To Merge, Or Not To Merge, That Is The Question

While decisions about whether or not airline mergers are an existential necessity are still in the air, it's time to take a deeper look at their shadow side, to understand how they touch the lives of employees and passengers, and what is their impact on cost and service quality.  

On Sunday 9^th April 2017, Doctor Dao, United Airlines’ passenger, was violently dragged out from his seat just before the departure of his flight UA3411 from Chicago to Louisville. He was chosen to leave the plane against his will despite his claims that he was needed at a Louisville hospital. The reason: airline needed to make room for four unexpected employees of a partner airline who needed to get to Louisville by Monday morning to crew another flight. United originally characterized the flight as overbooked, but later said that was (obviously) not the case.

The incident would have probably stayed contained locally (as most of the disruptive events do) if it was not for the video that his fellow passengers posted on social media. It caused an outrage against United Airlines. Airline’s CEO Oscar Muñoz rushed to defend the employees' conduct and said that forcibly removed doctor had been "disruptive and belligerent". As the video went viral and company’s shares began to slide Mr Munoz reset the tone and softened his words. 

The question is, why would an airline that cares about its business and reputation ever think of allowing a paying passenger to be assaulted, so that its own employee could take his seat?  

To answer this question we need to dig a bit deeper. Doctor Dao’s case revealed the tip of the underlying pattern that is invisibly eroding the future of air travel. Major legacy airlines are caught in a self-made trap by choosing to operate a hub-network, wrongly assuming that they can expand indefinitely within finite airport capacities. Consequences experienced today include operational and financial volatility of major hub operators, a rise in operational disruptions and passenger dissatisfaction.

The origins

The situation that major airlines are in today started in 1980s when deregulated US airlines all rushed to copy FedEx’s hub-and-spoke business model, assuming it was more efficient and rewarding to fly passengers via huge hub airports instead of taking them straight to their destination (just as FedEx did with parcels). The idea of allowing fast expansion and offering passengers more travel choices sounded great, but soon proved to be a big mistake. Missed connections at hubs created huge passenger dissatisfaction and inefficiencies, and contributed to the bankruptcy of almost every big US airline.

The side effects

In the meantime, traffic concentration at major hub airports has continued to rise. Airlines have become less resilient and more vulnerable to even the smallest unforeseen events. The next big crises in 2001 (9/11), and 2008 (sharp increase in fuel prices, global economic downturn and increased low-cost competition) have shaken the industry even more as airport and airspace congestion restricted their opportunity for growth.  Airline consolidation was seen as the quickest fix in the battle for survival, creating unanticipated side effects that may have surpassed the benefits of mergers and acquisitions. The resulting massive cost cuts were made at the expense of employees and passengers. Deregulation allowed airlines to create monopolies wilfully ignoring the far-reaching consequences of such decisions.

The birth of megamergers and how it affected passengers
By definition, a megamerger creates one corporation that may maintain control over a large percentage of market share within its industry. This occurs through the acquisition, merger and consolidation. The big four megamergers (American Airlines, Delta Air Lines, Southwest Airlines, and United) now control 85 percent of the market, compared with 55 percent ten years ago. Having fewer competing airlines means that there is now less pressure to improve customer service or worry about losing passengers who often have no better travel alternatives. What they are still not measuring and accounting for are losses caused by increased inefficiencies and passenger dissatisfaction.

Beyond megamergers

As a result, flight schedules and system resources have become more difficult to manage and optimise. Despite some reduction in airline capacities, consolidation increased operational complexity resulting in growing number and harshness of flight disruptions with unreported consequences. Problems have been exacerbated by pushing aircraft utilisation and cabin load factors up, at times beyond manageable limits. And merging with partners’ schedules made things even more complicated. This has created a highly ineffective system prone to disruptions and inability to control them. The true causes of internally caused disruptions are not measured. Instead they are simplistically explained using the delay coding system designed to serve operational needs. Megamerged airlines have little control over their partners’ performance and losses they can potentially cause. Their own capabilities to respond to challenges have weakened, so that even the small unforeseen events can escalate the problems systemwide. The major airlines may have managed to survive and may financially flourish at times, but operationally, they are drifting into failure.

