Monopolies, Oligopolies, Market, and Passenger Choice

‘Every public company seeks, at some level, to be a monopoly, an organization with enough market power to dictate pricing, profits and the future of the market. And monopoly is also a critical failure of capitalism. When monopoly occurs, when the customer no longer has a choice, prices go up, innovation goes down and mostly, consumers have no voice. A key role of government is to create an environment where monopolies don't happen-and when they do, to intervene and eliminate them. Choice is the key word in making markets work. No choice, no market’ says Seth Godin.

In the airline industry, cost of air travel goes up despite lower fares. On-time arrivals are becoming less certain and the amount of time passengers spend on the ground often exceeds travel time and incurs additional costs. In a deregulated industry regulators act as observers, the concentration of power happens through airline mergers and alliances so much so that the government seems to have lost the key role. Call it monopolies or oligopolies, the results are the same – passengers are losing their choice and voice.

If ‘choice is the key word in making markets work’, then ‘no choice, no market’.

Are there lessons to be learned?

How to Switch from Legacy to Systems Thinking and Make the Work Really Work for Airlines and Passengers - My Interview with John Seddon

Despite incomparable growth in airlines size, system complexity, and operational dynamics, airline management styles, basic organisational structures, and performance measures haven’t changed much since 1950s. Decisions are still downloaded from the top without taking into account the natural, cross-functional flow of work and its impact on overall performance. Corporate reports are made of disjointed financial and operational figures and are unsuitable for supporting the system improvement. The result: poor service, decline in operational efficiency, and dubious financial results.

Rather than improving from inside, airlines sought relief in expanding through the non-core businesses and passing on responsibility for service quality on external service providers – strategies that only exacerbate problems of their core business. The question is, is there a better alternative to manage an airline, to bridge the gaps between system management and operations, to ensure adaptability of the system that is a part of a bigger system that constantly evolve, to bring clarity to that which appears fuzzy, and make the work really work for airlines and passengers. 

Being personally involved in designing the method that supports these values, I have always been on lookout for new ideas within and outside the airline industry, especially while writing the second, extended edition of my book ‘Beyond Airline Disruptions’. Not long ago I was discussing these issues with people working in financial and insurance sectors and was advised to look at John Seddon’s Vanguard Method which they were considering applying to their work on system improvement. After watching the suggested video ‘The origins of Vanguard Method’, I instantly recognised that this concept is applicable to airline organisations, but it was after I read his books ‘Freedom from Command-and-Control: A Better Way to Make the Work Work’ and ‘I Want You to Cheat’ it became clearer that the Vanguard method provides answers to most of the above questions, and that its general principles have much in common with my work.

I contacted John explaining my interest in his work, and was soon welcomed by him in his office in Buckingham. It was a real pleasure talking to John, experiencing the clarity of thoughts with which he explains things that many people see as complex and hard to comprehend. I was happy to hear that John spent four years working for British Airways in mid-eighties and has had an opportunity to feel the feel of life inside the airline.

John is a change-maker who proved through practice that there is a better way to make the work work than through the system governed by command-and-control mentality instilled in top-down organisational hierarchies. He has a rare ability to inspire people to change the way they think about their work and apply systems thinking in daily practices.

John is an occupational psychologist, researcher, professor, management thinker and leading global authority on change, specialising in the service industry. He is the managing director of Vanguard Consulting Ltd based in UK, with franchisees in Scotland, Ireland, Denmark, Sweden, New Zealand, Australia, Croatia, and The Netherlands. 

The following are the highlights from our talk and John's writing focused on   

Vanguard approach to systems thinking seen from airlines’ perspective. (JR-Jasenka, JS-John)

JR: When we look at airline organisational charts, everything looks orderly. Functions are sorted and linked vertically and horizontally so that managing numbers, controlling people and their activities comes easy from hierarchical perspective. In the real world, however, the work is cross-functional and interacts with changes in the external environment. Inability to understand and control these flows comes at a high price: it is the underlying cause of rise in system inefficiencies, complexity, costs, and the decline in service quality.

JS: We think of our organisation as top-down hierarchies, we separate decision making from work. Top-down, hierarchical, functional organisation might help us navigate our way around to answer the question 'who-does-what and who-is-to-blame?’, but it does not help us discover anything about how and how well the organisation achieves its purpose. The typical consequences of failure are: failure to achieve them, increased variability, more waste (errors and rework), higher costs, demoralisation of the workforce and, ultimately, disrespect for management.

We need to reject classical conceptualisation of the organisation. Taking a system view always provides a compelling case for change and it leads managers to see the value of designing and managing work in a different way.

JR: How does Vanguard address this problem?

JS: The Vanguard approach to systems thinking is a completely different logic to command-and-control. While all systems thinkers agree that a system is a sum of its parts and the parts must be managed as one, the Vanguard approach is unique in that it starts and ends with the work. It makes thinkers and doers cooperate naturally. It is about changing management thinking which is the key to changing performance.

Vanguard is a methodology for change and improvement that engages the organisation. Any change is based on an understanding of demand from an ‘outside-in’ or customer perspective, identification of the value work, adoption of relevant measures and then designing out the waste within key process. People who do the work must be engaged in these activities. It also provides the means to develop a customer-driven adaptive organisation; an organisation that behaves and learns according to what matters to customers. If the system is to have viable economics, it could only be understood and developed from this point of view.

