Tuesday 22 October 2019

Why Airlines Burn Money Every Day And What They Can Learn From Formula 1 Racing Teams

Interview with Daniel Stecher, VP Airline Operations, IBS Software

Aviation has always been a tricky business and these days it is trickier than ever. One after another, airlines are disappearing from the industry landscape, either by losing identity or in an old-fashioned way – running out of money.

Numerous attempts have been made to explain the reasons for these systemic failures and, deep down, they all have something in common: the way airlines interact with the randomness of their operations does not correspond to what strategists and decision makers expect.

​The disconnect between strategy and operations has become the main (still unrecognized) cause of growing operational disruptions, work inefficiencies, uncontrollable rise in costs and passenger dissatisfaction. Flight disruptions are still viewed purely as an operational issue, despite the fact that the majority of their underlying causes have strategic and cross-functional origins, invisibly shaping the quality of day-to-day operational decisions.

​This means that, for example, every time an airline decides to expand its operation to congested airports, increase aircraft utilization (and productivity) by reducing schedule buffers and shortening already tight turn-around times, it puts lots of additional pressure on operations control centre. This risks an exponential increase in changes to planned schedule, with all of the (unreported) consequences this can have on overall results. ​

As things stand, OCC’s are not adequately equipped to cope with high influx of changes that make their work even more complex, exceeding human capacities to handle them. Outdated technologies restrict the scope and speed of this process making improvements hard, and perhaps impossible to achieve.

Most airlines have become too slow to respond and adapt, and this needs to change. And change includes adjustments where the interplay between human abilities to cope with complexity, and benefits offered by new technology are recognized and skilfully managed. How can this be achieved?

In search for answers, I couldn’t think of anyone better able to answer this question than Daniel Stecher, a leading-edge operations and technology expert, fresh thinker, and enthusiastic leader who inspires change and is willing to share his insights. Daniel’s all-round knowledge and deep understanding of operations and technology comes from his first-hand experience at a major European airline and at a leading provider of airline software. He gets his messages across in many ways by visiting airlines, speaking at conferences, writing, blogging, tweeting, all this with rare ability to explain complex problems in a way that can be easily understood.

I asked Daniel to explain what it takes to bring together the best of what interactions between people and technology can provide.

(JR-Jasenka Rapajic, Astute Aviation; DS-Daniel Stecher, IBS Software)

JR: Flight disruptions continue to grow faster than what airlines can perceive and have ability to control. Still, they keep expanding even to most disruption-prone areas, unaware of the full consequences of this strategy on operations, cost, and revenue. They expect that, in the end, operations centres will somehow make it all work. Being at the crossroad between disruptive strategies, disrupted schedules and disrupted passengers, the question is how do people in Operations Control Centre (aka IOC, OCC, SOC, NOC) cope with complexity arising from this situation which is not going to change in a foreseeable future?

DS: There is a nice quote from an industry friend who told me: people working in OCC’s don’t know what they don’t know’. That I think puts in one sentence the main issue and challenge for OCC’s because everything is pretty much reactionary and based on gut feelings and what has been planned based on a picture of future optimized weeks or months ago is suddenly not coming through. It is no longer relevant because the people who built the schedule, and the people who made the roster are unaware of the sources of disruption including technical problems, sick crew members, congestion at airports, and so on. The consequences are that, compared with the original plan, only 70-80 % flights on average operate as scheduled.

The first question is why don’t airlines make more realistic plans? This is because they are planning with forecasting models based on the past, whereas with predictive analytical models they could have a better understanding as to what is happening in operations and end up with fewer disruptions. Also, every year deviation from plans becomes the norm and every new annual plan becomes a fresh start. This is how problems accumulate and remain unnoticed in year-on-year company reports.

Secondly, more and more people are traveling and are affected by disruptions which have an impact on their personal lives, their business lives, their vacations, and, in the end, costs us all a lot of money. These disruptions also have environmental consequences because there is a lot of unnecessary fuel burnt which together with traffic expansion further increases CO2 emissions.

The question is how long will airlines be able to sustain this situation? I would say they are not working in a rational manner, and I foresee some real changes in the industry.

JR: Airlines spend lots of time and effort on optimizing individual departmental functions. This frequently does not benefit the entire organization and can even cause additional disruptions. The problem is that the dynamic, non-linear nature of disruptions doesn’t fit into the rigid structures of airline information systems and management reports. This leaves strategists and planners deprived of real-life feedback, hence an opportunity to spot and remove bottlenecks in workflow. In these circumstances, optimising disruptions as they happen seems like a daunting task. How does all this look from an OCC perspective?

