The Dreamliner saga: What is the value of an inaugural flight?

Since my last post ten days ago all the 787 fleet has been grounded, but interesting facts about operating a 787 continue to emerge. Because airlines make a big deal of introducing the aircraft, they used creative techniques in order to keep the Dreamliner’s flights on schedule. Here is how WSJ describes it:

Launch customer All Nippon Airways Co. provides an example of the lengths to which airlines and Boeing have gone to keep 787 flights operating.

ANA’s inaugural flight from Seattle to Tokyo of one of its Dreamliners last October was delayed by 24 hours because of a faulty electronics cooling pump that has been a persistent problem for operators of the new jet.

With the twin-engine 787 stranded at the gate, ANA and Boeing officials trekked to the company’s nearby facilities to find a spare, according to a person familiar with the move. Boeing has since redesigned the pump.

Boeing spokesman Marc Birtel said the company continuously works with all its customers to keep aircraft in revenue service and said the plane maker worked with ANA to solve the issue with parts from its spares facilities.

United Continental Holdings Inc. has also resorted to creative measures. Worried about the 787’s reliability—which already prompted a delay in the start of service with the jet between Houston and Lagos, Nigeria—United had at least two of its six 787s on standby for the airline’s first trans-Pacific flight from Los Angeles to Tokyo, according to a person familiar with the planning.

The scheduled 787 left as planned, and two of the reserve planes flew back to Houston without passengers, according to the same person and flight-tracking website Flightaware.com.

United spokeswoman Megan McCarthy said repositioning empty aircraft isn’t uncommon, but wasn’t able to say specifically if the extra 787s in Los Angeles were in place to support the Tokyo flight.

Although the evidence is anecdotal, it shows how much airlines value an inaugural flight, in this case, United, Los Angeles to Tokyo. Suppose that with 95% probability an aircraft will have no issues, and there is a 5% chance that a flight-delaying problem will be discovered. Let’s not worry about revenues yet, just try to quantify losses from a potential delay for an inaugural flight and compare it with an ordinary flight.

Suppose for the sake of illustration that if an ordinary flight is delayed for a long time, the airline incurs a cost of $10000. This can happen with 5% probability, so the expected cost is $500. This is an acceptable level of losses. Now, consider an inaugural flight. Obviously, the stakes are higher, so if the flight is delayed the cost will be much greater. But by how much? Continue reading

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Do we wait too long?

As the school year starts in Atlanta, so inevitably does this blog. With a backlog of articles to write about, I decided to take on this recent one published by Alex Stone in NY Times. Its basic premise is not new: people feel they wait longer if they are not doing anything during that time. Thus, managing the perceived wait is just as important as managing the actual wait (if not more).  What is interesting, though, is the examples that the author gives to make the point.

SOME years ago, executives at a Houston airport faced a troubling customer-relations issue. Passengers were lodging an inordinate number of complaints about the long waits at baggage claim. In response, the executives increased the number of baggage handlers working that shift. The plan worked: the average wait fell to eight minutes, well within industry benchmarks. But the complaints persisted.

Puzzled, the airport executives undertook a more careful, on-site analysis. They found that it took passengers a minute to walk from their arrival gates to baggage claim and seven more minutes to get their bags. Roughly 88 percent of their time, in other words, was spent standing around waiting for their bags.

So the airport decided on a new approach: instead of reducing wait times, it moved the arrival gates away from the main terminal and routed bags to the outermost carousel. Passengers now had to walk six times longer to get their bags. Complaints dropped to near zero.

This strategy must have worked especially given the fact that people overestimate the wait by 30 to 40% if they are idle. Another example speaks to perennial lines to cash registers at supermarkets. Retailers are pretty reluctant getting rid of them, even though a single line served by all cashiers would be much faster. There are good reasons for that. First, a longer snaking line might scare customers away. Second, is the opportunity to sell a customer something during this wait: chocolate, gum, magazine. These impulse buys, it turns out, account for $5.5bln per year in sales.

Jobs creation in the Apple ecosystem

Being the largest public company it is hard to avoid scrutiny of business decisions. The story has begun a couple of months ago with the series of articles about work conditions at the Apple contract manufacturers in China and the impact of Apple’s outsourcing on the US economy. So here comes another batch of numbers related to the Apple’s jobs creation, this time from Apple itself.

Continue reading

To queue or not to queue?

I wanted to write about this for a while. Our economy has become more service oriented than ever (in fact 76.7% of its GDP is services, about 1% is agriculture and the remainder is manufacturing). The problem with services is something called simultaneity, that is they are consumed as they are being provided. It typically means that a server can serve one customer at a time and if there are more customers, well, they have to wait.

Waiting is not very pleasant. So companies go all sort of distances to reduce it or at least manage the perception of waiting. A classical example (and a success story) is Disney’s fast pass where you can basically take a ticket and come back at a pre-specified time to enjoy an attraction. What is interesting is that retailers have joined the pack and now they use something called “queue busters”. They have been doing snaking lines, express lines, and self check-outs for a while, but queue busting goes beyond this. This WSJ video and article explains how (hat tip to Richard Gaines, alum of my 351 class, for this link). It also has a quite nice infographic.

Vodpod videos no longer available.

First, two facts from psychology of waiting. It turns out if men wait for more than 2 minutes  our perception of wait actually doubles. For women such inflation happens after 3 minutes of waiting. And if we feel like we are waiting a lot we may skip the purchase altogether. What do retailers do about it?

Continue reading

iPhone – jobs creator or loser?

Here is a fascinating video posted by New York Times about iPhone and how it helped to increasingly transform our economy from manufacturing to services. It is thought provoking and I do not entirely share author’s point of view. I agree, we lost manufacturing jobs and, indeed, service jobs create less supporting jobs around them. However, in my view, this particular example of iPhone is an exception from the general trend.

Consider all the app-development business that started, iTunes market, iCloud – I suspect that the jobs multiplier for iPhone is much bigger than 1.7! And why is the Apple worth more than Exxon? Because all of these generated businesses feed back into Apple. That’s I think is a genius of Steve Jobs and Apple’s strategy – to create an ecosystem that is closed loop but grows from within.