A casual reader of this issue of Airline Business could be forgiven for not realising that 1996 is a vintage year for the the airline industry. Just consider some of the stories:
Alitalia fights for approval for a $2 billion capital injection, as sceptics argue that its restructuring plan may not go far enough;
* Canadian Airlines faces two more years of tough trading before its debt payment obligations ease;
* British Airways plans a $1.5 billion cost-saving programme including 5,000 redundancies;
* Delta Air Lines launches a low-cost carrier to help it compete with Southwest;
* Air Liberté struggles for survival as rival carriers aim to purchase it;
* Deutsche BA sells its turboprop operation;
* UK startup World Airlines has its aircraft impounded but finds a new buyer.
The most successful airlines expect to make record profits this year, and many carriers have turned themselves round. But life for some airlines, large and small, continues to be troubled.
When British Airways celebrates being the world's most profitable airline by launching a $1.5 billion cost-saving programme, you know that the good times are simply not good enough. Less successful carriers may not even have noticed the good times.
Restructuring used to be something that companies did once in a while when they hit problems. Nowadays, it is a continuous process. This phenomenon is by no means restricted to the airline business. It has become an enduring feature of the 1990s business world, encompassing virtually all industries - airlines, manufacturing, telecommunications and public utilities.
At some stage, there must be a limit to cost cutting programmes, since costs cannot be cut back to zero. However, most airlines feel they are nowhere near the limit yet.
Restructuring is therefore a permanent feature, and this has altered the factors required for success. With one-off restructuring, the success factors are straightforward: identifying the company's weaknesses; creating a plan to solve them; obtaining the agreement of shareholders, managers and staff; and implementing the programme.
Things are not so simple any more. Being in a state of permanent restructuring brings additional factors to bear.
The first is timing. Companies such as BA can obtain a significant competitive advantage by starting their restructuring early and staying with the process. Others, including Alitalia, suffer enormously by starting late, because other carriers' continuous restructuring successes widen the gap. It becomes extremely difficult to catch up.
The second factor is imagination. The first phases of restructuring comprise what Air Canada president Lamar Durrett describes as 'low-hanging fruit' in an interview in this issue of Airline Business. The initial steps of cutting out organisational fat, refinancing debt and lease obligations, and spin-offs of easily identifiable non-core assets cannot be described as easy, but they are relatively straightforward. After that significant improvements in unit costs and productivity can only be achieved through a major upheaval.
The third factor is good employee relations. People are becoming accustomed to working harder for less money, but as restructuring moves forward there is likely to be an adverse reaction to still more demands for concessions, especially if the employees perceive that the company is doing well, and that shareholders and senior managers are reaping rich rewards. Since service and safety are vital ingredients to success, good management of staff through a continuous process of upheaval is critical. Some say that employee ownership can help here, but others feel that it leads to compromise and conflicts of interest.
Furthermore, the uncertainty created by constant restructuring affects employee performance. The combination of a high workload, long hours, tough deadlines and a climate of fear over possible job losses is very likely to lead to an increase in stress-related illnesses. Quite apart from employers' moral obligations to their staff, there are practical considerations: highly stressed employees make mistakes and habitually take sick leave.
The pressure to find new, more efficient ways of doing things is never going to go away. The combination of intensifying competition, vulnerability to external political and economic factors, and a perishable product means that airlines will always be on the front line of change. The one essential ingredient for longterm success - and, indeed, survival - may be a simple but elusive commodity: staying power.
Source: Airline Business