DS: There is a lot of emphasis on the optimization of the various planning processes but very, very few airlines focus on the optimization of disruption management. Even though industry estimates vary, some figures indicate that cost of disruptions worldwide has reached a $60bn figure. There are some disruption related figures like compensation to passengers experiencing disruptions, especially in Europe. It has been estimated that over the last three to four years trillions would have been owed to passengers if each qualifying passenger had claimed compensation. If airlines had been forced to pay it by law, some of these airlines would have gone bankrupt based on the previous disruptions for which they were responsible.

And yet despite all this, very, very few airlines have changed the way they operate, the way they plan, and the way they attack disruptions. Everything is pretty reactionary, depending on the person who is on shift. When Jo is on shift, the decision making is completely different compared with when Angela is on shift. And the next day, Diana is on shift, so the best decision making is not always visible. This makes it difficult to avoid the effect of disruptions on passengers, aircraft, crew, airports and other stakeholders.

JR: How well are OCC equipped with tools that can support these complex decisions?

DS: You need good technology. The bottleneck for airlines is that they don’t have technology in place which follows the concept of smartphones.  So, we need to bring the concept of smartphones into OCC. Smartphones are highly integrated. You don't have to look for the data. The data is already there. There are plenty of apps which provide you with the relevant data. In the airline business it's the other way around.

When somebody needs the information, they try to find the source of this information using paper-based booklets where something is explained or have to call somebody, or whatever, and that's why things are very slow. A lot of information is not available in real time – which is why decision making is suboptimal - some data are missing some data are out of date.

My little smartphone is a good example of how complexity can be managed. Twelve years ago, while traveling to the US I had four devices: a camera for photo taking, a navigation system to get me from A to B, a cell phone to communicate, and a portable PSP to play some games. And then, if I took a picture and wanted to send it to somebody, I had to download it from the camera to the computer, connecting to it with a cable, and if it was not charged, then that was delayed, and then I couldn't send it via email to somebody. If I wanted to send my location - that was very complicated!

Today, all these things are done automatically. The software is developed in such a way that the device is thinking for the human being. We humans are not capable of grasping more complex problems. We can keep in mind up to seven items at one time. We are not made for multitasking, especially when we are under stress, so a tool such as a smartphone is very helpful because it can manage our entire lives. It allows me to connect with every airline system in the world, I can organize my finances, and it helps me with managing plenty of pictures. I've taken more pictures than I have ever taken in the past. So, it is not two Daniels, or three Daniels required to manage the multitude of pictures I'm taking, it's the device which is helping me to manage the complexity, and this is what I can see as the future for OCC.  

In a smartphone environment everything is in real time, everything is connected. If I take a picture of this meeting in London, I don't have to call my wife, it's in the family folder because that's how iOS does it. But if I take a picture of a naked person, and maybe don't want that picture to be visible to my wife, that means that I need to understand the consequences of integration. Using This concept is very powerful and will allow airlines to manage higher levels of complexity. 

JR: What impact will this smarter technology have on people working in OCC?

DS: The first necessary step is to bring modern technology into OCCs, and this might replace some people. The way the work is organized today can make people appear as a root cause of many of the errors. Think about a cockpit. There are two guys up there and they manage the computer, but the computer is somehow flying the aircraft. Once there were four people in the cockpit, then three, and now they're two, and now we are talking about single manned aircraft and so on. So, the same can happen in OCC. The more people sitting in an OCC, the more the potential sources of error are present. Introducing new technology will help stem the errors in the operation.

The technology is available and there are companies who have brought the concept of smartphones into the OCC, and this is changing the way airlines will work in the future - from reactive to proactive. Like my smartphone that gives me a push when I put in my calendar the address of my next meeting it knows the distance from the navigation data, from the traffic data; all this is connected in our smartphone world. Airlines know exactly what the weather is at an airport, they know where the inbound passenger is, where he is in the airport, whether or not he needs to change terminals, if the crew member is checked in, or is the aircraft out of maintenance. All this information is there.

JR: What about priorities in operational decision making? There are operational priorities, but also strategic, commercial, or maintenance priorities, and before all the safety. When things go wrong and flights are disrupted, is it possible to follow any kind of rule considering the complexity and constantly changing circumstances? How much do people who make decisions understand wider consequences of their decisions? Can new technology improve this process?

DS: You need to define what is most important for the airline - is it safety, is it cost, is it marketing, is it goodwill – all these need to be decided. With this device I can make my nice plans and it can help me to keep my planning as close as possible to what was originally planned. And that is exactly how airlines don’t operate today.

