The airline industry: business lessons from the trials of travel
Business ideas truly take flight with speaker John Strickland at the controls. In an industry where regular crises of enormous proportions are the norm, the director of JLS Consulting explains what particular skills needed to survive the tough industry of airlines - and many other sectors subject to rapid change.
John has extensive experience across the commercial airline industry, including senior positions British Caledonian, British Airways, KLMuk and Buzz. To learn more about what he can bring to your event , contact us here!
How do you make a small fortune? Start with a large fortune and invest in the airline business!
In all seriousness, although littered with failures and not renowned for strong finances, the airline industry is one that I am passionate about and, having worked in it for 34 years, experience has certainly taught me valuable lessons about management in the face of uncertainty and adversity.
Regular crises of enormous proportions are the norm. These range from manmade such as financial crashes or terrorism, through to natural events including pandemics to volcanic eruptions. Their very unpredictability and potential for serious damage to finances and traffic volumes can make life extremely challenging for airlines.
The recent UK vote to leave the EU, for example, provides vivid economic context. As far as airlines were concerned, everything hit when the shock result was announced. Exchange rates began to fluctuate wildly. Many airline costs, notably fuel, are dollar denominated and European airlines suddenly saw an instant jump in costs as the pound and euro plunged. Buying power for UK travellers in euro and dollar markets dropped with anticipated negative implications for air travel demand. Profit warnings were issued and airline shares tumbled.
"Regular crises are the norm"
On top of this, a growing list of recent terror attacks have dented air travel in markets from Egypt and Turkey to major European cities such as Brussels and Paris. Furthermore, in many airline markets, including Europe and North America, competition is intense. For many customers, price is the number one consideration. In an industry that's both capital and labour intensive, profitability can prove elusive - aircraft are not cheap!
Faced with this backdrop, only those companies with a rigorous focus on costs and cash in the bank can withstand such shocks. To put it bluntly, it's a jungle - and it's a case of survival of the fittest.
It's a tough industry, but you can't beat the view
So how CAN you survive this jungle?
Disciplined cost management
Fortunately, in recent years the best airlines have seen a new breed of management take the helm with a real focus on costs and the bottom line. The most successful leaders in the industry today, like IAG's (parent of British Airways) Willie Walsh or Ryanair's Michael O’Leary, cannot afford to let emotion cloud their judgement. History has been brutal with airlines that flew routes for reasons of prestige or over-ordered expensive aircraft; indeed, many former household names have vanished as a consequence. Now, however, national Flag carriers and airlines bankrolled by governments without a defined commercial rationale or tight cost management are increasingly becoming a thing of the past.
Responding to rapid change
With fast changes in demand and trading conditions, there's a need to make quick, but well-informed, decisions when you work in the airline industry. Slim margins dictate that airlines cannot afford to be sloppy in managing their costs. Moreover, the change in trading conditions can sometimes be instant, as the UK "Brexit" vote and terror attacks show. In response, airline managements have are required to move their expensive aircraft resources around the global chessboard as quickly as possible to either stem losses or seize new opportunities. Routes may need to be opened and closed, and the aircraft and crews may need to move from one country to another.
Flexibility around a long-term strategy
Lead times can run to years when ordering new aircraft and evaluating how and where to use them. When so much can happen at short notice, there is a need to be able to "juggle the pack" quickly. Fleet of foot and flexibility around a long-term plan is essential.
"Quick, well-informed decisions"
Attention to detail
With so many logistical details required to fit together to provide the miraculous on-time departure, delivered safely, many thousands of times each day across the world, attention to detail and process is critical. Commercial strategy, sales, maintenance, crewing, operational support functions are all part of the jigsaw.
Working with people
The airline industry is a people business in every sense, both in terms of customers served and the staff engaged in delivering across all functions. This, in itself, poses challenges, given the need to work across many different national cultures and languages. Currently, the industry is going through a phase of consolidation and, regardless of what the numbers or "synergies" have shown, many mergers have succeeded or failed on how well management has handled the "people" aspects. Similarly, the need to cut costs has created numerous management and workforce tensions. Some have been resolved harmoniously, while others have created bitter strikes.
Another area with which airline managements must wrestle, regulation issues range from safety to competition and consumer protection to environmental compliance. For a global industry, the regulatory framework can be surprisingly localised requiring enormous lobbying efforts to achieve harmonisation in legislation. Quite a challenge across an industry with so much diversity.
Warren Buffet once said that it would perhaps have been best if someone had shot down the Wright brothers when they made their first flight at the turn of the 20th Century. That, in his view, would have saved more than 100 years of capital losses for those that have invested in the industry.
One thing is true: the airline business is not for sissies but the new breed of management is proving that it is possible to navigate the many challenges it encounters on a daily basis and deliver sustainable profitability. It certainly offers many lessons from which other sectors can learn.
It's a jungle up there: Survival of the fittest since 1903
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