VivaColombia Airlines – Operational Analysis

Service Variability

Service variability comes in an array of forms, each with a different degree of complexity. In this case, we must take into account that the customer is introduced to the service, which in turn adds another level of sophistication and variability to the service. Service variability can come in the form of Arrival, Request, Capability, Effort, and Subjective Preference[8].

In the VivaColombia case, the authors mention of service complaints issues about the company’s rapid growth[9]:

  • Poor customer relations – The company was receiving complaints about the way their staff was handling day to day situations.
  • Misinformation – The young company didn’t have the experience of dealing with unexpected situations at the airport that was out of their control. That inexperience made the staff singularly unhelpful in these situations which infuriated customers
  • Flight Delays and Cancellations – VivaColombia had only nine A320’s serving 21 domestic and six international routes. Airplane repairs and maintenance were the cause of major operational disruptions.
  • Need to adapt to a new business model – The airline was having many issues with customers that didn’t understand their service. The customers many times felt mislead by the airline’s additional charges which did not benefit the brand they wanted to establish.

Examples of VivaColombia Dealing with Service Variability

A service firm must always be trying to find strategies for how to deal with their variability. Although the full extent of VivaColombia’s efforts to deal with service variability was not in the case, there was enough public information speaking to new shots from the company.

VivaColombia’s way of managing consistent and standard training was by only using one type of airplane (Airbus A320). Dealing with their service capability variability, they made the training for the staff, crew, and maintenance technicians a very straight forward and standard process. Employees just had to figure out what role they played in one type of airplane. In contrast, major airlines and industry associations have an array of training designed for various aircraft [10], which leads to longer training time and higher costs.

Throughout the first couple of years, VivaColombia came to realize the problem it had with new customers and their understanding of the low-cost service. This leads the company to lower satisfaction scores, and their brand was beginning to be associated with “stealing” from customers with “hidden” fees. This was an example of subjective preference variability in the service. In response to this, the airline decided to rethink their fares, fees, and the ways that they communicated with their customers through their website. This process led to the creation of three different fare classes: Viva, VivaSuper, and Viva Max.

  • Viva – includes base fare; only consists of a carry-on bag (“book-bag” size) at no extra cost; does not include airport check-in fee
  • VivaSuper – includes base fare; carry-on bag, luggage bag, and fast lane boarding service; does not include airport check-in fee
  • VivaMax – includes base fare; carry-on bag, luggage bag, fast lane boarding service, seat assignment, date changes, and airport check-in fee included

An example of how VivaColombia dealt with their request variability was by improving their online reservation’s platform. In June 2016, VivaColombia announced that it had made significant changes to their reservation system[11]. The company decided to migrate its legacy platform to Navitaire’s New Skies Passenger Service System (PSS). These changes in the system enabled the company’s customers to have a better line of sight into their reservations and also gave the customers the ability to make changes to their existing bookings through the website. It also gave VivaColombia the ability to outsource reservation management to Navitaire which moving forward was in charge of handling the global distribution of VivaColombia’s flights[12] in addition to incoming internet and call center reservations.

Outsourcing Services

As mentioned in the previous section, outsourcing services is a way in which some airlines choose to deal with service variability. Low-cost airlines tend to outsource aspects of their operations when the value of outsourcing outweighs the cost of controlling that specific part of their process internally. In the case of VivaColombia outsourcing their reservation management to Navitaire gave the airline more time to focus on other aspects of the business.

On a more general note about the airline industry and outsourcing services, baggage handling services at the airports are usually outsourced to a local service provider. This relationship is vital because of two main reasons: 1) operationally it has to be efficient in loading the airplanes with the adequate cargo; 2) anything that happens to the cargo or luggage will be blamed on the airline and not the third-party company. Outsourcing services can be a double edge sword. They have the propensity to lower costs and deliver high quality, but they can also have an unintended effect in the perceived quality of the customer-facing company (the airline in this case). Companies that outsource services should never turn a blind eye to that aspect of the operation simply because there is another party that is supposed to worry about that. They must consistently ensure the third party’s quality so that it doesn’t jeopardize the airline’s quality by proxy.

VivaColombia Outsources Airplane Maintenance to AAR

Let’s discuss another example of how VivaColombia outsources another part of its operation and its associated risks. In June 2017, VivaColombia (and its sister airline in Peru, Viva Air Peru) signed a multi-year support contract with AAR. AAR supports airlines by providing fleet maintenance and supply chain support (relating to airplane parts). “This contract is the latest example of how AAR’s flight-hour support programs are a perfect fit for fast-growing airlines in emerging markets, in addition to established carriers in major markets,” said John Holmes, President, and Chief Operating Officer, AAR[13].

Efficiencies by Outsourcing AAR

The primary ability in outsourcing this service is in direct and indirect costs. The skills and expertise that AAR brings to both airlines provided them with a high-quality, low-cost solution to their fleet maintenance. Another efficiency that AAR provides the airlines is the purchasing power for the airplane part since they have a bigger pool to purchase for all their entire customer base.

Associated Risks with the AAR Partnership

By outsourcing these services, both VivaColombia and AAR undergo an array of risks of both the supplier and the consumer of the outsourcing service. We can deduce that VivaColombia laid-off or somehow got rid of their fleet maintenance staff once the AAR contract started. The most significant risk that VivaColombia assumes is: what happens if this contract abruptly ends and how would they handle their fleet’s maintenance moving forward if this were to happen. This is a significant risk that VivaColombia decided to assume because the decrease in expenses and the higher quality of work (due to AAR’s expertise) was worth the risk when compared to the risk associated with keeping the fleet’s maintenance operation in-house.

In this particular case, AAR’s risk is based on its investment to establish operations in the client’s country (Colombia and Peru for Viva LatinAmerica), but this can also serve as the foundation of building a customer base in that country. If these relationships don’t work out, capital investments could potentially be lost, and the company’s risk would be fully realized at that point. This type of risk is managed by both parties engaging in a multi-year contract and identifying company champions that will further develop the partnership across both companies. Through these strategies, parties involved hedge their potential losses by keeping a line of sight into each other’s company and ensuring the long-lasting relationship while providing the maximization of the shared benefits.

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