Airline industry in 're-think' mode

Airlines are like sinking ships where one is constantly plugging leaks, according to a visiting Canadian academic.

Dr John Wensveen, Dean of the School of Aviation at New York’s Dowling College, says that it is the nature of the beast… that airline business models are very different from any other industry.

Wensveen told a seminar at Sydney’s Institute of Transport & Logistics Studies that the airline industry is in a new operating environment, one that’s not going to retreat. He calls it ‘re-think’ mode.

Amongst his observations:

Typically airlines have used business plans created for other industries rather than creating one that works just for the industry… but an airline model has more elements in it than a generic business plan… (and) flexibility is the key to success in this business. If you can’t be flexible and accommodate the environment you operate in then you are going to be in trouble.

One thing airlines have not been good at in the past was asking customers what they wanted from an airline, they just assumed… now in order to remain competitive you have to go to your customer and ask them what they want… And you need to listen.

Airlines have traditionally been managed by a silo design, with all the decisions made at the top of the silo, rather than allowing people at the middle and lower levels of management to actually make decisions. Instead everybody is an implementer based on a very small team at the top. That’s not maximizing on the internal resources.

All too often we duplicate our work structures… (with) different departments doing the same thing and not even realizing it. Internal communications flow is very important.

There is a new type of labour evolving, Generation Y, who are different from the way that people used to work before. They don’t like to be told what to do, they like freedom and they have different tools that they need to make things happen. So you need a management team that understands the new generation of labour that’s out there.

We have to understand that the industry is changing… we have to revitalize our strategies in order to be a long-term thinker…

People don’t expect anything from an air carrier anymore… people will complain but they’ll go back to the same air carrier if they continue to get the same deal…

There’s no such thing as a low-cost carrier, there never will be. Everybody has the same structure of cost, just different volumes of cost…

We are beginning to see mini alliances develop amongst those so-called low-cost carriers… it is now possible to fly the entire world on low-cost carriers that have partnered with one another in some sort of loose affiliation…We have what’s called interactive marketing agreements beginning to grow. These are not IATA agreements, which are official legal documents that mean that all carriers involved in the agreement are liable for the passenger and their baggage etc. IATA agreements are beginning to fizzle a little bit as these new interactive marketing agreements evolve, as loose agreements between air carriers that don’t hold you liable for a passenger unless you are actually transporting him. So it keeps costs down.

We have lots of mergers and acquisitions taking place in different regions of the world with these new carriers that are evolving; but we also have new versions of the regional and feeder network. Traditionally regional carriers were affiliated with a major legacy carrier, but the regionals have realised that the legacy carriers are their downfall, so they are tending to disconnect and operate as an independent business…

We have the legacy carriers that are getting bigger through alliances, partnerships, mergers and acquisitions. We have all kinds of low-cost carriers emerging. We have the regional/commuter. And we also have the network specialist, someone that has a very specialized network, like Privatair, operating behind the scenes for corporations, providing scheduled charter network services. We have the product specialist… high-end products at low fares. Then we have the price specialists…

The Middle East airlines are not the natural survivors, despite any access to cheaper fuel, because they have poor business models… and they have little opportunity for growth because of small home markets.

Ëurope will probably not achieve deregulation, because the complexity of the government structures is not conducive to relaxing governmental control. While the US is moving to a re-regulated environment, with deregulation clearly being a failure.

Plenty there to stimulate debate, at least…

 

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