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What You SHOULD Learn From The Airlines

June 18, 2009

According to an article in Business Week, we should all feel sorry for the airlines. “The burdens they operate under are more extreme than those most businesses face—so they present a perfect opportunity to study and be prepared.” (see http://www.businessweek.com/managing/content/jun2009/ca20090616_430880.htm?campaign_id=rss_daily)

The idea behind this article seems to be that airlines are in some way risk champions, at the leading edge of every imaginable disaster. And that their more fortuante cousins in other industries can somehow learn from the trail-blazing airline industry.

On one very basic level, I agree. But the lesson I draw from the airlines is that it is yet another of the traditional, cloistered sectors that has largely brought the disasters on itself. So the lesson to learn is, stand on your own feet, never be complacent, always work for your customers. 

Just like the automotive industry, airlines believed they were special. And when the ‘specialness’ began to wear thin, they turned to the politicians for protection. Pleading all sorts of special interests, they found governments that to varying degrees were prepared to regulate and prevent real open competition. Airlines were strategic; airlines were national flag carriers; airlines protected jobs; airlines demanded special safety standards that were not compatible with real competition. For all these reasons and more, major airlines (including those in the US) were protected from take-over, were protected from rigorous competition, were bailed out when they failed.

The article suggests deregulation somehow created inevitable financial losses. Why? There are plenty of airlines in various parts of the world that make money (though it is true that the oil price has undermined most of those profits). Not all of them are low-cost start-ups.  They make money because they are creative, they target specific market segments, they look for ways to cut costs or deliver in-demand services. They work for customers rather than for themselves. And they do not turn to politicians for protection.

The airline industry is riddled with distortions – many of them in the nature of their contracts. They fail to properly consolidate, they fight take-overs and instead run inefficient alliances. They are confused over how to contract with major customers and rather than offer relationships based on value and ‘solutions’. compete instead on price discounts - and are then shocked when people see them as a commodity. They have failed to tackle labour issues and have contracts that represent an impossible cost burden. They deliver appalling customer service through staff who are generally demotivated and aggressive. Security issues – at least in the US – are often seen as an excuse to abuse customers and ignore their valid complaints.

So yes, I do think many of the airlines are a special case – and the sooner they are allowed to face up to true global competition, the sooner we will have an industry that is creative, responsive, right-sized and profitable. And maybe then the ‘burdens they operate under’ will be shown to be largely of their own making.

2 Comments
  1. Tim, Good insights. For an excellent source of data taking your conclusions further, see:

    http://www.intervistas.com/4/reports/2006-06-07_EconomicImpactOfAirServiceLiberalization_FinalReport.pdf

  2. If Calin Rovenescu, the new CEO of Air Canada is to be believed, we should all learn a lot from the way that airlines are looking to better contract management as a way to erradicate significant cost from their business. Read more at: http://dolphinsoftware.wordpress.com/2009/05/10/can-better-vendor-contract-management-save-air-canada/

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