What Would You Do If You Ran The Airline?

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11/02/2009 – What Would You Do If You Ran The Airline?

Yesterday USA Today ran a travel column by David Grossman entitled “What would you do if you were CEO of a major airline?”

The timing of David’s column for me comes after a significant  time of thinking about this same question.  My approach to operating a business is not that of a CEO, COO, CFO or even an MBA.  I have no business background,  I am a professional photographer who also operates a niche business focused on commercial airline travel, The Travel Strategist and who builds airline related emerging media strategies.

However reading David’s column I was struck by how similar many of our tactics would be for operating an airline.

Honestly, it is easy to say “What would  you’d do if you ran an airline”  if you are not dealing with sliding stock prices, investors getting antsy and negotiating with unions.   But having a clear and defined concept based on a variety of factors, I set out a little more than a month ago to come up with my 12-point plan for this exact question.

For the purposes of this ‘you’re the CEO’ exercise my airline, “Widget Air,” is a mix of point-to-point US domestic operations and international long haul routes. The target of service would be an economical, but not a low cost carrier, operations.   Somewhere between Ryanair and Cathay Pacific there is room for “Widget Air.”

1) Equipment
In starting up the operations the fleet would be streamlined. In streamlining the operations short-to-medium/trans-continental haul routes would be operated by the Airbus A320 series of aircraft (A318/319/320/321) with the long haul routes being operated by the A330, both the A332 and A333 variants, which could also operate on high traffic trans-continental domestic routes.

Traditionally US based airlines have heavily favoured Boeing, and many US legacy carriers currently operate a mix of Boeing and Airbus aircraft.   However an Airbus family of aircraft offers a lower cost of operation. Not only are the aircraft newer in technology for many of the used and leased aircraft available, but they also share common parts reducing maintenance costs and a common cockpit.   A common cockpit means flight deck crews can be swapped around the entire inventory of equipment. This reduces training costs and the need for greater redundancy in pilots who fly ‘specific aircraft.’

The overall return-on-investment (ROI) on a fleet consisting of only Airbus A320 and A330 aircraft would reduce overall expenses and give Widget Air a competitive edge of over other carriers operating combined fleets of non-compatible aircraft.

2) Ground Operations
Ground operating costs for airlines eat up not only salaries, but also ground assets, such as ramp tugs, baggage loaders, tractors, etc.   In an effort to reduce costs ground operations would be outsourced at all airports outside of primary ‘hub’ and ‘focus’ airports.   Utilizing companies such as Servisair or Evergreen (EAGLE) to handle ground logistics, baggage and ramp operations could reduce significant costs.

3) Route Structure
The initial route structure of ‘Widget Airlines’ would focus on key point to point high business traffic cities. These cities include New York, Washington DC, Dallas, Chicago, Las Vegas, San Francisco, Los Angeles, Seattle, Miami, Philadelphia, Boston, Denver, London, Frankfurt, Amsterdam, Paris, Hong Kong, Seoul, Mumbai, Moscow, Osaka.

Each of these cities is not only high traffic for business, but also a gateway to another carrier’s hub for potential partner connections. Additionally each of these gateway cities are prime cities for both leisure traffic and cargo. Cargo would play an integrated roll in the financial planning of Widget Air.

4) Customer Experience
Each aircraft would be equipped with both in-seat power and WiFi throughout the cabin.    In-seat power and the ability to connect to the internet are prime features to attract business travellers.   As seat capacity is reduced globally and business travellers are forced to review their travel policies, ‘Widget Air’ would be primarily focused on these travellers.   The airline would obviously seek out leisure travellers, but the in-flight services would also be a plus to those travelling for pleasure rather than business.

While the investment in in-seat power and wireless internet in flight adds to the overall cost of purchasing an aircraft and reduces the airline’s ability to lease aircraft, the ROI should make up for the initial expense.

Cabin seating in economy would include 34″ of pitch with 17.5″ wide seating.   While this reduces the amount of passengers on an aircraft it add two benefits.  The first benefit is that fewer passengers require less flight attendant to service the flight.  Secondly reduced passengers numbers reduces the weight of the aircraft to allow a flight to handle more cargo, and cargo generally generates a higher profit yield than passengers.

Transcontinental dedicated aircraft and internationally configured aircraft would operate in a three-class set up, with economy, premium economy and business class.

