A top Southwest Airlines executive says airlines can no longer afford a widespread industry practice that automatically charges yearly price increases for aircraft parts.
"Year after year of structural [price] escalation just doesn't work," says Brian Hirshman, senior vice president of Technical Operations for Southwest, addressing the MRO Americas conference on 5 April.
Price increases on components sometimes escalate by 5% to 6% each year, outpacing the growth of inflation, he says.
Southwest is concerned that part of the increases are driven by a reduction of pricing power due to consolidation in the supply chain.
"It feels like competition on the major components of the airplane is shrinking," Hirshman says.
Where Southwest often had three and four choices for components, the airline now has only one or two in some cases, he explains.
"That's a bit concerning," he says. "We believe the long-term outlook for that is an increase in cost structure."
Although Southwest in December selected the Boeing 737 Max, which relies on a single engine supplier, the carrier still is putting pressure on suppliers to add more choices, he says.
Southwest also is working with suppliers to sign new kinds of contracts that allows the airline to save money on parts if certain investments are made.
"If we are able to change our maintenance programme and make modifications that allow them to realize cost benefits we want to share as well," Hirshman says. "Let's make this a true partnership. If there are years where there are zero or negative [price changes] we want to do that as well."
Source: Air Transport Intelligence news