JR: The special thing about Vanguard approach is that it cuts costs as service improves and increases profit. This is quite opposite from what traditional management is about.

JS: Most managers equate improvement in service with increased cost. It is because they have been conditioned to do it that way. They cannot ‘see’ where their costs really are.  When managers learn to see their organisation as a system, they see the scope for improvement and the means to achieve it. They can see the waste caused by the current organisation design, the opportunities for improvement, and the means to realise them.

JR: Understanding what ‘system thinking’ is really about is too abstract for some people, which is why there are lots of different interpretations that fit in local contexts, especially when compared with command-and-control way of thinking.  I found the following comparison table from your book ‘Freedom From Command-and-Control: A Better Way to Make the Work Work’ really useful for clarifying the differences:

JS: When command-and-control thinkers listen to system thinkers they hear the words, but don’t appreciate their meaning. If system thinkers point out the value of working outside-in, command-and-control thinkers just treat it as an example of what management should be doing in any event.  Should system thinkers point out that traditional, command-and-control measures were part of the problem and should not be reintroduced, the command-and-control thinkers will insist such measures to be the fundamental stuff of management.

JR: More and more often airlines expand their operations beyond airport capacity limitations and their own ability to handle the consequences. They invest in more aircraft, fly more kilometres and more passengers to more airports just to outnumber the competitors, and are later surprised by ‘unexplainable’ losses, rise in passenger complaints and compensation claims.

JS: The measures associated with command-and-control thinking tell managers nothing about the system because they are based on a resource-management logic.  This logic assumes that when capacity needs to be increased, it requires extra resources. In service organisation, especially the complex ones, waste is much harder to see. It is hard to see rework, it is hard to see work flow, and it is hard to see demand. They see the figures but are not in a position to reduce their costs and improve their service. The people-managers and workers alike are locked into dysfunctional system. But the better way to improve capacity is to remove waste: adding resource to wasteful system just compounds inefficiency.

Once the abundant waste inherent in the current design is removed, the capacity increases, lessening costs and providing scope for growth. Measures and roles need to make the system solution work. You have to be prepared to change the system, the way work is designed and managed; especially the way measures are used in management. 

JR: System decisions depend primarily upon information and measures surrounding decision makers. They often distort reality as managers don’t like bad news.

JS: Firstly, managers need to see for themselves the dysfunctional consequences of their current measures. Only then will they engage in devising measures that will be more beneficial. In the systems solution, measures are derived from purpose (not the budget) and are used by the people who do the work to understand and improve it. The benefits are significant.  People change what they do, something it is impossible to accomplish in a command-and-control design. Managers’ roles change from working in the hierarchy to acting on the system. It is important for managers to ensure they limited their actions to the things that would be important, and, at the same time, develop their understanding of their organisation as a system.

JR: Functional measures always cause suboptimisation because parts are optimised locally at the expense of the whole. What kind of measures should be used to ensure better system decisions?

JS: To measure work with functional measures might seem logical from a top-down perspective, but its weakness is that it tells you nothing about what is going on. It will only tell you what has happened, and then only from a functional point of view. Functional measurement is dysfunctional, creating fear, destroying teamwork, and encouraging rivalry. It drives short term performance of functions at the expense of the system.  Worst of all, it fosters politics. Political behaviour fills the void created by management detachment from the work. Controlling work through functional measures can only be harmful to flow. All work goes through some kind of flow, so we would be better having measures for it. Managers worry about this idea because they assume it may threaten costs. They cannot see the costs associated with the waste caused by functional management. Only by managing costs end-to-end, associating cost with flow, can you reduce costs in a sustainable manner.

JR: Every change in schedule incorporated in annual budget triggers changes in cost and revenue without managers being aware of it. Communication between operations and management responsible for monitoring causes of critical variations in operational performance doesn’t exist. 

JS: This is a typical example how we separate decision making from work. We expect managers to make decisions with measures like budgets, standards, targets, activity and so on. We teach managers that their job is to manage people and budgets. At the heart of this logic is separation of decision-making from work that come at higher costs and poor customer experience.

Read the full interview

Are Airlines Using The Right Metrics To Manage Their Business? Is Anything Missing? - My Interview With Alex Dichter

The airline industry is facing its greatest challenges ever. Hub networks are getting critically congested at its busiest parts, space for growth is limited, operational dysfunctions are more frequent and quality of service is at its lowest level ever. Both legacy and low fare airlines are in search for new identities, merging the elements of low-cost and full-service business models.

Despite growing operational difficulties, in 2015 European airlines achieved an average operating margin that was three times higher than at any time in the past decade and the airline industry as a whole achieved above the normal return on invested capital. The fact that profits generated in 2015 and 2016 were mainly the result of a cyclical fall in the price of jet fuel raises many questions about the industry’s prospects. Still, major airlines continue to invest massively in fleet expansion, risking overcapacity, more disruptive air travel, and increased pressure to reduce prices.