Premium economy would follow the trend established by British Midland/BMI on it’s A330 fleet of aircraft. Seating would include an over-sized recliner of 49″ pitch and 21″ width. The premium economy product would essentially be a ‘business class’ seat and service, sold as ‘economy.’   By making a higher-level product, sold at in an economy class fare, business travelers could have a business class experience, while staying with corporate travel guidelines to fly in economy class.   This would effectively eliminate ‘Y-Up’ fares and build a product that was sought after by business travellers.

Business class would be built on a mid-level business class product.   Widget Air would not be competing on the cost and product structure in place created by more expensive carriers, such as Singapore Airlines or British Airways.   The target market is affordable business travel and this would include 2-2-2 seating on the A330 and 1-2 seating on an A320 series aircraft, rather than the single “suite’ in a herringbone pattern being used by Virgin Atlantic and Air New Zealand. This would more closely follow United’s new Business Class product , while maintaining a focus on business effectiveness in transit and when justifying costs to a corporate travel manager.

5) Customer Service
Rule 1 – Honesty, if it’s broken say its broken. If its weather say its weather. If the plane is delayed 3 hours don’t say it is delayed 45 minutes.  There are enough online resources to track in-bound and out-bound aircraft to call a customer service rep out and tell them they are lying to you.   Why give passengers a reason to doubt the company if the policy is transparent and information is freely given.

Create an atmosphere of trust and you’ll earn customer loyalty.

6) Employee Relations
Employees are an integral part of any company’s success.   While employees should always perform at their best and strive for customer service, incentives are always a way to boost company moral and employee retention.    Happy long-term employees can only further an airline’ s success.   Through the structure of “Widget Air” employees would be presented with a variety of incentive programs.    One program would be profit sharing. If the company succeeds everyone succeeds.  Additionally employees would receive bonuses for performance and additional incentives when customers praised them for customer service if they worked directly with customers.

A primary focus would be on employee retention and promotion from within.  Retaining valuable employees would reduce human resources and training costs, build loyalty among employees and customers and create a positive ‘corporate culture.’

7) Corporate Culture
The corporate culture of Widget Air would be simple; everyone has a voice in airline performance and streamlining operations.   If a baggage handler says something is not working and has a solution to streamline the process, their idea would be listened to, and if viable tested and put into action.

Every employee from a ramp agent to the CEO would be encouraged to speak up praise the good and detail the failures and short-comings of the airline.

Management would be required to spend a pre-determined period of time working customer service at the gate, at the check in counter, on the ramp with baggage and on the phone fielding customer complaints.   Managers, from low-level managers through the CEO must understand the front line employees and understand their working conditions.  There is no better way for a CEO, CFO, Marketing Director to understand the complete range of employee conditions than to stand outside for 8 hours in Boston loading and unloading baggage in February.

First names would be the primary names. As all employees have a voice, everyone would not only have their full name available to the public for both positive and negative comments, but removing formalities allows for an open exchange of conversation between all levels of employees.

Additionally, all management would be required to fly a predetermined number of flights throughout the route structure annually.  These flights would be flown in a mix of all classes of service.   By having management fly the airline, in a mix of classes of service, they get to see the airline from a customer level.   If the option to upgrade a frequent flyer were available by bumping a manager to a lower class of service, the frequent flyer would be accommodated.

8 ) Space Availability
Airline seats are perishable. As soon as the cabin door closes an empty seat has spoiled and that potential to fill the seat has expired.

To make up for these loses; window & aisle seats would be available to be pre-booked on a space available basis.  On the day of travel, middle-seats that are available would be sold at last-minute discounts. In the gate area, parties who wish to purchase an empty middle seat to ensure that seats stays open would have the option to ‘buy’ the middle seat to stay open rather than play roulette hoping the seats stays open.  Purchasing the empty middle seat, based entirely on space availability, would also gain the purchaser of the seat partial frequent flyer miles.

This is a way to pick up additional revenue on a seat that could potentially fly with no revenue what-so-ever.

Additionally all frequent flyers with any ‘status’ would be able to fly stand-by for any same-day flight at no additional fee. All ‘non-status’ flyers would be subject to a minimal $25 administrative fee to fly standby.    The seats will fly empty once the door shuts, there is no point in closing these seats out to passengers seeking to fly to the same destination on an earlier flight is there is seat availability.

