Airline Business award
Presented to Pierre Jeanniot
The Airline Business award is presented by the magazine itself to an individual who has made a sustained contribution to strategic leadership within the airline industry. Few fit that profile better than Pierre Jeanniot.
As director general of IATA, a post from which he finally stood down this year, Jeanniot has overseen a decade of change within air transport and throughout has championed the cause of a more commercial and consumer-driven industry better equipped to ride out the economic cycles. He has also consistently lobbied for the same market disciplines to apply to the industry's service and infrastructure providers, as well as arguing for a more coherent transport policy from the world's regulators. Jeanniot himself played a part in airline deregulation as the chief executive who took Air Canada through its privatisation in the late 1980s. He also went on to act as consultant for Bombardier on the project which later emerged as the first of the new breed of small regional jets.
If Jeanniot has come to be regarded as the industry's elder statesman, then that role was never needed more than during the crisis of the past year. He led IATA's effort to get the world flying again, staying in contact with regulators and carriers on both sides of the Atlantic. Perhaps just as important, he also provided a much-needed sense of perspective: confident that traffic would return but characteristically cautioning the industry not to add back capacity too fast.
Corporate leadership
Presented to
Xabier de Irala, Iberia
The transformation of a loss-making state-owned flag carrier must rank as one of the toughest of all management challenges. Not only is there the usual inertia and entrenched labour positions but also the need to work around the sensitivities of national politics and pride. Xabier de Irala has managed just such a transformation at Iberia. When he took the helm at the in 1996 state support was no longer an option and the Spanish carrier had few guarantees for its long term future. Yet by April 2001 Iberia was floated on the Madrid stock exchange as a private and profitable corporation.
Irala's career was forged in the private sector with 25 years experience of heading Spanish operations for European industrial giant ABB and then General Electric (GE). He was brought to Iberia by Spain's newly elected centre-right government with the clear task of privatising the carrier. "This meant that first the airline had to be turned around. We had to make it profitable," he says. "On my first day we had a plane hijacked to Cuba. It was an exciting first day and it has been exciting all the way since."
Irala has put into practice the philosophy of his former boss at GE, Jack Welch. A key challenge has been injecting the philosophy of the private sector into a company with a strong history of state ownership. "My friend Jack always said that when a company is losing money you can do three things: fix it, sell it or close it down."
Irala describes the restructuring process as going "back to basics," saying: "It was a matter of survival. We are not in northern Europe, so our yields are always lower than the competition," he says, with reference to the tendency for Mediterranean carriers to rely more on tourist traffic.
The fleet was modernised and simplified and headcount was reduced. Iberia has managed to cut its labour costs and keep a rein on wages. Irala also finally jettisoned the group's investments in the loss-making airlines of Chile, Venezuela and Argentina.
More fundamentally, he has also led a "top-to-bottom" reworking of the network. Rather than attempt to retain world coverage on its own, Iberia has refocused on its natural strengths, with high volume, (albeit low-yielding) tourist traffic to the holiday destinations in Spain and a leading position on the Europe-Latin American sector. "This was the right strategy for us," says Irala, also pointing out that Latin America is not a single market. "When some are weak, others are strong," he says referring to the recent crisis in Argentina.
Along the way there have been some tough decisions such as dropping direct services to Asia, including the controversial closure of the loss-making Madrid-Tokyo route. Instead, Iberia has looked to the oneworld alliance to provide its global reach. The result is that Iberia has continued to thrive. Despite the crisis, in the first four months of 2002 Iberia has seen unit revenues grow by around 3% while unit costs were down by a similar amount.
He is at pains to point out that this turnaround could not have been achieved without a supportive political climate. "The key success factor has been the lack of government interference," he says. That left him free to impose new commercial disciplines. "The challenge is not a technical one. We have the expertise. The issue is getting the right vision and communicating it." That boardroom vision is certainly now much clearer than ever it was at Iberia.
Regional airline leadership
Presented to
Jerry Atkin, Skywest
Very few airlines have managed to keep the business a family affair, but, under the leadership of chief executive Jerry Atkin, SkyWest has shown that it can be done. Although the business is no longer controlled by his family, Atkin has helped the growing US regional retain a family feel and has staunchly defended its independence.