Preoccupied with financial metrics disconnected from changes in operational reality, airlines are drifting deeper into failure. Instead of improving from within, they are constantly looking for the next in the line of temporary financial reliefs. They continue to measure progress by fragmented KPIs which are poor proxies for reality that say nothing about quality, nor about its relationship with cost as system measures. Airlines actually do so poorly on the cost and quality side, that they have started to pass on further reductions in cost to passengers, deluding them with lower fares while worsening their travel experience.

How well will airlines be prepared to face the next cycle of higher fuel prices, and how hard it will be for companies exposed to a high level of operational risk and passenger dissatisfaction to keep their business afloat? What is it that drives airlines in the direction that doesn’t look sustainable in the long run, and what are the remedies?

In search for answers, I came across Alex Dichter’s articles that shine more light onto these controversial issues. Alex is a Senior Partner in McKinsey's London office and leads the company’s global Airline, Travel and Aviation practice. He is a former pilot, instructor, and a very frequent traveller - a rare combination of experiences that include financial, strategic, operational, and organisational side of the airline business. He kindly accepted my invitation for an interview to share his views, and explain not so obvious issues that are shaping the future of airline business.  

(JR-Jasenka Rapajic, AD-Alex Dichter)

JR: Corporate performance reports are the compilation of disjointed financial and operational inputs translated into KPIs and as such don’t seem to be reliable enough for making good system decisions. On the financial side, ROIC (Return On Invested Capital) is increasingly used as the industry benchmark for airline financial performance. Is this the right measure of the capital, and how much does it divert the attention from deteriorating business fundamentals like sustainability of the existing business models, stability of operational performance, and service quality?

AD: Whether or not ROIC is distracting, very few people lower down in an airline will think about ROIC. For the most part, they are focused on operational performance metrics and hopefully on driver based metrics. If you run an airline, you want your head of airports to focus on the number of gate agents per departure, or the percent of self check-ins. These are the things they can locally control and include cost and quality. But, at senior management level, there are some issues with ROIC that have a potential to distort decision making. This is one of the essential traps in the industry. The first among them is the way in which airlines account for costs. Accounting standards allow them to account for maintenance expenses on a cash basis. For example, when you buy a new plane, for the next five years you basically show no maintenance cost, and you end up with very high cash flow, very high P&L returns, and also very high ROIC. It doesn’t change the fact that every hour you fly that airplane it is one hour closer to a C check or a D check or major maintenance. The same happens to labour costs. Take flight deck as an example. A first-year pilot’s pay of say $60,000 a year can rise up to $160,000 for a pilot with twelve-year experience. There are many ways to distort the equation to get a high ROIC for a period of time. It is relatively easy when you are a young and growing airline and you have a high ROIC, but that doesn’t necessarily mean that you are making the right decisions in the long run.

The other interesting disconnect in the airline industry as a whole is that it technically doesn’t make money. Airline business is a not a good business for shareholders, but the return on owners’ equity is actually quite good. So, if you look at airline entrepreneurs, people that start airlines and own them, they do quite well because they are able to borrow money and use other people's money, so it is easy for them to do well. They make a few hundred million and then move to the next thing, leaving the problems to someone else. I would like to see longer term metrics that show what it takes to make an airline healthy in the long run.

I also think that we, as an industry, are making a mistake by focusing so much on the aircraft, particularly because their competitive advantage is zero. And it is a trap. You buy the first new planes from an aircraft manufacturer because you think you are going to have a competitive advantage. In about two years lots of airlines have one. When the price comes down, airlines that don’t have these planes think they have to have them to avoid the disadvantage. There are however airlines that decided not to fall into that trap. They have developed in-house maintenance and modification capabilities to get good use of their older airplanes and are likely to continue with that for quite some time.

JR: In the context of performance measures, why would a low-fare carrier with short turnaround times and no slacks wish to start operating or even moving their base to the congested, Gatwick-like airports risking costly disruptions? At the same time, major legacy carriers are reducing their operation at the capacity constrained airports, finding the opportunities for expansion elsewhere.  Is it possible that the desire to expand can be so strong as to ignore the longer-term consequences of such decision on cost, quality, and reputation? How much does the lack of system metrics contribute to this situation?

AD: Firstly, if you are a low-cost carrier, you are making money by offering places that stimulate demand. You are offering low prices, taking into account how much money people have, and you also have to be competitive.

And the second thing, which I assume is true for most airlines, is that they make most of the money in cities in which they are dominant from the capacity standpoint. In an attractive location, this creates an arms race where you want to become number one as quickly as possible, and you have the potential to make a lot of money in these places, despite the fact that operational performance is very poor.

There is a very interesting point however: do airlines make these kinds of decisions with a full understanding of the operational risk? The answer is almost certainly no. Airlines are making decisions based on long term averages and, to some extent, hopes. These are the rules of thumb. They are not driven by data, nor by any real understanding of operational risk. And, as mentioned in some of your articles, the data is incredibly rich and it’s readily available. For example, I can tell how much a particular plane will be delayed at Gatwick on a given day of the week based on experience. With this understanding, airlines will be designing the schedules pretty much differently. And we will see that airlines operating from congested airports will start readjusting their thinking. But it is a long road.

