46 CHAPTER IV MODEL DEVELOPMENT FOR MAPPING INDONESIA LOW COST A IRLINES COMPETITIVE ADVANTAGE This chapter explain about model development from theoretical frameworks to the formula model. The low cost airlines competitive advantage mapping model development process are shown in Figure IV.1 below. Key Success Factor Resources Resources Classification Criteria Semi - structure interview Competitive Implication Figure IV.1 Low Cost Airlines Competitive Advantage Mapping Model Development Process 47 4.1 Key Success Factor & Required resources The key success factor of Indonesia low cost airlines and the required resources to be success in these industry are identified from literature review and semi- structure interview with several validation step. 4.1.1 Profile of respondent Three respondents have been interviewed with profile as shown in Table IV.1. The answer from these three respondents have shown saturated information about Indonesia low cost airlines. Not all respondent are from low cost airlines company but they have experiences background as expertise in low cost airlines business and have plenty detailed information about Indonesia low cost airlines industry. Table IV.1 Respondent Profile Respondent 1 Respondent 2 Respondent 3 Institution Medium service airlines Low cost airlines Education and consultant aerospace Experience 18 years 24 years 20 years Position Senior manager corporate communication VP Strategic, network, and regulatory affairs Aerospace engineering lecture and expertise 4.1.2 Identified Key Success Factor The key success factor based on literature review then validate using semi- structured interview to get the valid key success factor of low cost airlines industry based on Indonesia market condition. The key success factors of Indonesia low cost airlines based on semi-structured interview can be seen in Table IV. 2 bellow. 48 Table IV.2. Identified Key Success Factor of Indonesia Low Cost Airlines No KSF by Bakstad, et al., (2010) KSF based on semi-structured interview 1 Optimum Capacity Utilization of Aircraft Optimum Capacity Utilization of Aircraft 2 Fuel efficiency Fuel efficiency 3 Labor cost efficiency People management 4 Effective maintenance capabilities Effective maintenance or engineering capabilities 5 Prompt delivery to market Reliability of flights and customer Satisfaction 6 Customer service and satisfaction. Route, frequency, and flight schedule option The explanation of each key success factors are bellow: 1. Optimizing the utilization of aircraft capacity Is the ability of airlines to utilize every seat on the aircraft before departure without delaying the flight. Respondents explained that optimum capacity utilization of aircraft can balanced the cost and revenue. It is also related to the some parameter to measure cost which is cost per available seat kilometer or miles, which mean the more utilize aircraft, will reduce cost per available seat km or miles. 2. Fuel efficiency Is the ability to utilize fuel consumption efficiently compared to other rivals. The biggest portion of cost components in Indonesia airlines is fuel cost which approximately 50-60% from total cost. Respondent argue that the reason of airlines must used fuel efficiently because of airlines cannot control the prices but only control the volume. Through utilize fuel efficiently, the fuel cost can be lower and allow airline to decrease operation expenses. 49 3. People management Respondent argue that one of the key success factor is people management that related with how the firm manage their people. It is because airlines industry needs highly safety and tight time, therefore having a teamwork that can do the task on time and safely is needed. It different with the key success factor by Bakstad, et al., (2010) that put labor efficiency as the third factor. The labor cost efficiency factor not as key success factor in Indonesia because the labor cost structure in Indonesia low cost airlines industry is below 25%, therefore labor efficiency not significanlty affect the overall cost. 4. Effective maintenance or engineering capabilities Maintenance capabilities are the capabilities of low cost airlines to repair aircrafts when there is a problem. These factor influences the utilization of aircraft and fuel efficiencies (factor 1 and factor 2). Respondent said that low cost airlines in Indonesia does not always must have maintenance capability. It depends on the volume of the fleets that the airlines have. Respondent explained that maintenance capability needed if volume of fleet is large approximately 200 units. But if number of fleets still under 200 units, then it needs engineering capability than maintenance capability. 5. Reliability of flights and customer Satisfaction The reliability of flights it means the ability to deliver the schedule on time that usually measure by the On Time Performance (OTP), and no cancellation of the schedule. This reliability of flights related with the customer satisfaction because what low cost carrier offer is not the services, but the schedule itself. It can make customer move to another airlines if the airlines disable to deliver on time. Therefore the reliability of flights and customer satisfaction put together as one factor. 