Wednesday, November 14, 2012

My book on airline business models

The foreword of my yet to-be-published book "Black Holes in the Sky". It is all about the (financial) viability of airline models and since I believe that nobody actually bothers to read a foreword, I put it here so that it can have its brief moment of glory!

As always, you are most welcome to pass criticism but go easy on me, it is my first attempt to transgress myself into the higher league of credible published authors! 

I learnt it the hard way. After twenty odd years in aviation, from being a humble pilot to eventually running airlines, with numerous nights spent in meetings with all kinds of stakeholders while applying all my enthusiasm for the trade, I have come to the conclusion, or should I say: the conclusion has been forced upon me, that the traditional airline model does not work in current times. Now I am not old enough – fortunately - that I am able to claim, or not, that airlines ever worked as viable business concepts, yet certainly modern economic times and the widely common go-with-the flow-airlines do not seem compatible.

Too many examples of failed airlines over the years quite possibly may prove my theory right whilst projected passenger perception at present does seem to support my thesis as well. Contrary to a few years back, when one either had the choice of taking the country’s flag carrier, the destination country’s flag carrier, a boat or a car only, passengers now generally are offered an abundance of travel options, ranging from various land transport means, over high-speed rail networks to various airline models. And behold our choices: the rise of the no-frills airlines in virtually every region of the world has indeed been a success story in itself.

The underlying tenor seems to be simple: a desire to get farther with less. Yet, contrary to the gurus of no-frills airline theories, there is still a business to be invented where lower revenues mean higher returns. When traditionally, or at least our parents so claim, love made the world go round, nowadays Wall Street rules the skies and the love-hate relationships in a boardroom of an airline alike. Returns on investment for both shareholders and customers have become more important than ever. And how do traditional full service carriers react to slumping demand for their services? They start lobbying with their respective governments and then simply go out of business.

Now, don’t get me wrong: I am an avid supporter of traditional airline business models. I believe them to be much more humane in every respect (apart, of course, from the few rotten apples one seems to find in any industry); more humane towards its passengers, suppliers and, most importantly, to its staff. Have you ever seen a Cabin Crew member smiling on his/her fourth rotation of the day? Hardly ever, probably, but when you encounter one it will be most likely on a flight of a traditional full service airline rather than a no-frills carrier.

Yet, this book is not about the battle between full service airlines against no-frill airlines. Many exceptionally well written books on this ghastly subject have been published already. So who would I be to contribute here even further when probably everything on this fascinating topic has already been said and undeniably said well? I recall doing long and painstaking research for my MBA-thesis and finding no relevant literature on my chosen topic – regional carriers in the Gulf Cooperation Countries – yet an abundance of literature on no-frills airlines. Even my thesis supervisor despaired over the lack of suitable research material and prodded me in true Greek fashion to amend my thesis topic ever so slightly to no-frills airlines (airlines is airlines was probably the rational thought behind it). I obviously refused in a similar Dutch fashion called stubbornness.

Indeed, this book is about a much broader, yet probably at least an equally important topic: what needs to be done to establish a successful and sustainable airline and potentially more importantly: how?

Is it indeed a question of starting with a billion and ending with a million, as the somewhat blunt anecdote in aviation for airline start-ups goes? Fortunately, a number of recent airline start-ups prove this saying wrong. So it might be just a case of getting an aircraft, an air operator’s certificate, a few crew members and off we go into the mighty blue sky? Well, this approach might work - if one is lucky - but generally, I would give the incumbent little chance of clearing the first obstacle after take-off, let alone reaching sustainable bridge capital rounds.

My professional life in aviation has brought me from failed, over hanging-in-there, to successful airlines. And while no two business models are alike – if there is only one thing you take from this book, please let it be that buying a business plan on the web with the idea of copy-pasting it onto your new airline really does never work – I have seen a number of similarities in the models of successful airlines, at which point I hear you say: “We all know that already. We have learnt all about successful corporations and the reasons behind their success stories.”

True, many MBA or similar professional education curricula teach the potential manager how to make a business work. What usually does not get taught though is one generally, and especially in any start-up where work hours never seem to end and salaries always seem be too low, has little time to reflect on the latest organizational behavior theories or how to market a product utilizing not only a large number of human resources, but also a long time and, more importantly, a hefty amount out of the limited marketing budget.

So, to give you at least one checklist that you could utilize in your organization, the successful airlines I have experienced all have a number of factors in common. These airlines preach:
  • Passion,
  • Accountability,
  • Service,
  • Integrity, and
  • Teamwork.
Mind the word preach. It has become a common habit for organizations to print fashionable company values and stick them into fancy frames and onto the walls of the boardroom and the CEO’s office where they soon get dusted-in, if they are lucky, or indeed get over taped by the latest snapshots of the fancy management holidays on the Bahamas.
SAFETY! You thought I had forgotten about this ever so important topic, right? Actually, I have not. True, safety is certainly the most important business process in any company. Luckily, I know rather few companies that prefer a buck regardless the way it has been generated. And I do believe that our industry is a shining example when it comes to a safe environment. Yet, and let the flak begin, safety has become too rigid a process. Nowadays, safety often hampers valuable and right business processes by burdening them with over cautiousness consequently often making them lose their credibility and viability. Safety is paramount, no doubt about that. Lives and health depend on it. Nevertheless, safety should be common sense. No employee in his right mind would physically work on an active runway. And if he does, get him a job as an accountant or HR assistant far away from danger. Why do we need to send workers on courses where they are taught the procedures to dodge landing aircraft? It costs the airport a lot of money, often does not really improve the mind of the employee, and, most importantly, it does not make any common sense!
Unfortunately, large organizations, and airlines form no exception, lose their entrepreneurial spirit once they reach a more mature business stage. A common strategy seems to be to ‘go with the flow’ and start focusing more on the competition than to follow its own, hopefully, predetermined path to glory. Almost any mature airline suffers of this syndrome. Once it has become harder and harder to find viable routes, products, and services, the airline tends to benchmark itself financially against its nearest rival and determine its business plan accordingly. The usual immediate consequences? Mergers and acquisitions of some sort. Especially where the airline’s regional target audience is limited in size, we can observe this trend almost on a weekly basis.
If one were to be cynical, and believe me that the twenty odd years in airline management have indeed rendered me cynical, one could even argue that a merger between two airlines is the last and final stage of the newly formed airline. It is, so to speak, the beginning of the end. Exaggeration? Possibly, yet one only has to study airline history a little bit to realize that this statement - although certainly taken to the extreme - quite possibly could be true.
A word of warning though: if there is one thing that I have come to realize in my illustrious, and sometimes not so illustrious, career, it certainly is that applying a few elsewhere proven tactics do not necessarily generate success. So, as much as I would like to give you a foolproof recipe to airline success, this is not an achievable goal. This book, however, relies on my and aviation industry greater minds. So the least it does is to tell you how not to start an airline. And that, I believe, is already something. I wish I had something like this when I started my airlines. It probably would have prevented me from establishing quite a few failed concepts. But then, it also would have taken quite a bit of fun out of my life. So actually, I really have gotten the best out of two worlds: dodging the Black Holes in the Sky while having fun! Pretty good, really.
Alex de Vos
Dubai, October 2012