JR: There are many aspects of quality which is the result of complex interactions between people and processes and cannot be measured in a conventional way. This has become even more difficult considering that quality of service and passenger experience are now mostly dependent on outsourced service providers. As mentioned in your article Buying and Flying, often more than 60 percent of an airline’s cost base goes to suppliers. How do airlines control the quality of outsourced services?

AD: I don’t see any technical reason why an outsourced provider cannot provide as good, if not better, service than the airlines could themselves. I think this is the big issue we face today. There are two different ways to outsource the process. 

Read the full interview

Fresh Thinking: How to Break The Historic Trade-Off Between Lower Cost And Better Experience - my interview with Martin Geddes

As airlines race to ensure traffic growth at congested airports and airspace intensifies, knowledge about how far they can go with low fares to avoid losses has become crucial for their survival. Their inability to control authentic costs and service quality has become a critical issue, especially for complex hub operators. ​ 

The difficulties arise because both cost and service quality are system issues and as such have no place in the existing performance measures and management practices. 

Legacy mindset is still strongly present in governing how work inside airlines is designed and managed. Fragmented information systems, departmentalised optimisations, and top-down functional hierarchies are just some of the issues. They keep managers out of touch with operational reality and damage the way customers are dealt with. The consequences are high costs and poor service quality. No wonder that in order to remain profitable airlines look for temporary rescues in mergers and acquisitions and also invest in massive fleet expansion, which is all a part of financial gaming. It increases the risk of financial failures in the longer term - oversupply of capacities can fuel an even fiercer pricing war, passing additional burden onto passengers.

To succeed in these unfavourable circumstances, airlines need to turn inside and explore their hidden potential for improvement. This includes changes from functional cost cutting to revenue enhancing mentality combined with smart cost adjustments – things that cannot be copied by competitors. The process starts with seeing people behind passenger numbers, understanding their travel experience and becoming more responsive and helpful when they need it most, especially during unexpected interruptions of their travel plans. Passenger loyalty built on trust is the main competitive differentiator that begins from the moment they buy the ticket. Measuring cost and service quality and keep testing it in reality is the key to knowingly reduce the impact of pitfalls in network design and costing, and reinventing pricing strategies (this is contrary to current practices based on assumptions made at the top of hierarchies). The workable business model transformation then starts spontaneously, without forceful changes and practice of copying the competitors. 

This is at the core of my work at Astute Aviation, founded to help airlines create platform for reducing costs and improving passenger experience simultaneously. It is based on my first-hand experience and opportunities to see problems from various departmental and system perspectives. Some of these problems and solutions are described in my book “Beyond Airline Disruptions”, with a second extended edition on the way. 

I found much inspiration for my work from system thinkers both within and from outside the airline industry. One of the insightful “outsiders” and a “fresh thinker” is Martin Geddes. Although he is a telecoms expert, Martin’s connection and interest in airline industry goes well beyond his experience as an air traveller.

His father worked for British Airways (and its predecessor) for 34 years as a maintenance engineer. Martin grew up in a Heathrow neighbourhood, in a home scented with kerosene, watching Concorde streak by his window. He witnessed historical ups and downs of BA, and his travel experience stretches from a standby passenger to a Gold customer. On the professional side, for a brief period in the late 1990s, Martin worked as an IT consultant to BA, architecting the first Web check-in systems.

But this is only a part of the story about his interest in the airline industry. More of it is published in his insightful articles, among them ‘‘Brand suicide case study: British Airways”, which was my first encounter with his work. It is a rare mix of personal experience, business insights and parallels between the two industries, with glimpses of new possibilities for improvement.

This lead me to further explore Martin’s work. I found his “The Tao of Telecoms” quite inspirational: the universal principles described in his blueprint for a ‘‘lean” industry transformation are applicable to many areas of airline business, and industry as a whole. By rising above industry boundaries, Martin gets us more deeply into the world of new possibilities, challenging conventional thinking.

Having been inspired and provoked to think more deeply by his work, I was really thrilled when Martin accepted my invitation for an interview. We had an amazing conversation lasting much longer than we planned for. We discussed the issues faced by airlines and telecoms, each experiencing different disruptions, but sharing the same underlying management problem.

Martin’s ability to step above industrial divisions, quickly grasp common underlying problems, “see” the solutions, and explain them in an easily digestible and inspiring way, is truly astonishing.

The following are the parts of our conversation regarding disruption-related issues, mostly from an airline perspective, including quality, cost, optimisation, risk, passenger experience and some aspects of the “lean” quality revolution. (JR-Jasenka Rapajic, MG-Martin Geddes)

JR: It seems that airlines have forgotten that core reason for their existence is to ensure that passengers reach their destination at or near the time they were told they will when they bought their ticket, and that they will be cared about if their flight is delayed or cancelled. Most of the problems are related to absence of measures of system values like quality of service and authentic costing, resulting in increased fragility of operational performance, growing passenger dissatisfaction, and higher risk of financial failures.

