RICHARD PINKHAM LONDON
The world has changed for airline practices at all of the global consultancies, but firms are reacting to the changed landscape in different ways
The current period has been one of hard times and structural adjustment for the airline industry and its suppliers alike. In the same way that aircraft manufacturers and leasing companies have seen the nature of the demand for their products change, so too have the management consultancies that work with airlines in setting and implementing strategy had their world turned upside down. The changes, which have meant less revenue and a different way of working with clients, have catalysed dramatic shifts within the consulting world. Among the results are retraction by some industry giants and the birth of new companies able to meet the new challenges.
For most airline-related consulting practices, this is not a happy time. Apart from anything else, they have seen the sector on which they rely record unprecedented losses. This fact alone means that there have been greatly reduced amounts of funding available to engage external support. But other factors have also conspired to make the use of strategic management consultancies less pronounced than it has been in the recent past, several of them arising from the operating styles of the big consultancies themselves.
To be certain, there are elements of the situation for which no one is blaming consultants. That the airlines lack the cash necessary to pay for their services is simply a fact of life (although more than one airline executive has joked that the decreased travel budget of one of the world's biggest purchasers of premium-class air services has indirectly come back to hurt them). Neither are they to blame that growth - and the need for growth advice - is the last thing on most airlines' agenda right now.
However, according to professionals within both the consulting and airline sectors, the business short-fall has been exacerbated by dissatisfaction with the actions of the firms. An observation frequently voiced is that when an airline retains a consulting group, it often finds it has procured the services of junior consultants.
In addition to being no bargain - a top firm can bill junior associate time for around $1,600 a day - these younger consultants often require considerable training by the people they are being paid to assist. Furthermore, in the words of one former consultant: "Being less experienced they are prone to act in a politically inappropriate manner and ask na‹ve questions."
Nor is unfamiliarity with the finer points of airline planning - and a need to be trained in same - a complaint reserved for the junior advisors, as even the most experienced management consultant can be a novice to the airline industry. A planner at a US-based major carrier agrees, saying the consultants he has come into contact with "are talented, but it can be incredibly frustrating to spend time - waste it, really - training them in basic airline management". Director of route development at Virgin Atlantic Airways Barry Humphreys says of this situation: "You can spend a lot of time and money teaching consultants your game."
Notwithstanding lost time, others are not certain a general management approach achieves the desired ends in the context of an airline. A leading bank analyst says: "They bring valuable management techniques, but it's not always the best thing to have generalist consultants running what is a pretty unique business."
Recent results have not helped matters, either. Although no one wished to be named in saying so, many felt the failure of Swissair, which was publicly following the advice of a team of leading consultancies, had universally harmed their industry. In discussing the perception of his profession within the industry, one leading consultant observes: "How much McKinsey took off Swissair as its strategy ran the company into the ground is a popular theme for discussion."
Expensive help
Even with interventions that do not end in disaster for the client, airlines are increasingly wary of the costs involved in seeking outside help. Several consultants themselves say they appreciate the airline viewpoint.
One consultant who has worked with several of the larger carriers says: "Airlines are viewing consulting services as expensive and not necessarily good value for money. With a partner's services at a top-flight consultancy being billed out at $5,000-6,000 a day and senior managers and directors generating around $3,000 a day, you see a typical strategy engagement - not going too deep - costing the client around $500,000."
And airline rumblings are not idle complaints. They are altering how the carriers engage consulting, a trend that includes a tendency to do more work in-house, as well as a change in the types of outside advisors and projects they do contract.
Stefano Sala, associate partner with Roland Berger's airline practice, for instance, says that project interventions have almost completely replaced corporate strategy assignments. "Airlines no longer accept the idea of having a consultant locked in his office thinking big thoughts" he explains. "Since 11 September, no one wants to hear big thoughts unless they can be immediately translated into bottom-line potential."
Erme Serpen, vice-president for airline consulting with Sabre, agrees, saying: "The days of paying $2 million for a big, fat report that sits in the executive office are over. Now the emphasis is on turnkey service end-to-end projects - strategy followed by implementation to deliver the business result."
Nigel Wicking, a London-based airline specialist with Cap Gemini Ernst & Young (CGE&Y), believes that clients are looking for a consultancy that can move quickly from strategy to implementation, with the strategy often being of a functional nature, as opposed to dealing with overarching corporate vision. He cites a recent project with British Airways in which a three-day "accelerated solutions environment" facilitated by CGE&Y resulted in a programme that successfully reversed BA's then-woeful punctuality performance.
Airline clients also appear to be paying unprecedented attention to costs and to ensuring that the benefits generated by consulting intervention are sustainable. Sala says: "Airlines are buying consulting more professionally than they have in the past; the purchasing department is more involved than it has ever been. The client also expects even the highest-ranking consultant to be on-site [to facilitate] the transfer of know-how in using tools, processes and data."
Specialist skills
The type of consultancies airlines use is also changing. Specifically, the connected needs for cost reduction, more functional advice and sector-specific expertise has led to the growth of smaller, specialist firms.
Mark Derby, a former consultant with Deloitte and IBM Consulting, one month ago established Aviation Strategy Consulting in London with 15 other airline management experts. Even as industry spending on consulting decreases, Derby and his associates believe the timing is right to open their own consultancy.
"Airlines," he says, "have decided that if they are going to take on a consultancy, they want someone who knows their business, and who will be able to give them real help without costing an absolute fortune. All this favours a move towards smaller consultancies."
Explaining that his company will not have anywhere near the overhead requirements of a larger outfit, he says he can price his services considerably lower. "Our rates are $1,000-1,500 a day, depending on the type of engagement. On a like-for-like basis, the cost of hiring us would be one-third of the larger firms, and the client won't see anyone under the age of 40."
This movement towards boutique firms or larger specialising companies like SH&E and Sabre, combined with carrier reluctance to pay for external resources, has meant decreased airline business for most generalist management consultancies. In response, they have had to let consultants go and contract their airline practices.
Some professionals, such as independent consultant Graham Howarth, a veteran of CGE&Y and ATKearney, believe that this could challenge the ability of those houses to maintain the "critical mass" of airline consultants necessary to field a bona fide practice. It stands to reason that - given the feelings generalists can evince in the airline community - this could be the beginning of a vicious circle, further alienating the airlines against the large consultancies.
Others, however, believe that any speculation on the demise of the consultancy's role in the airline industry is premature, to say the least. For instance, Stan Pace of Bain Consulting says his company - which focuses on fundamental transformation of troubled companies and was a key player in Continental Airlines' turnaround in the early 1990s - has found its airline practice oversubscribed.
Speaking more generally of the industry, Howarth says that, although specialist firms are doing well now, ultimately, their offerings are limited. "In many cases," he says, "the best type of external support involves the leveraging of knowledge outside sectors, as opposed to just airline knowledge." CGE&Y's Wicking is also optimistic about the future of the large consultancies, saying when carriers want to deliver large, successful change programmes, it is to the big houses that they will turn.
At base, Wicking's confidence is born of a belief that this is not a fundamental sea-change in the market. "There will be a recovery for the bigger players in this market, we're just not at a moment in time when their services can add significant value." He elaborates on this conviction in terms familiar to any airline executive. "The consulting industry is cyclical. Lean times promote the birth of smaller entities with more specific market niches. When the environment improves, these firms are often absorbed by the - suddenly revelant once more - major players."
Source: Airline Business
