How Does Inflation Impact the Flight Department? What can you do about it?
Inflation
By definition, inflation is a rise in prices that leads to a decrease in the purchasing power of money. The flight department has three areas of concern including rising wages, cost of goods and services, and the cost of money. Each one of the three can have a negative impact on the flight department. The combination of the three can pose a serious threat to many operations.
What are Inflationary Pressures?
Rising wages are good for attraction and retention of highly skilled crew members. After decades of stagnant wages, we are seeing a nice boost in income. It is the rate at which wages are raising that is catching many by surprise. Five years ago, Hawker captains could expect around $80K in base compensation. Today, Hawker captains are getting between $140K and $170K from companies that want to keep their pilots. That is an average increase of nearly 100%.
The cost of goods and services are continuously on the rise. In most cases, this is because the costs of providing those services are going up. This includes wages for highly qualified personnel, real estate, healthcare, energy and technology. Although companies have recently gotten a break with the new tax law, this will quickly be eroded by the rising cost of providing services.
How Can We Combat Inflationary Pressures
There are three ways to combat the rising costs of goods and services. First is to align your flight department with the producer in such a way as to lower the cost of sales. Astro aviation does this by consolidating a segmented market with our Alliance.
The second way is to help the producer become more efficient. The Alliance leverages strategic partnerships to funnel a more consistent flow of business to our Partner companies. The result is a lower cost of operations for the industry’s leading providers of goods and services.
Finally, the Alliance by Astro Aviation leverages our partner network to identify areas of complementary services. For example, not all maintenance shops are authorized dealers for avionics protection plans. Now, these shops can offer a real benefit to their customers by teaming up with an authorized dealer in our network. The authorized dealer is able to lower their cost of writing the policy with higher volume. The partner company can now offer a new service without the threat of competition. The result is huge savings for their customers.
The Rising Cost of Money
The Federal Reserve will take action to slow down the economy during periods of inflation. The result of this action causes interest rates to rise. When interest rates rise, this increases the cost of borrowing money.
The rising cost of money is the quiet killer. Many companies operate on a razor-thin profit margin of 2% to 4%. Companies often use borrowed money to finance operations, expansions, and updating equipment. When the cost of borrowing money goes up, it can have a negative impact on those razor-thin profit margins.
For example, if your company has a 2% profit margin and the cost of money or interest rates go up 1%, you just lost one half of your profit. The truth is that many companies survive inflationary times by successfully achieving zero profit. That is because zero profit is better than losing money. Companies that lose money can be forced to shed assets…like airplanes.
This is where it gets tricky for the flight department. The combination of rising wages, cost of goods and services, and the cost of money are like a tsunami approaching. Companies must find ways to cut costs to stay afloat during inflationary times or find themselves under water. This can mean the difference between adding a crew member, purchasing a new airplane, selling one that is currently in your fleet or shutting down the flight department altogether.
How to Combat Inflation in Your Flight Department
Astro Aviation provides tools for aircraft managers to combat the impact of inflation on their flight departments. For the first time, individual aircraft can get volume discounts that have been reserved for large fleets with our Alliance. This will lower the cost of operating your aircraft to counter inflationary pressures. You will be joining a team of industry leaders that are changing the way we do business and having a positive impact on business aviation.
What can you do about the impact that inflation will have on your flight department?
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Case and Point:
Smart managers are joining the Alliance and with great results. Recently, a Hawker manager announced that he is saving over $60K per year with our Alliance. He has earned the respect of his executive team by taking action to improve the performance of the flight department budget. By doing so, he is having a positive impact on his job security and is a valued member of his team.
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