The impact of engine standardization on the cost efficiency of airlines

Abstract

Fleet standardization, which refers to the homogeneity and harmonization of the fleet in terms of the number of manufacturers and models, as a strategy has been deployed across many sectors, including airline operations. Given that engines are substantial aircraft components in terms of both capital and operating cost, representing nearly 50% of the aerospace aftermarket, we investigate whether – and to what extent – standardization strategies in the context of engines can improve cost efficiency of the airline industry. Using engine data of 12,305 aircraft and financial data of years with high (2013/14) and low (2016/17) fuel prices, we apply bootstrapped Data Envelopment Analysis (DEA) followed by random effects panel regression analysis to 84 airlines across the globe. Our quantitative findings are validated by qualitative stakeholder interviews. Our results suggest that both airframe and engine commonality impact on airline cost efficiency, but that engine cost effects are significantly larger in magnitude than standard airframe cost effects. In contrast to current management practices focusing exclusively on airframe commonality and tactical activities (such as renegotiating supplier and maintenance contracts), we demonstrate that an engine standardization strategy (through procurement, storage, retirement, maintenance and spare part optimization) improves the cost competitiveness and efficiency of airlines in an OEM servitized world.