  

MG: It feels to me like airlines have fundamentally misunderstood their business, as has happened in networking. The core (wrong) belief about packet networks is that they exist to deliver “bandwidth”, and thus should process as many packets as possible as quickly as possible. In reality, this is an insane economic model where revenues are tied to the quality-insensitive traffic and costs to the quality-sensitive. Instead, they should be thinking about the resource trades.

Likewise, airlines see themselves as being in the people cargo business, when really, they are meant to be designing systems of travel and identifying the profitable “trades” of supply and demand in space and time.

Airlines are carrying lots of historical baggage, especially constraints like runway and slot capacity. To resolve this undesirable situation, airlines need to deliver supply that does not under-deliver quality, that eliminates over-delivery, and is agile in responding to inevitable changes in the nature and structure of demand. Dealing with it means rethinking the model.

JR: What does this mean in practice?

MG: The airline industry is still based on stocks rather than flows. There is a stock of seats they are trying to fill up. Even if the planes physically move around, they have a static stock view of the nature of industry. The moment you sell the seat reservation, you sell the arrival option.

To reinvent aviation you can create a “virtual airline” which buys capacity and sells arrival options to different segments, categorised by performance. The basic idea being borrowed here from computer science is the concept of “semantics” or meaning. There are three meanings: intentional, denotational, and operational; or, in other words: what do we want, what do we ask for, and what do we get. And success is lining these three things up.

JR: Cost-saving measures can be the underlying cause of sporadic but costly disruptions. For example, under pressure to save costs, the maintenance department can decide to reduce the stock of spare parts. This may seriously disrupt operations, generating losses disproportionate in comparison to the expected savings. It may become a cause of disruptions, with lengthy ripples spread across the network, affecting passengers and a whole range of operational services, flight and maintenance schedules.  But no one would notice that, because the links between spare parts, disruption costs, and passengers experiencing disruptions are not visible.

MG: The cost optimisation models are tied to the static world whereby disruptions are seen as exceptions: we wish them to go away, but they keep coming. They are probably unable to understand the relationship between the nature of the cost optimisation they do for normal operation, and the impact they need to recover from normal variation. They are trying to locally optimise local functions. This happens in every part of an organisation. 

Read the full interview

Different Prices - Same Disruptions

Time to Rethinking the Airline Pricing 

Despite more choices, traditional airline pricing is mostly associated with stationary class differentiation based mainly on seat comfort, like availability of food service, baggage allowances, or flight rescheduling. They don’t take into account the dynamics and growing disruptiveness of air travel, especially at busiest airports.

Today, even the highest-fare passengers experience long delays, lose connections, queue at various stages of their journey, spend time and extra money while waiting for the departure of their delayed flight, or have to rearrange their travel. Often, they are not prioritised as expected, and getting help during and after flight cancellations is not guaranteed. And, with usually high load factors, chances to rebook to the next flight are becoming slimmer. While insurance policies may absorb some of the costs of poor experience, they cannot compensate for the frustration, stress, anger, and other kinds of emotions of fragile, robust, and even antifragile passengers associated with unexpectedly long and poorly handled interruptions to their journeys.

Disruptions are a classless experience and there will be much more of them in the foreseeable future considering the state of the industry and how it is organised and managed. Isn’t it time to rethink the pricing policies and introduce more dynamics in passenger choices when their travel plans are being significantly changed against their will? These could be things like: you pay a bit more for making sure that flight delays longer than xx hours will be automatically processed (rather than entering a messy procedure for compensation claims with uncertain outcome), or the ability to stay longer in a city in which you experienced a flight cancellation and reschedule your flight to a day and time that suits both you and the airline. Or maybe for passengers that don’t worry much about their return date or even airport, why not offer a discount and be in a win-win situation. There are many more options that, apart from reducing the amount of stress and getting some more space for other passengers at critical times, airlines can get more return passengers and count on their loyalty. A great way to  boost revenue.

The proverb goes: ‘If you always do what you've always done, you will always get what you've always got’ - in this case much worse.

Optimized or Maximized?

When we talk about optimisation we often think of maximising the use of aircraft, airports, passenger loads, revenue, competitiveness. This kind of action stresses the system and makes it dysfunctional in many ways, including the overall performance and people involved in it.

In his post ‘Optimized or maximized?’ Seth Godin inspires us to see the cracks in our professional (and private) lives when keep pushing things to the maximum:

I once drove home from college at 100 miles an hour. It saved two hours. My old car barely made it, and I was hardly able to speak once I peeled myself out of the car.

That was maximum speed, but it wasn't optimum.

Systems have an optimum level of performance. It's the output that permits the elements (including the humans) to do their best work, to persist at it, to avoid disasters, bad decisions and burnout. 

One definition of maximization is: A short-term output level of high stress, where parts degrade but short-term performance is high.

Capitalism sometimes seeks competitive maximization instead. Who cares if you burn out, I'll just replace the part...

That's not a good way to treat people we care about, or systems that we rely on.

As a valuable contributor seeking to build a career, you benefit when you develop a unique asset, because that asset gives you the leverage to choose a niche in a system that respects optimization instead. 

Is Airline Hubbing At Low-Fare-Low-Quality Sustainable? Are easyJet and British Airways Testing the Limits of Passenger Tolerance?

