Manipulative reporting and airline health

‘Many performance ratios lie about a company’s health’, says Geoff Colvin in his Fortune article, revealing the consequences of manipulative figures published in financial reports. Companies use these measures to make important strategic decisions (and pay their executives). It is easy, says Colvin, to make any performance ratio look better, while damaging the business - this practice has recently killed number of companies. It has, however, been a part of business life for centuries. 

This kind of reporting is not alien to airline industry. The most fertile ground for data manipulation is in big organisations with inherited complexities, where much of important corporate information is hidden, distorted, or not available at all. Censorship of information and practice of data ‘adjustment’ get especial impetus in bad times when not only financial, but also operational and delay figures may become ‘massaged’. There were the cases when airlines even restrained from reporting on unfavourable on-time performance. This makes benchmarking useless, and pushes planning and decision making into a more risky area at both airline and industry levels.

Financial crisis in 2008 has helped reveal many malpractices in airline reporting. Take an example of IATA, association of 230 carriers from around the world operating 93% of scheduled international air traffic, who grossly failed to predict the magnitude of airline losses in 2009. The originally planned accumulated loss of US$2.5 billion published in December 2008 has been revised three times within the following nine months, when the magnitude of economic crises was quite obvious, reaching the figure of US$11billion by September 2009, only ten months later. One can rightly question the quality of airline reports through which they can publish whatever they need to impress investors. The question is what is the point of spending so much time, and money on collecting, analysing, and publish data that only create confusion and distrust?

Fortunately, there are ways of spotting the false data hidden in operational and financial reports. I’ve spent some time testing a method through which it was possible to get a pretty good understanding of why some airlines prove to be resilient and grow, adapt, and change, while others fail within or outside the period of global economic crises. Getting to know the true state of airline’s health and predicting its chances to succeed is not an impossible task. The only question is, how much of it are airline leaders ready to digest and disclose?