There is a department which makes nice plans. They order some nice aircraft, sell the tickets, make promises to the passengers, and on the day of operations have to explain that their flight is delayed or that they have to change the aircraft. And then, there are some people who absolutely wanted to fly with that new aircraft, and now they have to fly with the old one, or passengers cannot catch their ship to go on a cruise because their flight is delayed. Airlines have to explain all of this.

As an airline there are also consequences for your brand image, and your reputation, and that's why you need to have an end-to-end set of data points, measure every situation, and create a learning system based on these data. So, let the people trust the IT and let IT do the job. And with the lessons learnt from what has happened today you tweak the system so that tomorrow it will make even better decisions.

That is what the smartphone is doing. In the beginning it gave me a spellcheck and when I wrote an email in its next evolution, there was an autocorrect function. That is exactly how airlines can operate. The user can be in control and the system can tell him if he is not doing something properly, such as not changing the rotation will end in a curfew or the system is auto correcting the decision made by the user and is squeezing some time from the next turn around. Or even cancelling the last leg because you don't want to end up in a curfew because of potentially costly consequences. 

The best thing you can do is to auto-correct incorrect actions and, of course, people will say this is impossible, how can this work? And that's exactly the same as twelve years ago if somebody had told you that you would have a cell phone in your hands with no buttons and no antenna. People would ask: but I need an antenna, how can I connect my cell phone to the network and how can I put the numbers in the cell phone? When I need to call somebody today, my smartphone has no buttons and no visible antenna, but has many more functions. Whilst this is well accepted in our private lives there are also people hopefully out there who understand that the same concept will help airlines save a lot of money and cut out a lot of unnecessary work. 

JR: Your message is clear, but the question is, to what extent can leaders and top executives responsible for airline overall performance see and understand the benefits of this evolutionary technology? You have been in a position to meet people from around the world and experience firsthand their responses to technology innovation in operations.

DS: Things like transformation, the theme of this change, is not about technology. It is about human beings, the people that feel threatened by new technology. They fear they will be replaced by this technology, but there are so many tasks at an airline. You very often hear that people are overloaded at work and do not have enough time. So, this is an opportunity for people to cover the other tasks which currently they are unable to complete because of the existing reactionary working model. It is true that it might affect some people more adversely than others, which is why the majority of people are pushing back. They’d rather try to find reasons why the airline shouldn’t be an early adopter and prefer to wait to be a follower.  

The good news is that there are already more than 20 airlines in the world who are the early adopters of this smartphone style of operations in the OCC, so other airlines can now follow. I think that the only constant in life is change and people working at airlines can become an active part of this change and enhance their own destiny by helping the airline to get from the old school of working to a bright new future because IT systems are only as good as their users. Systems need to be tweaked with the know-how of the people who are currently under lots of pressure. So, we need to harness the know-how from the brain of the user who is today reactionary, into the system of tomorrow which is taking the job from the user.

JR: Taking part in this transition process assumes taking kind of personal responsibility for change which can be a sensitive issue?

DS: Unfortunately, many people don't want to take such responsibility, which is human nature. Active decision making is one of the biggest hurdles in our life. We like to follow rules or regulations, and unfortunately there is no regulations out there imposed by any industry body or government that says that airline operations must undergo a digital transformation. Both airlines and passengers are affected by that. We pay compensation to passengers, there are regulations for that, but it would be better to avoid these pay-outs and improve the way airlines operate.

JR: People should normally be inspired and excited to take part in this kind of innovation. The lack of motivation and not believing in better days ahead seems like a cultural issue that may be linked to existential worries caused by the general state of the industry. 

DS: The concern I have is that airlines do not realize that they still have time to react and build their own destiny. Everybody working in this industry can play a vital role to change it for the better, and everybody is just sitting and waiting, almost supporting the disappearance of the airline. We have witnessed again, in the last few weeks that four airlines in Europe went bankrupt because, amongst other things, they didn’t have the best IT, they ignored the facts that the world is changing, that the way of traveling is changing, that fuel prices go up. And then comes the day when things reach the point at which they cease to operate. This has been happening for many years and despite the bad news the industry is still very, very reluctant to change. This is the same as not being willing to spend one Euro in order to save ten.