When a low fare airline chose to set its main base at one of the most congested world airports, and a major legacy airline based at one of the most congested world airports starts offering low-fare services to its customers, it doesn’t need think tanks to say that they have chosen a very risky path ahead. These are the paths of two major carriers: the low fare easyJet ('big@Gatwick'), and a legacy, Heathrow based British Airways, aspiring to bring lower fares to its customers. 

These strategies came from a desperate need to ensure growth and stay competitive, while trapped in a capacity constrained environment. Unable to strike the right balance, they put the expansionist strategies and short term profit before quality. After all, the elements of quality require more time and effort to measure, and are not officially recognised as a performance metrics.

To get closer to reality, let’s briefly examine some of the consequences of submerged quality issues that strongly impact operational and business performance, and learn some lessons from the most valued passengers who are near to becoming very disloyal to their once most favoured airline. 

easyJet

EasyJet shows its pride in being a major Gatwick carrier, which is their biggest base airport. Its share in departure seat capacity has grown quite rapidly between 2010 and 2015 - from 26.1% to 42.1%. This has inevitably resulted in an unprecedented drop in service quality, especially punctuality (shown below), with deeper implications on easyJet’s overall performance.  

This didn’t come as surprise. It is a notorious fact that short turn times, load factors above 90%, high aircraft utilisation, and low fares cannot fit well into the schedule of the world’s busiest single runway airport which has no slacks to absorb even the smallest disruptions, disrupting the travel of millions of passengers annually. Not only does the company disregard most of its passengers’ complaints, but it expects them to bear the high costs of disruptive travel. It looks as the attitude of ignoring passengers experiencing delays and cancellations is deeply ingrained in company culture and encouraged by the following strategy mission:

No wonder that the mainstream and social media are flooded with unflattering stories about easyJet customer experience, complaints, and airline refusal to compensate delayed passengers. easyJet has been named as ‘airline that is difficult to deal with’, ‘the most complained about airline’ and often listed as one of the ‘world’s worst airlines’.

The airline is about to face a drop in annual profit for the second year in a row, despite low fuel prices and no significant external disturbances that wouldn’t affect other airlines. There is more to be done to put easyJet back to its feet than counting the increase in aircraft, flights, passengers, and load factors, which in this case proved to be counterproductive.

On the good side, the strategy chart has recently been transformed to include ‘customers and operational excellence’ the effect of which may need time to show up.

British Airways

Despite the fact that the BA low-fare low-cost experience is at its early stage, there are strong signals that this strategy may pan out not to be as good as originally expected. This may not be reflected in BA financial and operational results yet, but signs of a drop in quality haven’t passed unnoticed by BA’s most valued customers who shared their experiences publicly. Some of them provided insightful comments and suggestions, like Martin Geddes, a frequent flier, loyal BA customer, Executive Club Member, and Executive Club Gold card holder whose connection with BA is partly emotional (his father worked for BA for 34 years). As a frequent flyer, Martin is often in a position to experience operational and service mishaps, especially those affecting full fare passengers. His views about recent changes in BA service quality and how they affect business passengers are described in his post ‘Brand suicide case study: British Airways’. This is a rare chance to learn about quality pitfalls and disjointed services at various stages of a journey of an airline passenger which is not unique to British Airways.

Another valued BA customer, Executive Club Member Scott Martin, MD Costa Express, has given up on BA after two decades of loyalty. This followed the recent drop in quality which he found unacceptable and has already taken over 15 business flights with a BA competitor in 6 months. His experience is described in ‘Have British Airways Lost the Plot’?

So, BA have already lost Scott and is on the way to lose Martin. It may have difficulties to compensate for the loss theoretically equivalent to 500 low-fare passengers in six months. How many more passengers are sharing the same experience? If their numbers start growing exponentially, how realistic it would be to replace them with more of lower fare passengers considering already high load factors? And how long will it take for the new low-fare passengers to realise that their disrupted journey can cost them much more in money, time, and anxiety that they are willing to bear.

As airlines don't measure impact of quality issues on overall business performance, they can grow unabated and come more costly than anyone can perceive - they can wipe out many of locally confined cost savings. 

Until the emerging methods for measuring quality become ingrained in standard practices, there are the elements of quality that could be improved without hard investment, something human and simple, things that Seth Godin described in his post ‘Maybe your customer isn’t trying to save money’:

Perhaps she wants to be heard instead.

Or find something better, or unique.

Or perhaps customer service, flexibility and speed are more important.

It might be that the way you treat your employees, or the side effects you create count for more than the price.

The interactions in the moment might be a higher priority.

Or it could even be the sense of fairplay and respect you bring (or don't bring) to the transaction.

All this prompted me to think: wouldn’t it be good for airlines to occasionally invite passengers like Seth, Martin, Scott, or other fresh thinkers to inspire leaders stuck in daily routines and bring them closer to real life?

First-Hand Experience of The Mockery of Passenger Surveys

I have recently returned from my trip to Belgrade with Wizz Air. The outbound flight was was over an hour late. It was one of those surprise delays that you learn about only when you reach the airport and the delay starts getting longer as you get stuck in an overcrowded departure lounge and then standing squeezed in even more crowded boarding gate. Nobody explained the reason for the delay, nor how long we were expected to wait, which resulted in some passengers becoming agitated, children becoming restless and those less able to stand becoming very uncomfortable.

