(In-)Transit Transformations

Transformation programs that surpass airline CEOs' tenures - do they work?

(Source: Planetary.org)

The “Eye of Québec” is a cool colloquial name for Lac Manicouagan in North-East Québec. It is an annular lake, created by a meteor 214m years ago that transformed into an island in the middle of this lake with an elevation of 342 to 359 meters. It has a lengthy shore line of 1922 kms and covers 1,942 sq.kms. This island with a diameter of 100 km is called Île Réné-Lavasseur which surrounding rivers allowed the construction of the mighty Daniel-Johnson dam. This provides spiky hydroelectric power for Quebecers and beyond.

When we zoom out (and notice the immense territory of Québec) here it is:

A lot of the slower transformations of Rivières-des-Outards, Réné-Lavasseur, and Lac Manicouagan have not been well documented until the 1960s, when hydro work started. But throughout the millions of years and last centuries before, humans came together spanning thousands of generations. They protected and intervened in how the rivers structurally blended well with human needs and economic benefits.

How is this for airline CEOs? They often start transformation programs that go on long after they leave. How do newly appointed CEOs take on existing programs, and what is their legacy?

This article is about sharing insights that were developed over the last 23 years of working for airlines while continuing research. We start with Qantas and Air Canada, but only after a brief background below that puts it into context.

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I started working for airlines in 1994. But after 9/11 and following the completion of my Ph.D. in Strategic Airline Management (‘02), I looked at creative ways of measuring how airline business models evolve, mature, and whether there is such a thing as business model maturity (and decline) curves. I worked on combining 100+ of metrics that created 78 unique metrics that could see through business performance and ripple and domino effects (see article). The metrics work well with 5-10 years of data. I had accumulated 20 years of it.

In 2014, I released some insights (below) of three ‘Airline Business Model Health, Index’. It was the result of a business Health, and an Expiry Index. The IP of my work transformed into software and was sold to one of the Big Four.

The numbers predicted the decline of Air Berlin (defunct), and success of Vueling (now in IAG), and the success of Norwegian before the cocky aggressively-pursued over-expansion that made it too indebted (so this chart is intentionally dated).

(Airline Business Module Maturity Index, ©Ricardo Pilon, 2014)

I often look back at how I have evolved since and how that got me into specializing in transformation programs, AI, organization design, and organizational psychology. I needed to combine new specialties to be able to do what was next:

• Publishing “Cruising to Profits ®” in 2014 led me to finding solutions to apply the principles, which turned out to be Enterprise AI;

• Work in AI (‘15-now) made me face organizational obstacles, such as organization design and organizational psychology, so I got another degree in that;

• Organization design work made me realize that organizational analytics around people came first, so now I’m learning about that and the tools that exist while starting a Psy.D. as an applied hobby precisely in the above combo.

When you combine all this, it is a unique field that yields very revealing insights and solutions, with and by people.

But how do airline CEOs work out their transformation programs? And, what happens when one CEO initiates a program, but another has to take over because the predecessor’s time is up?

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Airline Transformation Programs

Most airline transformation programs have many elements in common. The obvious ones:

1. A name to distinguish the programs (often a bit corny or vague);

2. Stated goals (qualified, like service and quantified, like cost savings);

3. A core execution team and dedicated program manager

4. A timeframe;

5. A budget;

6. A legal framework;

7. Financial partners, instruments & channels;

8. A procurement and supplier strategy;

9. One or more ‘themes’;

10. 4-6 publicly stated ‘pillars’ of commercial strategy;

11. Typical building ‘bricks’ that mimic Harvard’s business model canvas;

12. A big consulting firm with a big logo, supplying analysts with small briefcases containing ‘toolkits' that can feed PowerPoint slides;

13. Internal metrics to measure interim results and alignment.

I have tracked 15 airlines over 22 years, but also worked with them. I can only discuss public data. Qantas is up first.

Qantas’ transformation program scorecard (TPS) had the following KPIs:

o   Accelerated transformation program benefits (2014-2017)

o   Deleverage of balance sheet

o   Cash flow

o   Fleet simplification

o   Customer and brand

o   Employee engagement.

All good and necessary.

What the programs typically don’t include is:

1. Organization redesign (other than moving ‘boxes’ around) - because there is no time to measure the performance of current organization design itself;

2. People analytics on how core skills could be deployed better in enterprise activities (because we assume people have technical process-related or software-related skills);

3. Measure to negate informal power circles and psychological schemas that undermine undermine execution (again, lack of time and not ‘hard’ enough - wrong!).

Qantas (1999-2023)

I created my own classifications and incorporate observations of airline programs. I look at the CEOs, I look at all public data that I can talk about, and I map CEOs to programs and vice versa, coupled with (mainly) airline, not group, results. Below is a high-level overview of Qantas’ picture.

Under Geoff Dixon, QF managed to cut recurring costs by AUD 4.5B between 2002-2006, but the benefits of increased productivity (assets and other) really materialized under Alan Joyce, who instilled a culture that moved away from short-term to permanent increases in productivity and competitiveness. As of June 2017, QF had generated incremental recurring benefits of AUD 2.13B (details in full report). Joyce managed to cut cost, increase service and improve competitiveness. But it really started under Dixon and Joyce modernized it well with his own execution style.

Most of the intentions and directions are quite similar at other airlines. But passing on the baton from Geoff Dixon to Alan Joyce has been one of the best transitions. Specific results are covered below, but what stood out (and worked):

• Alan Joyce continued the fundamental direction set by Geoff Dixon but updated the approach to the realities post 2015 (post-record years);

• Joyce continued the initiatives of Dixon but made them permanent, not shock, treatment (cost efficiencies) focusing on integrating more technology;

• The unique efforts to turn more fixed costs into variable costs (variabilization) without losing financial leverage.

The QF story is fundamentally about a culture of sustainable transformation with two components:

(1) permanent benefits from ongoing improvements, and

(2) identifying new drivers of future innovation.

This is explained more below for the paid subscribers, as they provide a gesture for my efforts.

Note: This is part of my second book (“Elevate”) I wrote that did not come out in 2021. Routledge T&F Publishers and I decided that the Covid-19 pandemic was reason enough to conclude that the timing and relevancy of this book was out of sync. Instead, “AI in Commercial Aviation”, which I worked on since 2020, is coming out in Spring 2023.