This year's annual focus on management consultancies looks at the benefits and pitfalls of firms connected with individual airlines
Partially in reaction to the hefty costs involved in retaining management consultants, several airlines have in the past created internal consulting arms, hoping to get a similar level of assistance with less outlay. Taking the concept a step further, some carriers have seized on the notion that their industry knowledge and capabilities represent saleable goods and have formed companies to sell their expertise to other airlines and players in the aviation sector.
The biggest of these is Lufthansa Consulting, which is wholly owned by the Lufthansa Group but became a separate entity in 1988 as part of Lufthansa's pre-privatisation restructuring. Based in Cologne, the group initially leveraged its parent's reputation for operational excellence by offering mainly technical services consulting. Now, however, Lufthansa Consulting's commercial and strategy offerings represent the fastest growing part of its business, says managing director Kim Flenskov.
The unit works with airlines across the range of geographic and revenue segments, providing different services to each. Consultant Bert van der Stege says client carriers from the developing world typically contract for more comprehensive packages including commercial and operations areas. He cites the project begun recently for Air Madagascar, for which Lufthansa Consulting has posted five consultants to spend two years revamping the carrier's entire operations. The company has performed similar work at carriers like Garuda Indonesia and was recently retained to help bring Tunisair to profitability.
Technical heritage
By contrast, says van der Stege, the group principally provides technical assistance to airlines closer to home in Europe and North America. Carriers that have hired Lufthansa Consulting for operational assistance include Austrian Airlines, Spanair and Icelandair. Also among its billable work are assignments conducted for sister company Lufthansa German Airlines, which typically accounts for 15-20% of the consultancy's output.
Founded in 1998, Air France Consulting (AFC) comes from a similar, if smaller, mould. Its 2002 revenues came in at €4 million ($4.6 million), compared with Lufthansa's €21 million. Like its German counterpart, AFC provides carriers with both technical and commercial assistance.
Most of the group's activities involve airlines with which Air France collaborates, such as an operational quality improvement project at fellow SkyTeam member AeroMexico, or with carriers from former French colonies. Representative assignments include the whole-scale revitalisation of Lao Airlines and a revenue management assistance project at Royal Air Maroc.
Unlike Lufthansa Consulting, AFC does not have a staff of full-time consultants, but draws from the rest of the Air France Group on an as-needed basis, says marketing director Bertrand Cuisinier. In fact, even group chief executive Marie Joseph Mal‚ divides his time between AFC and the French subsidiary of global distribution system Amadeus.
Two other consultancies, Speedwing and Sabre Airline Solutions, have their origins in airline ownership, but have since been released by their carrier parents. Speedwing was founded by British Airways and undertook such projects as the attempted turnaround of Greece's ailing Olympic Airways and the successful privatisation of Kenya Airways.
As part of its decision to concentrate on core business, BA sold its consulting arm in mid-2002 to the Jacobs Consultancy, which folded it into its existing transport practice. Since then, the unit, which includes change management and commercialisation among its core competencies, has undertaken assignments for AeroMexico and Air Tanzania, the latter being helped to restructure and prepare for partial privatisation.
Sabre Airline Solutions was born out of the Sabre global distribution system, owned for years by American Airlines parent AMR, but was spun off by the carrier in early 2000. With independence, Sabre's consulting arm has used the platform of its expertise in data and modelling to advise more than 200 carriers in revenue enhancement through schedule, network and fleet modifications.
The experiences of these companies tell different stories about the advantages and pitfalls facing airlines that try to leverage their industrial knowledge to generate new revenue. Lufthansa Consulting head Flenskov says the association with the airline has been a boon on many levels. Lufthansa's recognised overall excellence is the only advertisement needed in several skill areas, both technical and commercial.
That said, the association brings baggage with it too. Flenskov says the perceived link with the airline is as responsible as anything for the fact that his consultancy has never done work for any carrier that substantively competes with Lufthansa. "The brand is a benefit," he says, "but it's also a hindrance."
Flenskov adds that this situation exists even though the client's data is always completely protected by a "Chinese wall". Indeed, he says, an airline's data is every bit as safe with Lufthansa Consulting as it would be with a mainstream consultancy, because of the common practice of a consulting firm using information and "know-how" learned in an assignment for one carrier to the benefit of subsequent airline clients.
Independent benefits
John Scaife, formerly with Speedwing and now leading the airline practice at Jacobs Consultancy, reports similar findings. He says the group's current proprietor enjoys many of the benefits of the unit's former affiliation, but none of the disadvantages.
"People recognise our BA heritage and know a lot of our consultants are former BA managers," he says, adding that the company no longer has to deal with the doubts that used to dog Speedwing's marketing efforts.
"In the mind of the client, there was always the question of whether we could provide truly objective advice, so the BA link was a double-edged sword: the badge of credibility versus the objectivity question," he says. "Now, with our new ownership, the BA tie is no longer an issue and we're able to win contracts we never would have been able to - such as those to advise UK-based airlines."
The experience at Sabre suggests that the consulting business can hope to establish its own reputation even after the link with a carrier has faded. Emre Serpen, vice-president with Sabre's consulting arm is clear that as far as potential clients are concerned "the American link is history". However, Sabre does naturally retain its powerful linkage to the distribution system name.
An interesting blend of independent consulting and airline branding comes from SH&E, the specialist aviation practice. In 1998, the partners of the long-standing independent consultancy sold a large minority share to Lufthansa Systems, the German airline group's IT arm.
Chief executive and chairman David Treitel says the company knew that, going forward, the association would potentially hurt its marketing efforts in some quarters. At the same time, it also believed the negatives would be outweighed by the business development benefits it would bring. These included the advantage of a broad association with the Lufthansa Group, as well as the synergies to be had from linking consulting and IT services. Sabre grew its consulting services for just the same region, says Treitel. Others like IBM and Unisys too have developed aviation consultancy links.
Although the union has achieved less than was envisaged when it was consummated, Treitel pins the blame on the industry downturn, rather than on a lack of substance to the partnership. He says the partnership is well placed to capture a healthy portion of the opportunities that an improved business climate will bring, especially in the burgeoning outsourcing arena. "We have yet to hit our stride," he says. n
REPORT BY RICHARD PINKHAM IN LONDON
Source: Airline Business