The return flight to Luton went smoothly and arrived on-time.

Three days later I received the following email: 

Understanding the uselessness of these types of surveys, I treat them as commercial spam. No exemption this time apart from a twist: sharing my feedback was only possible for the return (on time) flight with no space to comment on my overall travel experience, including the unpleasant delay of the outbound flight. It is obvious that this kind of feedback will never tell the system managers what they need to know, especially when things get much worse (as they often do).

While these sorts of tricks can benefit marketing companies which conduct the surveys, ignorance about passenger experience during their critical travel segments only encourages operational dysfunction and comes costly for airlines.

The La-la Life of Delays - Isn’t It High Time to Rethink Flight Delays and Reinvent Their Role in Aviation Management?

Flight delays live in La-La land, way off from real world. In La-La land things look rosier. In La-La land of delays it is possible to:

• Publish flawed delay reports even when industry officials deny responsibility for delay data accuracy, reliability, and integrity
• Ignore the existence of passengers in delay reports 
• Suspend Consumer Reports on flight delays
• Let incomparable, make-believe reports circulate freely across the industry, be used to support a wide range of decisions and as a marketing ploy
• Undermine strategic value of delay information in balancing profit and service quality  
• Lose sight of the core purpose of aviation business   

In La-La land it has become common and ordinary to deny truth about delays and instead engage in creation of confusing reports so that by-products of hub concentration and inefficiencies remain unknown – right up to the moment when accumulated problems erupt, triggered by predictable but unforeseen events and reveal the vastness of system weaknesses.

Here are some insights and facts on fallacies in delay reporting.

ON SCOPE

The opportunity: taking the very best of delays 
To understand delays as indicators of forthcoming problems, we need to step above operational environment, so that we can see what drives changes in planned operations, cost, and revenue loss, their true origins, and their impact on passengers. Further, we must be aware about interconnections between people, data, involved in these processes. We also need to keep monitoring the effectiveness of investment in schedule buffers, additional aircraft, crew, and maintenance resources needed to keep punctuality at acceptable level. In this way, we merge the elements of cost and service quality into a single system – something that segmented information systems and legacy practices cannot provide.

The reality: missed opportunity
Of all these integral elements of delays, current metrics is narrowed down to delayed departures and arrivals. Even this data is not consistent and reliable due to the stretchy references and possibilities for subjective inputs. (Find out more about delay references  in the excerpt from Beyond Airline Disruptions).

ON RESPONSIBILITY

There are no rules and no responsibility for quality and accuracy of delay reports. Instead of taking a leading role in improving industry standards, regulators and industry organisations have become the observers and critics of the chaotic state in punctuality reporting, as shown below.

On disclaimers
CAA UK   ‘The information contained in [CAA punctuality] reports have been compiled from various sources of data. CAA validates this data, however, no warranty is given as to its accuracy, integrity, or reliability. CAA cannot accept liability for any financial loss caused by a person’s reliance on any of these statistics’. (report active)
European Commission     The information contained in [European] Community Quality and Punctuality Indicators Table has not been adopted or in any way approved by the European Commission’. ‘The European Commission does not guarantee the accuracy of the information made available, nor does it accept responsibility for any use made thereof.’  (report suspended)
On abolishing Consumer Report 
‘The [AEA punctuality] report is based upon a voluntary commitment by the members to provide consumer information according to a set of commonly defined standards…AEA cannot guarantee the accuracy of figures [not in line with these standards] and indeed has reason to believe that they may represent entirely different performance criteria.’
This note accompanied the AEA Consumer Report  before it was suspended in late 2000s.
On secrecy
‘Whilst punctuality of commercial aircraft operations is one of the key measures of airline and airport performance, consumer access to punctuality data aggregated across the EU for both airlines and airports is very limited’… ‘Data reporting on a pan-European basis is primarily limited to airline de-identified monthly reports produced by EUROCONTROL's Central Office for Delay Analysis (CODA)’ which keeps the data ‘under strict confidentiality and no attempt is made or permitted to identify the performance of any individual airline’ (EU officials).
On (dis)trust
European Commission does not guarantee the accuracy of the information given in their commissioned report ‘Annual Analyses of the EU Air Transport Market 2011’, carried out for the Directorate General for Mobility and Transport in the European Commission (includes punctuality&delays), nor does it accept responsibility for any use made thereof'.

ON ACCURACY

What are the reasons for such strong denial of responsibility coming from industry officials? How much does the absence of standards for delay reporting, especially the use of schedule references distort the truth about delays?  The following examples can give you some ideas.

Defying reality
On 18 December 2010, a small amount of snow fell over London, enough to cause chaos at Heathrow, unprepared for not so unusual winter condition. Massive flight cancellations and long delays affected about 800,000 passengers stranded worldwide (no schedule slacks, no chance to rebook, no information). It took Heathrow 7 days to recover, while neighbouring Gatwick was back to normal in two days.  Read more

Here is how this major event was recorded in CAA’s monthly report.