JR: Apart from truly understanding the benefits of new technology, how much are leaders prepared to wait for its implementation at a time when short-termism prevails? It seems as they only become concerned about IT issues when big problems like computer outages hit the headlines.
DS: I think that because of the lack of awareness of the benefits of new technology, airlines and CEOs are more willing to invest in things that are visible to passengers, like new aircraft, smart watch apps, internet pages, airport launches, business class seats, or anything where they can differentiate themselves from the competition. What they think is, that if I use this money to attract more passengers, there will be more revenue. But many things are not visible to them, or to passengers. If passengers ever took a guided tour through some of the airline OCC, and saw what systems were being used, like computers with green letters on dark screens from 1960s, 1970s, they would probably stop traveling with these airlines altogether! I was born in 1968, so the systems out there for managing airlines which are relevant for the industry are in some cases older than me. This is because, for many, IT is still a mystery. Some people are scared of it and changing it always looks a big risk. There is a saying ‘never touch a running system’. For many airlines, it looks a safer option to run systems at suboptimal levels instead of changing them.

Nothing can be changed overnight. It takes at least two years for a major change to take place and nowadays our horizons are short-term oriented. It is very often a quarter-by-quarter exercise. You have to wait for eight quarters to see the positive outcome of your digital transformation. During that time, the CEO of the airline might be discussing with a head-hunter his next move, so there may be nothing in it for him (or her) during this transition period. By comparison, ordering new aircraft is immediately visible. Aircraft can be visualized, IT cannot. 
I think, we only realize how important IT is when it’s not working, when there's an outage and see the consequences of disruption. And we’ve had plenty of outages around the world where thousands: of passengers were affected, and when we all experienced the consequences of the failure of technology we so much rely on, but when it’s running properly, we don’t appreciate it, because we take it as a gift, as a commodity because nothing works without IT anymore. It is unfortunately not an area where people are very hungry to change. It requires a strong leadership. That’s really the most decisive factor. Strong leadership from the top and the vision for a different operating model. There are very, very few airline CEOs in the world who have understood this.  

JR: Lots of operational problems are linked to cultural issues arising from organizational segmentation, something that Southwest managed to overcome successfully. Can technology support changes in airline organisational culture?  ​​

​DS: Southwest of course is a role model for the industry where their culture is the driver of the success of the company. Whereas in other parts of the world it's more and more outsourcing, more and more third-party contribution to the overall process, Southwest have a different approach.  If you check in, you believe you are checking in with employees from the airline you decided to fly with, whilst in fact you're checking in with the ground handling agent. The question is how much, in this moment, the employee of this ground handling agent has the values of your airline in mind. Then, in other areas, you can see some other airport representatives with different value systems, and that’s how you start blaming the airline you are traveling with for all these problems and the airlines don't even know about. That’s why IT may be the only way to demonstrate to decision makers the real-life consequences of their decisions.  

Take as an example United Airlines where somebody was dragged off an aircraft because the seats were oversold and somehow responsibility for this situation was shifted onto the gate agent. The gate agent, without knowing the consequences, was just following the rules, and called in the local authorities who then aggressively removed the passenger. This was filmed by fellow passengers and later went viral on social media. If you have to make a decision without being aware of its consequences, the cost may be very high including any ripple effects which can affect operations for the next three days, which inevitably impacts crew members and passengers. If I can’t see this, I'm somehow detaching the causes from the consequences of wrong decision-making including loss of money and reputation. And this is where IT may help. Even if third parties are handling your passengers you can act to make sure that this kind of event doesn’t happen again. So, you can start creating a new culture by using technology which can help by taking all the pieces of information, bringing them together, and making sure that in the entire life cycle from departure to arrival, all parties who support the travel of the passenger, or the duty of the crew members, or the journey of the aircraft, know the consequences of their actions. At the moment, this is not the case. Very often people don't know what they don't know and very often they don't know what the costs and full effect of their actions are. 

​JR: You like to use analogies to make these complex problems more easily understood. In one of your white papers, you explained what airlines can learn from Formula 1 racing teams when it comes to unexpected failures? Can you tell us more about this?

DS: This was mentioned in my white paper about Situational Awareness. I keep reminding myself that quality of decision making of an airline and the on-time-performance, or the amount of disruption are the corners of a triangle between people working with an airline, processes that keep everything rolling, and information technology (often turned into a Bermuda Triangle). 

​​​​If we now look at the pit stop by a Formula 1 racing team, which is for me the biggest magic in our time, the question is, how is it possible to change 4 tires in 2.5 seconds? It is the choreography of twenty people who know and do everything according to a predefined process. They are selected because they understand what they have to do and are given the right tools. And if you have the best people and know the best way to change tires but you are not using the most modern tools in order to undo the wheel nuts, then it becomes a very slow process. And this is exactly why decision making at an airline is slow. 