While others have, on occasion, struggled to handle the dramatic growth rates ushered in by the advent of the regional jet, SkyWest has quietly risen up the ranks to emerge last year as the world's largest independent regional. Along the way it has avoided the labour disputes and ownership issues which have flared up elsewhere in the sector, while continuing to produce steady profits for its shareholders.
Although the carrier was hit by the crisis last year, it still flew more than 6 million passengers and generated a highly respectable 9% net profit margin on sales of more than $600 million.
Established in 1972, SkyWest became a Delta Connection carrier in 1986, based in Salt Lake City, and also became a United Express carrier in 1997. Since then it has systematically gained market share, displacing two other regionals as the main provider of United Express services at hubs in Denver, Los Angeles and San Francisco. Equally significant, SkyWest has been able to insulate itself from the escalating problems at United.
Atkin, who took over SkyWest in 1991 from its founder, his uncle Ralph, says his guiding philosophy for SkyWest is simple. "We think like a family and act like a family. We are not family controlled, but the family culture is central," he says, speaking from a staff barbecue held to celebrate the airline's 30th anniversary. Atkin was about to take off on a week-long series of visits around the airline's 53-city system, during which he was to throw a similar party for staff at each stop.
Flying on his own airline is nothing new for Atkin. "I spend two to three days a month on the road visiting our people," he says. Efforts such as these are appreciated by the carrier's employees, many of whom are 20-year veterans. Atkin recalls that at its highest, employee turnover was less than 20% and today is almost non-existent. "I think a lot of our people end up staying longer than they intended. We pay well, and pilots can advance rapidly, making regional jet captain in four years, and have a desirable lifestyle," he says. "When we had a growth spurt in 1997, we said keeping the family atmosphere was important. As long as you focus on it, you can [keep it]."
However, Atkin is thoroughly pragmatic and does not see this solely as a noble goal. A close-knit culture is the key to quality, he says, adding his motto: "We never wanted big. We wanted good."
Finance
Presented to
JetBlue
Since JetBlue Airways took to the skies early in 2000 the low-cost start-up has hardly looked back. Its unique model of stylish service but at straightforward prices has propelled it to impressive growth. But behind its cool exterior, the JetBlue management team has kept a tight grip on finances, ensuring that the carrier has access to the cash and profits needed to sustain its vision.
David Neeleman, the mastermind behind JetBlue, raised start-up financing of $130 million from some of the USA's most savvy investors - the most raised by any new entrant since US airline deregulation in 1978. The initial capital allowed the carrier to fashion a business plan that it could execute without the hand-to-mouth experience of most start-ups.
The backing has allowed JetBlue to insist on quality and to use advanced technology throughout its operation. The fleet is based not on old work-horses but on brand-new, single class Airbus A320s. These are configured with leather seats, offering generous legroom and seat-back monitors with free directTV satellite programming. The carrier also chose JFK, New York's primary "international" airport, as its main base. Together with a simplified, largely unrestricted low-fare structure, the JetBlue experience has attracted growing numbers of passengers including a steady following among business travellers.
The substantial initial capital, from the likes of George Soros, Weston Presidio and Chase Capital, is always mentioned by Neeleman as one of the factors that led to JetBlue's early success. "My philosophy is that you can never have too much cash in the airline business," he says.
The philosophy has paid off, allowing JetBlue to continue to grow even faster and more profitably than planned. It turned a profit in its sixth month of operation and stayed profitable through the recent crisis The carrier continues to expand its fleet and services, with an admirable operational reliability and traffic growth which has outpaced a three-digit rise in capacity. The carrier filled 83% of its seats and had a 100% completion factor in June.
Its still-falling unit costs, non-unionised workforce and intelligent scheduling (which results in daily aircraft utilisation of more than 13 hours) are the envy of other carriers. By year-end it plans to operate 36 A320s to 20 US cities, up from 21 aircraft and 18 destinations at the start of the year.
JetBlue also netted more than $147 million in its initial public offering this spring, a shares issue substantially oversubscribed even after the number of available shares was increased. The price of the stock rose nearly 70% on the first day of trading, and has held up remarkably well since - despite the stock market's general woes. That is largely thanks to investor confidence in the apparent robustness of its business model.
Neeleman's strong track record in creating new, profitable businesses and the talented management team he assembled has been instrumental to JetBlue's financial success. Without it, the airline would not have been able to attract initial financing or raise additional capital twice more from its original investors - including after 11 September, just in case it was needed - or gone public this year so successfully.
Constant re-assessment of its operations and a striving to do better is endemic throughout the airline. "We're only as good as our last flight," Neeleman emphasises.
Marketing
Presented to
easyJet
Since its launch in November 1995 with just two Boeing 737-200s, the name easyJet has become synonymous with the low-cost sector. Its reputation, forged in the UK, has since been exported to Europe with a marketing reach dwarfing that of some of the region's major national carriers. This year it emerged as Europe's largest low-cost carrier. It has also been pushing into higher yielding business travel markets. Yet its brand values have remained as strong as ever, standing for a low-cost but consumer-friendly experience.
The credit for easyJet's early success rests with its charismatic and high profile founder Stelios Haji-Ioannou. His sense of fun and his vision of an "easy" brand, which extends from rental cars to Internet cafes has earned him frequent comparisons to Virgin boss Richard Branson. Following the carrier's flotation at the end of 2000, Stelios became less involved in the direct running of the airline and will finally step down as chairman by 2003. Instead the task of keeping easyJet's famous orange logo in the public eye has fallen to easyJet chief executive Ray Webster and his management team. Indeed, few carriers have become so identified with a single colour. "For us orange is more than just a colour, it is a way of thinking. Orange is what makes us different," says Webster. It represents the sort of young, irreverent style more usually associated with the dot.com revolution.
One of the main achievements at easyJet has indeed been the promotion of the Internet as a medium for selling tickets. The carrier has never sold through agents and four years ago it set about channelling its credit card phone bookings over to the web. It has since laid claim to having the highest proportion of web bookings of any carrier in the world. Thus its slogan as "The web's favourite airline", a play on the old British Airways title.
Having sold its first Internet ticket in April 1998, two years later it was already selling half its tickets online. Today, over 90% of sales go through the web. Stelios, who once famously said that the Internet "was for nerds", now has the zeal of a web convert. Not only has the web saved on cost, it has also offered the scaleability which has enabled the airline to grow so rapidly from a tiny base to what is now, with the acquisition of low-cost rival Go, a group with annual sales of $850 million.
Now easyJet is pushing more aggressively into mainland Europe. It already has bases in Amsterdam and Geneva, with Paris Orly as a future potential hub. The airline's marketing machine is already getting into full swing in Paris. The basic strategy remains the same confirms commercial director Mike Cooper. "We are offering something different to the past. We are creating a buzz in Paris. There is a sense of momentum behind the brand. People are seeing us and talking about us."
Cooper adds: "The critical thing for us is to be recognised by as many people as possible. We have no travel agents so we have to be tough of mind." He points out that easyJet's marketing spend is massive. "We have been outspending Air France quite dramatically," he says.
The airline's profile was also raised by its appearance in a fly-on-the-wall TV documentary the UK. This was seen as a risk at the time, but undoubtedly helped spread the name. "A big part of the brand is transparency. We are not a faceless corporation. We have been prepared to say we have screwed up," says Cooper.
Operations
Presented to
Atlas
Few airline operations have been tested so dramatically as Atlas Air Cargo in 2001. The year began with the shock news in January that the company's founder and charismatic leader Michael Chowdry had been killed in the crash of his Czech L-39 Albatross jet. The tragedy sent shock waves around the airline and its Wall St investors. As the year progressed, the company's airline cargo business came under increasing pressure from a worldwide downturn. Then came the terrorist attacks of 11 September when Atlas suffered from the immediate grounding of aircraft and the ensuing fallout. The fact that Atlas not only survived but also continued to expand and adapt was a testament to the underlying strength of its operating model.
Under Chowdry, Atlas had pioneered a new business concept in air cargo, providing mainline carriers with additional capacity to meet their cargo lift needs by signing up long-term contracts to provide dedicated aircraft, crews, maintenance and insurance (ACMI). In doing so, it had become one of the three biggest players in the global cargo market in less than a decade, operating the largest fleet of Boeing 747 freighters. But the company was still not recession-proof.
The events of last year and the continuing difficulties into 2002 have seriously tested the model. But under the leadership of Richard Shuyler, who succeeded Chowdry as chief executive officer, the company has taken action to build a solid base on which to resume growth when market conditions change.
"We have taken a number of significant steps to reshape our company to better reflect the environment in which we find ourselves today," says Shuyler, a veteran airline executive who joined Atlas in 1994 as chief financial officer and subsequently became executive vice-president of strategic planning. These steps have included innovative product initiatives, such as the Atlas Air Partnership Program, which seeks to attract customers to partial or fractional ACMI agreements when they do not need or want full-time ACMI coverage. It also has offered dry leases, and established hubs in Liege in Belgium and Miami.
Atlas has also sought to offset softness in its traditional ACMI market with revenues from an expanded charter business, particularly that offered by the US military since 11 September. "We continue to see these as important transitional opportunities while the international air cargo market begins to return to its historical growth mode," Shuyler says.
Atlas has not stood still. Last year it complemented its ACMI operations with the purchase of Polar Air Cargo and its scheduled airfreight services. That provided Atlas with access to Japanese markets. The new Polar subsidiary, losing money under its previous owner, was acquired free of debt and with restructured aircraft operating leases - and already is in profit.
Atlas also acted early when the severity of the downturn began to surface. In the beginning of the second quarter of 2001, when the air freight environment was deteriorating, the company took steps to cut capacity by parking aircraft, reduce crew and staff numbers and implement a cost reduction programme. This year, it successfully negotiated with Boeing to reschedule aircraft deliveries and arrange appropriate financing for three Boeing 747-400 freighters it will take this year. Polar has also taken delivery of a new 747-400.
Technology
Presented to
Finnair
Finnair may seem an unexpected candidate for the accolade of technology leader, yet the group has indeed put ITat the core of its boardroom strategy and achieved innovations that are helping to set the pace for much larger names in the world airline industry.
The carrier has already won praise from the suppliers and airline partners with which it has worked, including those within the oneworld global alliance. For example, it is Finnair that is taking the lead in the alliance's plan for e-ticket interlining. Finnair and American Airlines will become the first to e-interline across the Atlantic, with other members of oneworld to follow that lead.
To ensure it maintains its lead in the field, Finnair recently launched a joint venture company with IBM that will assume control of all technological operations. As well as allowing it to concentrate on its core function, IBM's technical expertise will help Finnair digitalise all communications between it and customers, suppliers and employees by 2006. Eero Ahola, senior vice-president for corporate business development and strategy, who has been set the task of overseeing the airline's technology programme, says by becoming a "digital airline", Finnair will significantly lower its cost base below its own previous levels and that of the competition.
The real driver for the technology programme, however, is the benefit it brings to company marketing efforts. Finnair has for some time focused on offering new products before the competition. As Aloha says: "Even top operative quality is not sufficient for airlines any more. In the future, the real competition will be about innovation in services and products."
Indeed, Finnair is the first carrier to equip its entire long-haul fleet with anin-flight e-mail system, as well as a service allowing passengers to check in for international flights using their mobile phones or the Internet.
Even more cutting edge is its new "eGate" product. Currently limited to domestic services because of heightened security concerns, eGate is a programme whereby an antenna embedded in the loyalty card of a Finnair elite frequent flyer communicates with the gate to say the passenger is in the airport. This allows Finnair to check the passenger in automatically and allow him or her to board the aircraft without ever having to hold a paper ticket or boarding pass.
This programme and others lead to what Ahola terms "the final stage of marketing" - personalisation. "While e-business is only one avenue where we've been at the forefront, it's a particularly powerful one, particularly as it allows you to personalise your services to ensure your best customers are identified at every step of the trip process," Aloha says.
So why has Finnair emerged as the airline leader in technological advancement? "One reason is because of where we are located," he adds. "In 10 years, Finland has gone from being a paper-and-pulp economy to a high-tech economy. This has made for an environment where new examples of technological innovation occur regularly."
Source: Airline Business