9) Secondary Revenue
Using the lighter passenger loads created by adding slightly more space available on the aircraft would allow for additional cargo capacity.  Widget Air would aggressively seek out cargo partners, especially on overseas flights, to maximize cargo profits.  Some routes may also warrant the purchasing of ‘Combi’ aircraft for certain routes.

While there are some strict regulations that regulate the construction of a Combi, such as the problem with moveable walls, as per FAA regulations, many airlines continue to fly 747-Combi aircraft, and Alaska Airlines operates a set of 737-400-Combi aircraft, so these aircraft are available. This aircraft creation would add initial cost to an Airbus A330-200LR, however in the long run on some routes this should prove to be profitable (Example : A332 on JFK-ICN & A333 on LAX-ICN routes).

The North America-Asia routes are prime targets for cargo and would be heavily explored and implemented as possible.

10) ‘Reverse Revenue’
Many airlines have made the shift to charging for every item available.   Widget Air would have the reverse plan.

All passengers would be entitled to 2 checked bags on all flights.   Passengers who choose to check a single bag would have the cost of their airfare reduced by $10 to $15 ($10 for domestic and $15 for international).   Passengers who check no bags would have their airfare reduced by $20 to $30 ($20 for domestic and $30 for international).

This policy not only gives passengers incentives not to check bags, but it reduces the overall weight of the aircraft and allows for more paid-cargo to be loaded onto the aircraft.

All passengers would be entitled to a meal, in all classes of service, on all flights over 2hrs 45min.  Passengers who choose to not have a meal on the flight would have their airfare reduced by $7.

By working in a reverse revenue cost, in shows passengers the options are available at no additional cost, but rewards them for ‘taking less’ from the airline. This would not only gain customer appreciation, but also create a financial incentive program for the airline.

11) Alliances & Frequent Flyer Programs
Widget Air would follow the lead of Alaska Airlines and not seek to join an airline alliance. By being an independent airline, the carrier would be able to seek out mutually beneficial agreements with a variety of airlines across alliance boundaries.   Not being tied to a single alliance allows for more lateral freedom to move passengers from point to point.

The ‘Flying Widget’  (Widget Air’s frequent flyer program) would be clear and easy to use.  Passengers would gain 1-for-1 earnings for BIS miles (Butt In Seat Miles).   1.5x miles for premium economy and 2x miles for business class.      The system would be set up in three tiers.  Silver/Gold/Platinum @ 25k miles,50k miles,75k miles.   Bonus miles would be awarded based on status, upgrades would be based on status, with additional double-upgrades for the highest elites.    Upgrades would be based on status and availability; this includes international travel for at-the-gate upgrades.   Making sure the elite flyers are happy is most important.    A happy frequent flyer breeds further happy frequent flyers.

The frequent flyer program would seek partnerships with any mutually beneficial airline.  All customer service perks, except upgrades, would apply to the elite flyers of partner programs. Even though Widget Air would not be in an alliance, it would use its program to try and bring over new flyers from partner airlines

12) Management Pay
The senior management pay and bonuses at Widget Air would be based on performance.   If the airline were not making money, no bonuses would be awarded to Senior Management. If the airline were financially in trouble, the CEO would receive a reduced pre-determined salary and forgo any bonuses.

Employees cannot be expected to have high moral if the airline is failing and the CEO is receiving a bonus for their failed mission.  Employee moral is paramount and the CEO most always be held accountable.

…so that is how what I would do if I ran the airlines.

What would you do?

Happy Flying!

Comments

  1. I see only one problem, and maybe with your expertise, you can explain it, but you have no stops between Chicago & Denver. . Minneapolis, St. Louis, Kansas City. . don’t these make sense to Widget air? Just wondering. Thanks!

  2. Doug,

    The plan for Widget Air is to form partnerships for code-share flights, similar to Alaska Airlines’ operating structure. Alaska offers services to many cities they do not directly service through strategic alliance, while being able to keep them selves out independent of an alliance.

    In the case of Alaska, many routes are created as code-share service through an agreement with American Airlines. Alaska also however code-shares flights with Delta/Northwest, Continental, Air France-KLM, Qantas, Korean Air and LAN Chile.