50 6. Route, frequency, and flight schedule option Wide network, route choice and frequency means the customer have many options to choose their flights. Respondent describe the more option flight schedule to the customer the more attractive the airlines and finally will gathered more customer and give optimum capacity utilization. 4.1.3 Required Resources based on Key Success Factor Required resources that needed in developing each key success factor were identified based on semi-structure interview. List of required resources are seen bellow: Table IV.3. Required Resources based on Key Success Factor Factor Capability Required Resources Optimum Capacity Utilization have high density seating single class aircraft have market knowledge and marketing strategy have offline distribution and online distribution percentage of offline distribution larger than online distribution maximize block hours per day teamwork between pilot, crew cabin and ground handling team newest technology and young-old aircraft with the average age bellow 12 years the routes to 24 hour airport Fuel efficiency Control fuel volume newest technology and young-old aircraft with the average age bellow 12 years reguralry maintenance aircraft have short groundtimes teamwork between pilot, crew cabin and ground handling team pilot to drive efficiently pilot knowledge and skill of efficient speed and height 51 Factor Capability Required Resources minimize weight of aircraft simplifying meal Efficient fuel policy moderate fuel emergency about 3-6% People management human resources department to recognize which people that involved in the critical business process and fit with their corporate culture hr policies that considering business process and corporate culture in employee recruitment Simplicity team organization system and resources communality (crew, aircraft, maintenance) simplicity communication simplicity communication Reliability & Customer Satisfaction have on time performance > 85% newest technology and young-old aircraft with the average age bellow 12 years reguralry maintenance aircraft Teamwork between pilot, crew cabin and ground handling team have reliability schedule > 90% newest technology and young-old aircraft with the average age bellow 12 years reguralry maintenance aircraft Maintenance or engineering capabilities Maintenance capabilities inventory of spare parts maintenance facilities employ workers to manage the fleet Engineering capabilities supervisor and engineer specialist that have experiences in maintenance facilities, have supervisory skill, and have capabilities in decision making Route, frequency, and flight schedule option have many Route, frequency, and flight schedule option route choices frequency choices market knowledge 52 Some of resources are linked each others because each key success factors also related each others. Thus, there are several required resources that needed to build more than one factor. 4.1.4 Resources classification From the identified firm resources in Table IV.3, we classified those resources using criteria that have been mentioned in Table III.3 into: base resources, peripheral resources, competitive resources, and strategic resources. Table IV.4. Required Resources Classification Classification Resources Peripheral resources the route to 24 hour airport; inventory of spare parts; maintenance facilities Base resources single class aircraft; have offline distribution and online distribution; regularly maintenance aircraft; pilot knowledge and skill of efficient speed and height; simplifying meal; moderate fuel emergency about 3-6%; communality (crew, aircraft, maintenance); employ workers to manage the fleet Competitive resources market knowledge & marketing strategy; supervisor and engineer specialist; route choices; frequency choices; percentage of offline distribution larger than online distribution Strategic resources Teamwork between pilot, crew cabin and ground handling team; newest newest technology and young-old aircraft with the average age bellow 12 years; HR Policies that considering business process and corporate culture; simplicity communication Sources: Analysis Inventory spare parts and maintenance facilities categorize as peripheral resources because the characteristic of low cost airlines is only operate their core activities and outsources most of non core activities (Shrager, 2007), and these two resources are not core activities in low cost airlines. Therefore almost all of low cost airlines outsource their maintenance into other maintenance service provider 53 such as Garuda Maintenance Facilities (GMF). Others resources such as route to 24 hours airport are resources that without having these resources the low cost airlines still can operates. The resources that categorize as base resources are fundamental for operational of low cost airlines because these resources are the characteristic of low cost airlines and the distinctive between low cost airlines and others airlines (full services and medium services).