Who really cares about passengers?

Does the lack of competition give airlines the right to deprive passengers of dignified travel? There are no authorities nor passenger organisations that have the power to challenge the disruptive (and offending) airlines and protect passengers. Forced to reduce flight frequency at capacity constrained airports, megamerged airlines have increased cabin load factors, usually to barely manageable 80+ percent, which is why on monopolized routes their incentive to keep service quality up and fares down have disappeared. They also shifted some of the costs of standard services to passengers, like baggage charges and meals, to become source of airline additional revenue. The absence of enforceable regulations and complexity of the process itself have made a mockery of passenger protection and passenger rights to compensation (EC261). It will stay so as long as authorities and airlines continue to deny the reality and try to prove the unprovable through deceived delay reports and by ignoring passenger complaints. They fail to understand that it is not all about money. Passengers can never be compensated for loss in time, anxiety and as in the case of Doctor Dao, emotional scars.

Who cares about employees dealing with disruptive situations?

It is not just passengers that suffer the consequences of the rise in disruptive travel. It is also the employees. “Unhappy mechanics do not tend to go the extra mile—or the extra foot—to get the airplane ready to go,” says George Ferguson, a Bloomberg Intelligence airline analyst. Longtime fliers have noticed the delays, cancellations, and lost bags—and the short-tempered gate agents and flight attendants. “As individuals, they are really nice people,” says Jared Spool, a Web design consultant who flies 150,000 miles a year on the airline. “But they are in such a horrible situation, constantly trying to deal with customers that are not happy, and they’re completely powerless.” Does anybody pay attention to this kind of problem?

Who needs sterile surveys on customer experience and delay benchmarking?

Measuring passenger experience has become a farce. It is based on deceiving surveys on customer satisfaction carried out in a controlled environment. The same applies to the misuse of airline delay reports which are not suitable for benchmarking and decisions made outside operational environment.

Who needs customer service departments in the age or social media?

Do airlines really need customer service departments that deny or ignore most of the passenger complaints and compensation claims?  In the age of social media, it is becoming more and more difficult for an airline to escape these costs and more and more easy for passengers to get the compensation using the power of social media, like the musician who wrote a song called United Breaks Guitars. It was the song that finally won him compensation, which he donated to charity.   

Back to reality

Back to flight UA3411 of ‘mega-merged’ United. It was operated under the umbrella of United Express (United regional airline) by Republic Airways’ Republic Airline (one of its 9 subsidiaries) which offers scheduled commercial passenger service as US Airways Express, United Express and under the American Eagle brand.

The question is, how do magamerged airlines control their businesses faced not only by their own complexity, but the conglomerate of merged, yet independent carriers? How much do their leaders know about the impact of disruptive events on airline profitability and what actions should they be taking to make them beneficial for all members?

Let’s scale it down. What lessons can be learned from Doctor Dao’s case? It will much depend on the way the incident and its consequences are recorded and willingness and ability to raise the right questions that lead to the roots of the problems. For this kind of questioning one needs to have a good understanding of how the system works. Standard numerics and segmented and then aggregated reporting systems won’t help much here due to the disconnection between operational and strategic sides of management information. The following questions may serve as a guide:

• Which of the following codes was used to describe the cause of delay: 14 (Oversales, booking errors), 66 (Late cabin crew boarding or departure procedures), 67 (Cabin crew shortage), 68 (Cabin crew error or special request)?
• For how long was the flight delayed? How long did it take passengers to reach their destination? How long did it take Doctor Dao to get to the place he needed to be and was he accompanied by his luggage? How long did it take him to heal his wounds?
• Is there an IATA code for passenger experience and emotional scars they may wear for life?
• What caused the sudden assignment of deadhead crew from the partner airline?
• How much will it all cost the airline in refunds, compensations, and future revenue loss?
• How many passengers on other routes experienced long delays and cancellations and what are the real causes of losses in costs, revenue, and reputation?
• Do high load factors of over 80% cause more harm from disruption losses than benefits from increased revenue? What are the most critical routes?
• How much does high aircraft utilisation contribute to disruptions and what are the related losses?
• How much does adding more routes at congested airports really cost the airline?
• How many passengers lost connections and how much did it cost the airline?
• What are the losses caused by outsourced service providers and partners and can they be recovered?
• Do surveys about passenger satisfaction include disrupted passengers?
• Can employees cope with a surge in disruptions and how does this reflect on their attitude towards disrupted passengers?
• What needs to be done to make a better balance between profit and quality?

Published results about United’s operational performance indicate the lack of these insights. They are well beyond its competitors’ metrics on quality, including delays, cancellations, mishandled bags, and bumped passengers. The airline has, since 2012, been the worst or near worst among its competitors. In 2012, when reported punctuality was 58.7% according to the U.S. Department of Transportation, United was responsible for 43 percent of all consumer complaints filed against U.S. airlines’. Even though the punctuality has improved in the meantime, it is still  below the industry norm. Read more United’s Quest to be Less Awful (Bloomberg, Jan 2016).

What lessons can be learned?

‘There are lessons we can learn from this experience’ has become a common closing phrase used by airline executives interviewed after major disruptive events. What lessons did they really have in mind at that moment? Considering that airlines don’t have a system that controls wider strategic and management aspects of disruptions, it is unlikely that real improvement can be expected.

How to make improvements in the age of disruptions

Disruptions offer a still unexplored, if not the only opportunity to improve system performance. These are unique events where strategic and planning assumptions meet reality and customer numbers turn to real people. This is the only way to get an insight into the interactions between data, people, and processes and most critical strategic and operational inputs in need of adjustments. The answer is in working continuously on identifying the most damaging influencers at time and keep repairing the broken links on the go - a chance that shouldn’t be missed.

Originally published in April 2017

Is It Better Having a Big Bag of Dots or a Handful of Insights?

Choosing which way to go once market starts recovering will be a tricky business. Old habits of collecting data from disconnected sources and interpreting them subjectively won’t work this time. We are entering the era of insights needed to connect and interpret the data as objectively as possible while narrowing the focus on things that matter.

‘Without a doubt, the ability to connect the dots is rare, prized and valuable. Connecting dots, solving the problem that hasn't been solved before, seeing the pattern before it is made obvious, is more essential than ever before.

Why then, do we spend so much time collecting dots instead? More facts, more tests, more need for data, even when we have no clue (and no practice) in doing anything with it.

Their big bag of dots isn't worth nearly as much as your handful of insight, is it?’  -Seth Godin.

So, instead of collecting the dots we should start connecting data and insights every time we discover problems with systemwide origins, and then look at them together from different perspectives. The more we practice it, the better we will become in sensing what comes next including new opportunities. This is how we can get well better prepared for new challenges. 

This is how connectedness, thrust, feelings of care, belonging, and togetherness start shaping the culture that can withstand difficulties and even thrive when faced with uncertainty. It has been proven to work for Southwest for the last 50 years. 

Can you give it a try?

  

What It Needs To Align Strategies With Operational Capabilities And Why It Is Important

Leaders and strategists are faced with an ultimate challenge: how much, when, and where to start increasing operation at time of extreme uncertainty and growing indebtedness.

There will be lots of experimenting and testing and with it a high dependency on operational feedback to validate such decisions and act swiftly to avoid prolonged exposure to losses. Apart from taking part in establishing such role, Operations Control Centres (OCC) will be under more pressure to sooth the consequences of long delays and cancellations, reduce their impact on passengers, and minimise losses.

 

The question is how well are leaders and strategists aware of OCC capabilities to meet these requirements, so important for speeding up the recovery?

