Productivity, measured in terms of revenue per employee, soared 62 per cent last year. Unit costs plunged 21 per cent and aircraft utilisation rose an impressive 9 per cent.
There are, however, very good reasons for this impressive performance which can mostly be explained by a single factor: youth. Rapid widebody expansion - the fleet has grown to 25 since start up in 1991 - has kept capacity growth well ahead of staff increases.
At the same time, the brand new fleet - the average fleet age is still less than one year - means lower maintenance costs and better utilisation.
There is another factor. While senior managers have mainly come from EVA's parent company, Taiwan's giant Evergreen shipping group, the airline has a policy of hiring only graduates. This results in a far younger average employee age than more established rivals and translates into lower staff costs.
Daniel Wu, senior vice president corporate planning division, believes the basic philosophy of recruiting young staff and immersing them in the company culture plays a critical role in winning productivity gains. 'We have a very good corporate culture where everyone is inspired by the ultimate goal to maker EVA one of the best airlines in the world,' he explains.
But EVA remains matter-of-fact about its success, readily conceding that much of the massive 62 per cent gain in labour productivity - half of which is attributable to cargo operations - is a result of revenue growth far outpacing increases in personnel. Sales rose 89.1 per cent to $737.5 million in 1994, while staff numbers grew by only a fraction of this. The airline now has 5,000 employees.
And the carrier is set to reap the benefits of further expansion, which saw a 21 per cent decline in unit costs in 1994. EVA took delivery of eight widebody aircraft last year, increasing its fleet to 20. This number had risen to 25 by mid-September and two more aircraft will be added by January 1996.
Dan Hellberg, transport analyst with Asia Securities in Taipei, says EVA is not only successfully reducing costs, but is also getting good load factors on its aircraft through aggressive marketing, particularly emphasising service levels and pricing. Average load factors have jumped from 66 per cent in 1993 to 70 per cent last year, despite the growth in both capacity and the route network. EVA inaugurated flights to Honolulu, Bali, Auckland, Kaohsiung and Fukuoka in 1994 and now serves 25 destinations in 15 countries.
More recent improvements have come in aircraft utilisation, which stood at 11.6 block hours a day last year. In the first six months of 1995 this figure rose by 9 per cent to 12.6 hours as new widebody aircraft - B747-400s and MD-11s - joined the fleet.
According to Wu, the next phase of development, beginning next year, will place emphasis on the cargo side of the business, which EVA considers critical to achieving economies of scale in terms of fleet size and mix. The carrier already has three freighters and 10 combi aircraft to optimise flight frequencies and improve utilisation of space.
Nevertheless, Wu recognises that efficiency gains will diminish as the fleet gets older and expansion slows. 'We realise that as time progresses, even though you have an economic scale of operations, the percentage in productivity gains will not be as great as in the past,' he says.
What should be remembered is that EVA is still in the process of recovering startup costs: it had a $190 million deficit before inaugurating flights and has accumulated losses totalling $219 million in its first four years of operations. EVA expects to break even in 1995 before moving into profit in 1996.
Asia Securities' Hellberg believes the company is doing well, both in terms of controlling costs and competing with national flag China Airlines. 'They offer Taiwanese travellers an alternative to CAL and have taken market share away from them. CAL's market share has fallen from 32 per cent to 27 per cent since 1991,' he says.
Source: Airline Business
