best Practice