 

I discussed these issues with Daniel Stecher not long before the introduction of lockdowns and thought that republishing this interview at these critical times can help executives to better understand problems faced by people in OCC and the role of technology in overcoming them.

Here is the link.

Which diagnostic approach and tool do you use to determine the state of health of your organisation? Are you a specialist or a sage?

Whenever faced with a hard-to-answer question, I look for analogies. In this case I found the following quote from Fritjof Capra's book 'The Turning Point' inspirational and would like to share it with you.

‘In Western medicine the doctor with the highest reputation is a specialist who has detailed knowledge about a specific part of the body. In Eastern medicine the ideal doctor is a sage who knows how all the patterns work together; who treats each patient on an individual basis; whose diagnosis does not categorize the patient as having a specific disease but records as fully as possible the individual's total state of mind and body and its relation to the natural and social environment.

To arrive at such a complete picture the Chinese developed not only highly refined diagnostic methods of observing and questioning the patient but also a unique art of pulse taking that allows them to determine the detailed flow of patterns of ch'i along the meridians, and thus the dynamic state of the entire organism. Traditional Chinese practitioners believe that these methods allow them to recognize imbalances and hence potential problems before they manifest themselves in symptoms that can be detected with Western diagnostic techniques.’

We certainly need both, sages and specialists.  But if we have more sages, wouldn't the specialists work be easier and more satisfactory?

How about creating a diagnostic method for determining the dynamic state of health of our airline and spot imbalances before they manifest as disruptions? 

What Airline Passengers Really Want

Earlier this month, British Airways announced their partnering with Michelin-starred celebrity meant to improve the experience of economy passengers on their short-haul flights. The airline has never been short of innovative ideas, including things like 'happiness blanket'. Other airlines have had their tries and choices.

It is obviously not easy to understand what passengers really want if airlines cannot guarantee them that they won’t arrive to their destination stressed due to long delays and poor experiences when things go wrong - no matter the price they paid for their journey. These kind of events are pretty much classless experiences.

But what if it is not much about food, or blankets, or products they can buy? As Seth Godin pondered: 

“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.”

Southwest Airlines can serve as a good example.

Something to think about while shaping the future of flying and our relationship with passengers.

Airline Leadership: The Way Forward

It is now certain that things we cannot control will take some time to settle. As much as it is not easy to live with uncertainty, this time gap is giving us an opportunity to adapt to new ways of thinking about our work. As we have already experienced, the way we used to define strategies, to plan and make decisions, will no longer work. We are dependent on feedback from the real world for which we found ourselves unprepared.  

The thing is that we have to find our own way out of this crisis. There is a lot of great advice around on what and why we need to change. But what is really missing is HOW to do that amidst the heightened state of uncertainty and complexity that have, to a lesser extent, always been a part of the airline business. So, the question is how to build a more resilient organisation that can survive the forthcoming adversities?

The answer is actually relatively simple, as demonstrated through my years long work, and explained more comprehensively in my book Beyond Airline Disruptions-Thinking and Managing Anew.  

On this occasion, I would like to share with you an excerpt from the closing chapter of this book. It points to the benefits that can be expected when we make it possible for strategy and operations to work in sync for the benefit of our customers. And also, when we start focusing on work that matters while taking good care of our employees.  

“-Instead of managing people, we should manage problems that cause our passengers to leave us even when our price is lower than our competitors.

-Instead of relying on predictions based on the past we should keep reconfiguring and adapting, fine tuning our operations to best meet passenger needs.

-Instead of traditional planning and forecasting based on aggregate historical figures which tell nothing about their interconnectedness and true origins, we should focus on resolving the complex emerging problems that are threatening the system performance while aware about their deeper causes.

-When we think about new ideas, we will have a better sense if they are going to work well for us and what we have to do to adapt when circumstances change. We will know better what to offer and how to assist our passengers travelling to and from disruption-prone airports and airspace.

-We will be more aware of what an airline is capable of doing and what cannot be done. And if we decide to do what we cannot deliver at our best, we will know that this is a calculated risk measured against other known benefits but will ensure that the negative impact of such decisions on customers, partners, and employees is minimal. 