This kind of insights is only possible during events of bigger scale that expose otherwise hidden causes and consequences of disruptions to public scrutiny.

The Heathrow paradox 

At the moment, Heathrow is the world’s busiest two-runway airport operating at 98% capacity at all times, so any disruption has an immediate impact on some of 1300 flights per day. Instead of expected decline in punctuality, Heathrow reports the improvement over the last decade, indicating that punctuality can grow with congestion, but can it really?

The punctuality of British Airways doesn’t quite follow the Heathrowish direction. Nor does it match the CAA statistics.

 And this is what you cannot find in Heathrow reports:

• 54% of 224,497 incoming flights were held in holding stacks in 2010. By comparison, 14% of Gatwick incoming flights were held in stacks and 5% at Stansted.
• 18 million arriving passengers were kept circling in holding patterns for up to 20 minutes on a normal day and 45 minutes in bad weather.
• Airlines wasted around £65 million in fuel while stack in the holding queues.
• Airborne holding at Heathrow amounted to the equivalent of having approximately 10 aircraft grounded at airport each day. By comparison, in 2004 the equivalent of 5 British Airways aircraft a day were circling in airborne stacks above Heathrow.

The game of obscured references:
Can you explain the following difference in on-time departures reported by flightstats.com and flightontime.info?

 Who really tops the OAG rank table for medium airports in 2016?

Unlike the CAA who denies responsibility for data accuracy, OAG, the reseller of airline and airport information, doesn’t do so. Considering the messy state of delay references, one can question the OAG claim that they ‘provide accurate, timely and actionable information and applications across the travel sector to the world’s airlines, airports, government agencies, aircraft manufacturers, consultancies and travel related companies’.

Punctuality league tables – the charade
Who really tops punctuality league tables, why, and for how long considering their short shelf life? Should the big data recyclists be kept accountable for the misleading delay information and for putting the company’s reputation at risk?

In the absence of regulation and standards, airline and airport punctuality rankings have inevitably become influenced by subjective assumptions and interpretations of the data compilers and resellers, driven mostly by their commercial interests. By ignoring diversity and lacking the transparency of benchmark criteria and information they have made a mockery of quality – an invaluable measure of airline and airport performance. Data compilers like Skytrax, AirHelp, OAG, GEE Operations Soltions, flightontime.info, and flightstats.com support and feed off each other's data. They have found partners in the mainstream and social media who market their flawed products and spread the misinformation further. No wonder that some airlines are now looking for legal help. This situation will only get worse if the creation of an industry framework for delay reporting and Consumer Reports keeps being postponed.

Delay cost assumptions – the game of guesses
The following table describes the state of delay cost (dis)information based on local, frozen-in-time, non-actionable assumptions.

On role of flawed delay reports in decision making
Despite the evident inaccuracies, obsolescence, and inconsistency, delay reports are being used widely across the industry. They are used to support even the high level decisions like, for example, the expansion of airport capacity in the UK (see Final Delay Impacts Assessment undertaken by the UK Airports Commission).

ON RETHINKING DELAYS AND REINVENTING THEIR ROLE IN AVIATION MAMAGEMENT

Delays hold important messages. They can help with determining the trend and direction of the industry’s many facets. Failing to accurately monitor and interpret these messages is like failing to measure drift and determine wind speed and direction while in flight. It is important to alter the way we think about delays.

Put accuracy aside, assume that it has to be right and then consider this. Let's say you expected punctuality to be 78% but it was down to 72%. What do these figures mean anyway? What do you know about the situation that created the delays?  What was their impact on costs?  What were their true root causes? How many passengers were affected? How efficient are schedule buffers? How efficient and productive are the aircraft?  If you want to improve punctuality effectively, you need to know this information. When you look at 78%, the information is not there. When you are told punctuality is 72% instead of 78% all you know is that you missed your target.

By including the DDS (Deep Delay Scan) technique that combines numerical and non-numerical information, you will be able to answer these questions, predict what comes next and what you can do to minimise the risk of losses in cost, revenue, and reputation.

All you need to do is to combine the very best of what we have and find a better way of using it, assuming the introduction of new standards, methods, and techniques that allow an integrated view on system dysfunctions and prevent them from spreading wide and into the future. It requires involvement of industry leaders and smart regulation that inspires improvement, where interests of passengers, individual airlines, airports, and ATC services are respected, well balanced, and is open to changes. This is not a difficult nor a costly task, considering the current waste in time and resources that could be used more effectively.

And one more thing that can benefit passengers and airlines: if modest reduction of delays and better care of delayed passengers can increase the number of return passengers for say 10%, it will result in 33% more revenue (the work of geometric progression).

ON REFLECTION - WHAT IS YOUR ACTION PLAN?

Are you ever going to look at delay reports the same way as you did before? Are you going to let them obscure your vision of reality or make delays your allies that help you understand the true value of your actions from wider perspective? Are you prepared to bridge the gaps between segmented parts of the system, between assumptions and reality, understand their interconnections and measure progress?

If you are ready to take this step,   Astute Aviation  can help you get there. DDS method and technique are designed to let you see changes in planned operations from systemwide perspective and support you in making purposeful decisions.


Suggested reading

Beyond Airline Disruptions