    Hope this explains the gap in coverage. Also keep in mind that my concept is fora start-up carrier. It is easier for a carrier to focus on 15 cities at the time of start up than 90. The start up cities need to be very carefully chosen to avoid failure.

    Happy Flying!

    -Fish

  3. Doug,

    I do believe Widget Air is having some trouble sourcing the start-up capital to begin building the airline.

    Until then, book your flights as you always have in the past :0)

    Happy Flying!

    -Fish

  4. I’m curious. How would your last minute center seat sale work, as no passenger is allowed access to the gate without a ticket in hand per the new TSA rules in place after 9/11? In your thought process for the aircraft selection and utilization, did you consider any FAA requirements for training or rest/duty requirements for the pilot crews? The employee profit sharing sounds good, but how would the individuals who never have contact with the public ever be able to qualify for that additional bonus due to customer praise? If this “customer praise” bonus plan is not available to all employees, then would it not be considered somewhat selective, unfair, and creating disencentive within the workforce that would not have the “customer praise bonus” option available?

    My intent is not to be extremely critical, but to merely point out some areas that I see as perhaps needing “just a little more thought”.

    I do love your concept of “Happy long term employees”, but suspect that your code share concept would not instill much confidence in your employee group if they saw the flying being operated on another property. Otherwise, your fantasy airline sounds like a great place to work, and a better place to fly as a passenger.

    Good luck 🙂

  5. Capt,

    The last minute center-seat block off would be available to passengers within 60-to-90 minutes prior to the flight, based on space availability. Not many last minute seats are sold 60min to 90min prior to a flight (although I have purchased at least one seat I can recall 35 minutes before a flight as the customer service rep scrambled to get me confirmed before the 30min rule shut her out of the system). I am not sure how the airport security issue is a factor. Passengers paying to block a middle seat would be ticketed and confirmed passengers already holding a boarding pass. They’d be through security at the gate, in the lounge, or at a customer service desk with their boarding pass already in their hand. You can cross security with a boarding pass for an 11:00pm flight at 5:00am if you already have it printed and in your hand by checking in online.

    For revenue purposes the sale of a seat would trump a blocked seat, so there are some logistics that need to be worked out, but overall the system is straight forward.

    In regard to crew staffing requirements and crew rest situations, this has been factored in. In fact JetBlue was able to reduce its staffing needs by one flight attendant due to its new seat spacing. JetBlue brings in additional revenue by selling the seats with an increased seat pitch at a higher cost, while having a cost savings by reducing its per flight staffing needs. Obviously the staffing of a flight would not violate regulations.

    Passenger load factors also do not interfere with the staffing and rest requirements for pilots, which is why the A330s would have a crew rest area, just like the crew rest areas in place on other carriers A330/340 aircraft.

    As for incentives for those with no direct passenger contact, they would receive incentives based on performance. Performance bonuses would work in two ways. The first would be a manager recognizing an employee and initiating the bonus. The second would be ‘unit’ bonuses based on performance, such as an ramp agents at an airport consistently turning around aircraft in a consistent period of time. ‘On-time’ would be important, but delays can happen due to ATC, weather or mechanical delays and employees should not be held to a system that is often out of their control, so an additional performance system would be put into place. Incentives need to be even throughout the employees of the company, as they are a proven motivator to increase performance companywide.

    Code-sharing should not work against employee confidence. Alaska Airlines has extensive code-share agreements with American Airlines and is expanding their code-share network with Delta/Northwest. While Alaska Airlines has been facing a financial rough patch over the past year like many other US carriers, overall the airline is well liked, has one of the best frequent flyer programs and they seem to have many long term employees, as least in my experience of who I have dealt with as a passenger flying Alaska Airlines.

    With all this said, as previously stated, I am not an MBA, I am not a CFO or a COO. What I am is a long time involved observer of airlines and the industry. I also operate a small business that helps other business travel more effectively, and slowly moving in the direction of consulting with airlines on more effective ways to expand and maintain a loyal customer base. Through all of my research the above outline is how I would set out to operate an airline.

    If anyone has a spare US$1,000,000,000 in investment capital and access to an outstanding CFO and COO with industry experience who are capable of thinking outside the box, send them my way, I’d love to chat.

    Happy Flying!

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