This game-changing approach to management creates a shift in culture. And as a result, trust and care about the core purpose strengthen, the service improves and cost is reduced.

This new approach to management is simple to implement and, from the very beginning, starts to inspire people across the organisation to engage their ingenuity in understanding and improving their work while sharing common goals. It is accessible to all those with a mind open to new ideas, those who seek long-lasting success, those willing to build their business based on trust and cooperation, caring for employees and through them for customers.

Let’s challenge ourselves to evolve, innovate, and experiment, to create a better future.”

With this in mind, I wish you and yours a happier, healthier, and more prosperous new year.

A nice recognition from Thinkers360 and inspiration for further work

Honoured to be in the company of these amazing women with such diverse skills and experiences, and fresh approach to work.

150 Women B2B Thought Leaders You Should Follow in 2021

Systems Design and the Front Line, As Seen by Seth Godin

If you experience lousy service or poor quality, it’s probably not solely the fault of the person who talked to you on the phone, dealt with you at the counter or assembled your product.

It’s the boss.

The boss didn’t design the system properly, didn’t align incentives, didn’t invest in training. The boss isn’t thinking hard about hiring the right people. And the boss isn’t listening.

As a result, the frontline workers are often undertrained, underresourced and overscheduled.

But, and it’s a huge but, those very same frontline workers don’t have to suffer in silence. They can provide a useful conduit of information and feedback. They can model how it could work better and establish a model for those around them. Not because it’s easy, but because it’s important.

The top-down nature of the industrial entity is rapidly being replaced by the power of peer-to-peer learning and leadership. There’s no top and no bottom. Simply the ranks of people who care enough to make things better.

Time For a Reality Check

A sobering big picture overview of the industry and where it will be in the next decade, by CAPA Chairman Peter Harbison. 

A new platform for the future. Time for a reality check.

Why Do We Wilfully Ignore Obvious Pitfalls in Management?

This is a rare opportunity to hear an experienced CEO talking openly about well known but wilfully ignored pitfalls in management.

Margaret Heffernan, the CEO, management expert, and author questions why we ignore the obvious and suggests that if you want to see the full picture you need to have people around the board table who inhabit different kinds of mindsets. 

In an age of complexity the failure to take account of multiple perspectives is really dangerous. We understand the complex systems are impossible to see in a kind of a single view. So we need those multiple views if we are going to understand the world we are living in.

The question is how can we put these multiple perspectives together in airline management?

 

The process is not difficult to implement. It doesn't require organisational changes or structural transformations - it is about enabling the natural flow of work across organisation. And also, about access to relevant data and group insights in support of decision making that benefits the entire organisation. Things that require facilitators with real skills based on the wide industry knowledge and experience.

 

The process is refreshing and regenerative. The time is ripe for its implementation. 

 

Furloughs and Layoffs - the Southwest Airlines Way

Gary Kelly, chairman and CEO of Southwest Airlines Co., outlined steps Monday the company plans to take in attempt to prevent furloughs and layoffs through 2021.

Includes: 'Effective immediately, Kelly's salary is reduced to $0. It will be that way through the end of 2021.'

Any such example around the industry? 

Read more about the essence of Southwest Airline culture:

https://beyonddisruptions.blogspot.com/2020/08/what-can-be-learned-from-sustainable.html

Old Habits die Hard - The Pike Syndrome Revisited

A dark cloud is hanging over the airline industry. 'Extreme uncertainty' coupled with 'complexity' have become words that keep many paralyzed and even content with old habits that offer them security, however false.

Without seeing the way out in hard to predict situations, we restrain ourselves from taking actions that can assists us with going through this hard time without making the future of our organisation too risky or potentially unsustainable.

This kind of paralysis resembles the condition named the Pike Syndrome - the analogy used to remind us of what happens when we remain blind to our habits and in denial of reality, even when they start threatening our existence.

Time to revisit The Pike Syndrome.