If you now watch now Formula 1 racing pit stops from the 60s and 70s and compare it with 2019, you will understand the difference between the smartphone style operations control and what airlines work with today. We need to equip the people in the OCC with the right tools so that they can make a pit stop in 2.5 seconds and not in minutes. And today, while talking to people who change “tails” at an airline, they regularly tell me they need up to 5 minutes sometimes 10 to make a simple aircraft change. If you have the right tools, you can do that in 10 seconds.​ 

That’s why I am always asking airlines why do they continually burn money every day? Just look at the on-time performance of US carriers and you will see the amount of delay minutes ‘produced’ by the large carriers with a thousand aircraft, like American. If you then have thousands of delay minutes per month, you have to rethink the way you are heading. Of course, you cannot influence the weather, you cannot influence ATC, but you can influence decisions with a good IT.  So, even if you can cut just 50% of these delay minutes, it is still a large amount of US dollars saved every month. And, even if you are tackling it just with one, two, or more percent - it is a huge saving. But the US carriers have decided to go on with their systems from the 70s. You can maybe have a good cognac from the 70s, but this is not a good solution for airlines.  ​

JR: You are a very, very frequent traveller. The chances are that one of your titles could be a ‘frequent disruption experiencer’. But let’s look (for a change) at the brighter side of disruptions. As much as creating problems, they can create moments when you experience care coming from people who happen to help you personally with troubleshooting your disrupted journey, something that is least expected nowadays, something that you will remember for life. Have you experienced such moments as a passenger and as a professional, and is there any specific one that you would like to share?

DS: As I'm flying a lot, I carefully select the airlines which will bring me to my final destination. When I'm in Berlin and have to fly to the US, I have the choice between American Airlines, British Airways, Lufthansa, and some others. And if I fly eastbound, I can take Turkish Airlines, or Cathay Pacific or, again, Lufthansa or British Airways. Very recently, I had a very, very positive experience with American Airlines which totally fazed me. We had a departure delay in Berlin because of a technical problem and had to return to the ramp. I only had a two-and-a-half-hour connection in Philadelphia, and we had already had two hours delay leaving Berlin, meaning that I would have missed my connecting flight to Philadelphia. But American Airlines was proactively managing my disruption so I'm using the American Airlines app and they were monitoring the delay.

Interestingly, I was better informed about my flight status than the flight attendants on board so they were saying ‘we are departing soon’ and I could see the ETD already on my phone. When I was deplaning in Philadelphia there was an American Airlines representative and my new boarding pass was already printed, and I was already checked in. That was the best disruption management approach I’ve ever experienced. The most amazing thing of all was that American Airlines has a system from the 70s in place, so they needed plenty of people walking around in order to make this happen. It shows that you can amaze passengers even if you have a difficult situation with disruptions, as we will always have disruptions. But the question is, how to communicate it, to tackle it and if you do things proactively it is always amazing. I have other kinds of experience with other airlines where you just lose your way and get grey hair. It is crazy, and I think we need to change this and work together to create a better future for the airlines remaining on earth!

JR: Let’s get a bit personal having in mind your provocative titles on social media like ‘public agent of airline industry's best kept secret’, ‘agent provocateur’, or ‘challenger’, among many others that you keep adding to your profile. Can you tell us a bit more about yourself - who is real Daniel Stecher seen by Daniel? Where does that immense curiosity about aviation best kept secrets and drive to enthusiastically promote innovation and share it widely come from?

DS: I'm a single child - that's already the root cause of my impatience. I want to get things done, I want to get things done today and not leave them till tomorrow, which is of course a challenge for the industry, because nothing goes fast in our industry except the aircraft. Then, I'm a Berliner. Berliner Germans are different than other Germans. They always have big mouths. So, I have a big mouth, and I know that. But you can take me by every word I'm saying. For me, accountability and liability are very important. I'm taking things seriously - that for me is the theme of my life.  And I am always open minded, always checking out new things that I believe can be very helpful. And if I realize that they are not helpful, then I stop using them. I am also not afraid of trying something new.

I am very happy to be in this industry because I can meet lots of people all over the world, people with different mentalities, value systems, and beliefs. It is always fun to bridge the cultural gaps with at least English as a language, and to get to learn something new every day from somewhere in the world. There is a nice saying that traveling 1000 miles is like reading 1000 books.  That's why I believe that travel is very important.

I know that I am also provocative. I am putting my finger in the wound because why not spend this burned money on nicer things. I keep saying to airlines I meet, that I am so happy that it is not my money they are burning.

I would like to thank Daniel very much for this insightful and thought-provoking interview. I am sure it will inspire new thinking about the role of technology in improving the quality of both operational and strategic decision making. 

The following are links to white papers written by Daniel where you can learn more about topics related to our conversation: