Deciding quickly that the guys could manage operations without my help and that, as a consultant, I could not directly influence finances to the extent it deserved (you either have the money to survive the initial loss making period or you don't), I started focusing on all those nice departments that lack the glitzy and shiny perception of what a passenger thinks an airline is all about. I am talking about administration, human resources, business development... the boring yet necessary fundamentals of any company. So, after I successfully struggled to finally get my personal copy of the business plan (more often than not, consultants are apparently expected to consult on business structures that they do not know the company specific and applied fundamentals about), I started reading and on page one (I always skip the executive summary since I fortunately have enough time to make strategic decisions based on more than a page or two), I encountered the following highlighted statement that immediately started ringing all kinds of bells in my head: 'It is our strategy to provide high quality customer service.' Well, that is nice, obviously, but this strategy statement is missing its inherent point: A strategy of a company should never be about one issue alone. On the contrary, it only has an actual meaning that staff can truly work with when it addresses all aspects of the venture. This statement could very well be one of many goals to provide exceptional customer services, but it never can be a competitive strategy by itself. So, this made me thinking, how many airlines - or general organizations for that matter - have their competitive strategy right? Speaking from experience (including my experience from my own companies, I am not claiming that I have done things always right), not too many, I am afraid, and I believe this is because only few actually understand what strategy is all about.
Broadly, strategy can be divided into two categories: Corporate strategy and competitive strategy. Most corporations mean the latter when they refer to their strategy since corporate strategy is basically an internal plan that specifies which industries the organization wants to invest in and which upstream logistics need to be in-house (or not).
Now, competitive strategy should be based on a number of points raised in one's - hopefully sound - due diligence. These all should encompass the ever so important 'added value' to the passenger. Don't forget that at the end of the day you only receive your salary if your passenger is a) present and b) coming back for more. So, strategy should be laid-out around the following main areas:
- the targeted audience (not only geographical but also demographical) and its expected to be received service levels
- the carrier's value proposition (or in other words: perception is reality as far as passengers are concerned)
- competitive advantage. I.e. you either do it better or you do it for less. As unfortunate as it may sound, and I know that your business management professor told you otherwise, but the reality is that price is the number one factor upon which people decide to buy or to go to your competitor. If I recall correctly, an official study recently published that historically only 30% of all airline passengers have been willing to pay a premium over the lowest offering and then only if the perceived value to them (and remember: perceived is real) outweighs the price increase by far. Contrary to what the business gurus tell you: can you really afford to be different? You can when you are Concorde, you cannot when you are Kingfisher.
- an optimized value chain (or, in other words, hire-in that expensive MBA to reflect for you on the assets of and their flows within the organization). Ideally, all the customer perceived benefits of the chain should be enhanced whilst all costs to the airline should be reduced. Yet don't make the mistake of changing individual processes without looking at the bigger picture.
I am being sarcastic, of course. Most airlines have a pretty clear picture in their minds of what their strategy should be. But believe me, communicating the strategy to stakeholders and actually living by it often seem to be forgotten business arts.
One of the many dangers that the airline faces, and this is especially true for airlines that do communicate effectively, is, of course, instant imitation by its peers. With real time communications that we enjoy nowadays, challenges for managers to continuously improve their business models - and thus themselves - are greater than ever. As a direct result, micro-managing the value chain - i.e. the easy way out by discriminating stations in the value chain in one way or the other - has become an unfortunate trend in airlines that more often than not leads to failure of (parts of) the business model. It is always easy to judge a profit centre on its bottom-line numbers. And often it would indeed be a smart and solid decision to outsource the activities of a non-performing division. Yet, as I have already said in my article on network planning, 1 plus 1 does not necessarily equal 2. And by that I mean that the individual contribution of any profit centre needs to be judged against the whole organization. It may very well be that the in-house heavy maintenance division loses money. Yet at the same time its closure and subsequent third-party provider would lead to delayed operational aircraft that in-turn would decrease the value of the airline for its customers. And as said before, perceived value is actual value.
And, as a final word of caution before I let you go back to your well deserved cup of coffee: an airline's business model is often confused with its strategy. 'Our strategy is to be a hybrid airline.' This, as nice a statement as it may be, is not a strategy. Rather, it reflects the airline's business model. A strategy tells you how to achieve your set goals. A business model tells you the operations of your strategy, i.e. how revenues are made and what the costs of these revenues are.
We all know that airlines face huge challenges from within their own industry and from outside. Oil prices sky-rocket while OEMs have not yet developed suitable propulsion alternatives. As a direct consequence, business models are continuously changing. Those that don't will ultimately be left behind and will fail the moment (financial) protection by its state falters. It is therefore necessary for any airline - even those that are currently enjoying solid growth - to have its basics right. As my old flight instructor used to tell me, 'it is better to have a prepared and well thought-of plan at your disposal and not to use it than to fly blind without a clue what is going to happen.' And he was right, of course, as could all those tell you who did not adhere to this wisdom... if they were still able to talk to us, that is.