Editor's Notebook: How to Save an Airline (Not!)
At a conference held in 1999, called "Business Strategies for Bankrupt Airlines," executives from top airlines met to figure out how to manage the future.
Among the interesting seminars held at the conference, a couple were unusually prescient. The seminar titled, "Dealing with the Aftermath of Terrorist Hijackings" was well attended and almost perfectly timed for later events.
The most popular seminar, however, was called, "How to Launch a Low-Cost Subsidiary Airline When Your Bottom Line Drops Off the Face of the Earth." During this event, the audience sat rapt as Dr. Suplï Demandis explained how airlines should handle severe economic downturns. Demandis, who won the Nobel Prize for his groundbreaking research into the economics of how to determine when to pull airplanes out of storage or destroy them, offered these suggestions to his airline executive audience:
1. During good economic times, buy as many airplanes as possible and attempt to gain market share. This includes running some routes at a loss in order to shut out discount airlines.
2. If the economy really takes off, consider expanding outside your airline's core competency into third-party maintenance or fractional-share business jets. Diverse businesses could save your bacon.
3. When the economy is good, pay whatever your unions ask for and compensate your executives mightily. When the economy worsens, lay off as many people as possible, ask for wage cuts from pilots, mechanics, and flight attendants but above all, continue to compensate your executives at a rate disproportionate to reality so that they won't leave your airline.
4. If the economy slumps severely, possibly due to a terrorist attack or other economic catastrophe, as a last resort, launch a low-cost subsidiary airline. Make sure it has a cute name and always, always claim that you're basing it on the Southwest Airlines model, even if you have no earthly conception of what makes Southwest successful.
Okay, okay. I made that up. That conference never happened. No one was that prescient, except perhaps novelist Tom Clancy, who wrote about a rogue Japanese pilot crashing his empty 747 into the nation's capitol for reasons that had more to do with overt war than terrorism ("Debt of Honor," Berkley Books).
Ya gotta wonder, though, what is up with all these new low-cost airline subsidiaries with the desperately cute names? United's Ted (gag me, please!), Delta's Song, KLM's Buzz, Tiger Airways (Singapore Airlines), the list grows every day, it seems. Are these subsidiaries the answer to airlines' problems?
Perhaps, but low-cost subsidiaries are not new. There must have been a previous conference where the idea was first floated. Remember any of these? Delta Express, United Shuttle, Metrojet (US Air), Continental Lite? Not highly successful operations because they no longer exist.
If the answer to economic problems was so simple—just start up a low-cost subsidiary—we would already have seen that this works as a business strategy. Anyone for low-cost maintenance subsidiaries? Timco lite (Tim?), Goodrich (Rich?), or United (Ted's Excellent Maintenance?). Of course, this is ridiculous. No one with even half a brain would consciously skimp on maintenance, would they? And there are ways to perform maintenance efficiently, but do these techniques parallel those used to run a successful low-cost airline (no food, cattle-car seating, quick gate turns)?
What is annoying about the current fad of launching a low-cost subsidiary is that it seems like a colossal waste of time. Creating a subsidiary that employs the same personnel being paid the same wages is hardly a means of becoming more efficient. And so far, I haven't heard that any of these low-cost subsidiaries are also paying their mechanics, pilots, and flight attendants half a salary, so how do they expect to keep expenses low? None of these airlines are going to cut corners on maintenance, and not just because politicians are calling for increased scrutiny of financially troubled airlines, but because airline operations are 100-percent intolerant of less-than-excellent maintenance.
If there is something wrong with an airline's business model, then airline leaders should stay focused and fix the problem instead of frittering away valuable resources on questionable endeavors.
Aviation Today
At a conference held in 1999, called "Business Strategies for Bankrupt Airlines," executives from top airlines met to figure out how to manage the future.
Among the interesting seminars held at the conference, a couple were unusually prescient. The seminar titled, "Dealing with the Aftermath of Terrorist Hijackings" was well attended and almost perfectly timed for later events.
The most popular seminar, however, was called, "How to Launch a Low-Cost Subsidiary Airline When Your Bottom Line Drops Off the Face of the Earth." During this event, the audience sat rapt as Dr. Suplï Demandis explained how airlines should handle severe economic downturns. Demandis, who won the Nobel Prize for his groundbreaking research into the economics of how to determine when to pull airplanes out of storage or destroy them, offered these suggestions to his airline executive audience:
1. During good economic times, buy as many airplanes as possible and attempt to gain market share. This includes running some routes at a loss in order to shut out discount airlines.
2. If the economy really takes off, consider expanding outside your airline's core competency into third-party maintenance or fractional-share business jets. Diverse businesses could save your bacon.
3. When the economy is good, pay whatever your unions ask for and compensate your executives mightily. When the economy worsens, lay off as many people as possible, ask for wage cuts from pilots, mechanics, and flight attendants but above all, continue to compensate your executives at a rate disproportionate to reality so that they won't leave your airline.
4. If the economy slumps severely, possibly due to a terrorist attack or other economic catastrophe, as a last resort, launch a low-cost subsidiary airline. Make sure it has a cute name and always, always claim that you're basing it on the Southwest Airlines model, even if you have no earthly conception of what makes Southwest successful.
Okay, okay. I made that up. That conference never happened. No one was that prescient, except perhaps novelist Tom Clancy, who wrote about a rogue Japanese pilot crashing his empty 747 into the nation's capitol for reasons that had more to do with overt war than terrorism ("Debt of Honor," Berkley Books).
Ya gotta wonder, though, what is up with all these new low-cost airline subsidiaries with the desperately cute names? United's Ted (gag me, please!), Delta's Song, KLM's Buzz, Tiger Airways (Singapore Airlines), the list grows every day, it seems. Are these subsidiaries the answer to airlines' problems?
Perhaps, but low-cost subsidiaries are not new. There must have been a previous conference where the idea was first floated. Remember any of these? Delta Express, United Shuttle, Metrojet (US Air), Continental Lite? Not highly successful operations because they no longer exist.
If the answer to economic problems was so simple—just start up a low-cost subsidiary—we would already have seen that this works as a business strategy. Anyone for low-cost maintenance subsidiaries? Timco lite (Tim?), Goodrich (Rich?), or United (Ted's Excellent Maintenance?). Of course, this is ridiculous. No one with even half a brain would consciously skimp on maintenance, would they? And there are ways to perform maintenance efficiently, but do these techniques parallel those used to run a successful low-cost airline (no food, cattle-car seating, quick gate turns)?
What is annoying about the current fad of launching a low-cost subsidiary is that it seems like a colossal waste of time. Creating a subsidiary that employs the same personnel being paid the same wages is hardly a means of becoming more efficient. And so far, I haven't heard that any of these low-cost subsidiaries are also paying their mechanics, pilots, and flight attendants half a salary, so how do they expect to keep expenses low? None of these airlines are going to cut corners on maintenance, and not just because politicians are calling for increased scrutiny of financially troubled airlines, but because airline operations are 100-percent intolerant of less-than-excellent maintenance.
If there is something wrong with an airline's business model, then airline leaders should stay focused and fix the problem instead of frittering away valuable resources on questionable endeavors.
Aviation Today
