VivaColombia Airlines – Operational Analysis

Quality and Process Improvement

In the Negative Review’s Pareto Analysis, Staff / Service and Schedule were the next two categories driving negative sentiments. These should also be addressed by VivaColombia. In the VivaColombia case, these two categories also resonate with the issues that came about their rapid growth.

Model for Quality Improvement

The quality of service can be framed in three factors to assess for potential quality improvements. These three factors are Conformance Quality (how the service is delivered), Performance Quality (what are the customer’s preferences) and Communication Quality (what are the customer’s expectations)[16]. When these factors are assessed individually for VivaColombia, communication quality seems to be a factor that has to be explored further. It seemed evident from the TripAdvisor analysis that the charge structure was not being communicated effectively and causing customer satisfaction to decrease.

When the conformance quality is compromised, it has a detrimental effect on the customer’s expectations. When the customer’s expectations are managed inadequately, customers tend to be disappointed with the service delivered. What he/she gets does not conform to their preferences as a customer. These three factors are tied in a continuum where problems usually can be traced back to gaps between them.

Examples of Process Improvement in the Airline Industry

Although quality improvement is an overall part of process improvement, it will be worth to mention that VivaColombia should consider examples in process improvement techniques to reduce expenses and become a more efficient business model. Below are two examples of how the industry has adopted process improvement techniques to improve operational efficiencies.

Improvements to the management of catering inventories

Although many airlines outsource their catering services, these services can have an impact on the airline’s operations and customer experience. Airlines have adopted lean techniques such as making sure their catering is accurate. This causes lowering the time of on-hand inventory to lower down operational costs. An industry example of these powerful techniques adaptations is US Airways. US Airways has “adopted this lean management technique and testifies to its success. According to a representative of the US Airways, the transition to a ‘just-in-time’ production scheme has allowed them to reduce inventory at their five commissaries, improve the accuracy of catering services on the aircraft, and increase the overall consistency of stocking”[17]. Something as simple as having the same employee stock the same drawers improve the quality of the stocking process.

Redefining baggage handling

Auckland International Airport has improved their baggage handling through the use of a simple lean six sigma strategy – as soon as the plane is on blocks, the cargo doors are opened, and the bags are taken out even before passengers have started moving[18]. According to an Auckland International Airport executive, redefining baggage handling has reduced five minutes of off millions of passenger trips. This translates to incredible cost savings for the Airport and for the Airlines that operate out of that airport. The process improvement technique can also lower down the cost of parking and air conditioner that airlines incur while the plane is being unloaded. At the same time decreasing the airplanes turn-around time, maximizing the airline’s flight time and declining scheduling issues.

Conclusion

The ending of the VivaColombia case sets the stage around the December 2015 Board of Directors meeting. At this point the decision on the future path of the company was going to be determined. Expand or to consolidate. Both projects had the same initial capital investment of $1 million. A decision of the path moving forward was to be determined.

The two options

  • Option 1: Expanding operations in Brazil is a high risk, high reward future path for the company. VivaColombia had already acquired the necessary permits for the flight routes to Brazil, so starting operations in the country would not have taken long to start operating[19]. Brazil also showed promise as a growing market which allowed VivaColombia to establish itself in the market as the preferred low-cost airline for the Bogota – Sao Paulo route[20].
  • Option 2: Consolidating operations locally had a lower risk, lower reward than expanding into the Brazilian market but the efficiencies that would come about consolidation were integral to the company’s ability to develop in the future.

Recommendation

Expanding to Brazil would bring an array of changes to the operations and the business model since they would have to hire more staff in Brazil and also, they would need to purchase a different type of aircraft, the Airbus A350-800 XMB. The need for a new aircraft type was due to plane size. A350-800 XMB had the cabin space and comfort needed for these now long-haul flights from Colombia to Brazil. The experience in an A320 on this long of duration would most likely be dissatisfactory to their average customer. Changes of these nature would further disrupt the business model as they are trying to expand into new markets which could cause a detrimental effect to the Colombia-based operation.

It’s in VivaColombia’s best interest to consolidate operations locally to solidify its market position and help reduce customer dissatisfaction. Market research had shown that by consolidating services, they would reduce their customer dissatisfaction by 15%. This would translate into doubling up their demand year over year for the next three consecutive years. Failure to consolidate would have meant that their satisfaction score would’ve stayed stagnant with increases in demand of 8% year over year for the next three consecutive years. With low-cost carriers coming into the Colombian market, it is imperative for VivaColombia to gain an advantage over the newcomers.

VivaColombia Today

The board’s decision in 2015 was for VivaColombia to consolidate operations locally and to look into other possible ventures that complemented their business goals. VivaColombia went through a great deal of change in a brief period between 2015-2017.

In June 2016, Irelandia Aviation acquired a 50% more equity stake in the company bringing its participation to 75% giving Declan Ryan (founder of Irelandia Aviation) a great deal of power over the company’s path moving forward[21]. Grupo Iamsa owned the remaining 25% participation. This deal went to the founders without equity participation, and in a short period, this would be evident. William Shaw stayed as CEO while Posada and Migowski (two of the founders) left VivaColombia. In August 2016, the company announced plans to operate a low-cost airline in Peru, under the name Viva Air Peru[22]. In 2017, under the Viva LatinAmerica Group umbrella, management decided to outsource their fleet’s maintenance services to AAR[23]. Management was making new decisions to cut costs to gain competitive advantages with plans for expanding operations. William Shaw stayed as CEO of Viva Air until recently. In January 2018, Declan Ryan took over as CEO of the company. He took the opportunity also to announce that the “carrier continues its major expansion plans following last year’s $5.3 billion purchase order of 50 Airbus A320 aircraft that will begin to be delivered in the second half of 2018”[24].

VivaColombia went from transporting 550,000 in 2012 to over 3.5 million passengers in 2017. And it’s still expected to keep growing. Year over year, this is a company that has gain market share. It has expanded its operations internationally with flights to the United States, Peru, and Panama. The airline still has room to grow with the new purchase order of the 50 A320’s. They also have to deal with improvements to the way they communicate with its customer base. For them to stay competitive, they should always look into ways of reducing their service variability, finding better ways to express their service’s value offering and always look for ways of delivering a higher service quality at a lower cost.

Sources/References/Notes:

[1] In 2010, VivaColombia had petitioned the Colombian Aerocivil Authority for the permit to operate the low-cost airline business model in Colombia. The permit was granted later that year in August and the three Airbus A320 were delivered in March 2012.

[2] The Colombian Aerocivil Authority’s permit allows only one year to begin service in new routes after the permit was granted.

[3] VivaColombia: The Challenge of Growing a Low-Cost Airline in Latin America (page 3 – 4)

[4] http://www.semana.com/nacion/articulo/vivacolombia-un-caos-un-modelo-de-negocio/382418-3

[5] See Dealing with Service Variability for more details on the different VivaColombia fares.

[6] https://trafficamerican.com/excelente-sistema-de-reservas-en-vivacolombia/

[7] http://www.airbus.com/newsroom/press-releases/en/2017/06/viva-air-commits-to-50-a320-family-aircraft.html

[8] Breaking the Trade-Off Between Efficiency and Service, Frances X. Frei (2006)

[9] VivaColombia: The Challenge of Growing a Low-Cost Airline in Latin America (page 6-7)

[10] http://www.iata.org/training/courses/Pages/airline-cabin-crew-talg51.aspx

[11] https://trafficamerican.com/excelente-sistema-de-reservas-en-vivacolombia/

[12] Navitaire’s platform included a Global Distribution System (GDS) connecting VivaColombia to all major Online Travel Agencies (OTA’s).

[13] https://www.prnewswire.com/news-releases/aar-signs-component-support-agreement-with-viva-colombia-and-viva-air-peru-300470237.html

[14] https://www.tripadvisor.com/Airline_Review-d10661148-Reviews-Cheap-Flights-VivaColombia

[15] 2016 = 33% Negative Reviews; 2017 = 47% Negative Reviews; 2018 YTD = 69% Negative Reviews

[16] Dr. Phillip Lederer – Lecture #7: Quality & Process Improvement (2018)

[17] https://leansixsigmabelgium.com/blog/ways-lean-airline-companies-improve-their-services/ (direct quote)

[18] https://leansixsigmabelgium.com/blog/ways-lean-airline-companies-improve-their-services/ (direct quote)

[19] The permit process can take up to a year at times. Another thing to note is that these permits were only valid for a year if the airline had not begun operations in the route. Permits are subject to renewal in a year if the route was being utilized but became invalid if the airline didn’t operate the route.

[20] Only major airlines were flying the Bogota – Sao Paulo Route. These were: Copa Airlines, LATAM and Avianca

[21] https://www.larepublica.co/empresas/irelandia-aviation-incremento-su-participacion-y-es-la-nueva-duena-de-vivacolombia-2401596

[22] Viva Air Peru began operations in mid-2017.

[23] https://www.reuters.com/article/brief-aar-corp-enters-agreement-with-viv/brief-aar-corp-enters-agreement-with-viva-colombia-and-viva-air-peru-idUSFWN1J40DD

[24] http://www.financecolombia.com/declan-ryan-replaces-vivacolombia-founder-william-shaw-president-viva-air/

Further Reading: Interested in more business articles? Check out: A Five Stage Approach to Deal Making!

Original Publication:

Pecunia Rivera, Gustavo. “Operational Analysis: VivaColombia – Service Management Framework.” Pecunia Group, Pecunia Group, 21 June 2019, https://pecuniagroup.com/operational-analysis-vivacolumbia-airlines/.

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