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While we work here on a business plan for a new airline, we did discuss and disqualified many of the existing airline models. Is that negative? Or realistic?
These days some news hit me in short succession, that make me rethink the assessment my friend Ndrec and I made when discussing possible, viable business models for a new airline.
I did the picture above a mere year ago. Meanwhile Niki is gone too, as is Virgin America. Mighty Norwegian being said to be likely acquired by IAG shortly. We have “new” players like Blue Air. But the question for any new business case must be:
What is Your (E-)USP?
Now Ray Webster, former CEO of easyJet opened the Routes Europe Conference with a keynote:
“I don’t see long-haul low-cost as a viable model. Operating a small aircraft across the Atlantic is not efficient, and low-cost carriers aren’t going to fill a 787 or an A380”
Ray Webster, former CEO easyJet
Even students traveling on longer flights do want more services the longer the flight gets.
In contradiction to that assessment, Eurowings now opens up New York-services, taken over from the late Air Berlin operating from Düsseldorf. We all looked at Norwegian, though their “success story” also seemingly was bought on the cost of revenue, the airline now is said to be acquired rather shortly by British Airways/Iberia holding IAG (also owning Aer Lingus).
Whereas I simply do not understand the “brand strategy” of either Lufthansa or IAG…
- IAG: Aer Lingus, British Airways, Iberia, Level, Vueling … Now Norwegian adding to the mix of “it’s not me”?
- Lufthansa Group: Air Dolomiti, Austrian, Brussels, Eurowings, LGW, CityLine, Swiss, Sun Express. Also “it’s not me”?
The work on a business plan for a new airline was triggered last year initially by some investors, going down the same “me-too”-dead end using old, inefficient Boeing 737-aircraft. Cheap to get, but their fuel consumptions renders them virtually useless.
BlueSwanDaily believes in the future of Supersonic… Are you kidding me? Yes, I believe supersonic will come, but expensive niche for the rich and wealthy. No real change to the Concorde business model.
I myself worked out a “green” concept a few years ago, but we’re neither getting there… The project got grounded in the wake of Lehmann Brother’s and a world financial crisis and the original interested investors gone never took up speed again. [Update: The Korean Wingship seems a ready-to-go WIG, though using conventional fuel, no green hydrogen or battery powered e-engines]
So we looked at models that differ from the existing ones. Where are unservered or underserved markets and why are they not served well? One issue sure is the airline analysis tools misleading their users to “established routes” and airports.
So we started with the original intent of a small scale operation. And recognized why so many such projects are doomed. There is a pilot shortage hovering on the horizon, Ryanair running pilot acquisition as far as South America and Asia. Most airlines do not value their workers but drain them.
And having discussed the very same issue again yesterday with friends who must relocate in the automotive industry as a direct consequence of overpaid managers, back again, using old images:
Maybe. Just maybe. I believe Ndrec and I came up with a sound business idea, which requires far higher investment than we originally envisioned. Coming with a round and sound business plan paying off that major investment in 10 years safe. Because we do have a unique selling proposition (USP). Because we do have an emotional USP. Because we thought it through and instead of failing at the first obstacle, we save cost from day one and make this a company to work for?
And working on that, we learned a big deal about the faults of the airlines we see in the market. And it boils down to the normal questions: What’s your (emotional) USP? What makes you different, why should the intended consumer decide to use your product. We see too much “me too” in the market. Buy your market share in the B737/A320 shark pond?
30+ years ago, my training officer told me that joke:
A man starts a business selling screws.
His friends questions him: “You buy
the screws for 1 €, you sell them for 95c?
How do you want to make money?”
“Oh, the quantity does it!”
My training officer told me to look after yours. Not only in the company, also your supply chain. Make sure you have long-term suppliers selling you the quality you need for a good reputation.
Later I learned the same lesson from space shuttle Challenger, management ignoring their own experts warning them of the temperature being below safety specifications. Shuttle Columbia dying of a piece of foam worth a few cent perforating the heat shield. Of Concorde crashing from a “minor” piece of scrap metal.
I’ve paid very high (in hard Euro) for another lesson. Starting with a sound idea (regional airlines’ franchise concept to share cost and operate a larger scale of operations), it turned out later that the stakeholders did not look for a franchise, but a means to start their own small operation and “share” the cost with the other small players. Clearly understanding the small operations to face obstacles they cannot overcome on their own. Could not. Cannot. Will not. A costly mistake I made. But lesson learned!
Then at delair I learned about airline disruptions and how our industry uses historic processes to “manage” somehow. How airlines use manpower instead of intelligence to cope i.e. with a winter storm.
With Ndrec, I found a seasoned manager understanding the need to either do it right – or don’t do it. And we got surprised how much money we save if we do it right! Not short term, there we need more to invest. But then very shortly, within less than 10 years. Now we reached the point of the reality check: Will we find solvent institutional investors helping us to pull this off? Cross your fingers.
For all those other airlines out there… Do your homework. First and foremost: What’s your USP? What’s the business case?
Food for Thought
As many of the readers of this blog know, I am somewhat personally attached to that little airport in Central Germany, Erfurt-Weimar.
Last week I was taken into a discussion by Thuringia’s Minister President Bodo Ramelow, about how to stop the down-spiral of emigrating Thuringians. Which reminded me about the likewise discussion we had in 2009 shortly before I joined Erfurt Airport with the task to stop their downward-spiral on their passengers.
Real Life Example
What I was faced with was an extremely negative image of the airport within the region. And a lot of demands on how to do business from amateurs in the industry, politicians, tourist offices, etc.
First day at work, the GM of Tourism Thuringia, Bärbel Grönegres was quoted in the local newspaper (TA, 02Mar09), having visited the United Arab Emirates to promote medical tourism to Thuringia. Having a Munich-Erfurt flight by Lufthansa-Partner Cirrus Airlines at the time, she recommended the Arabs to take a flight to Frankfurt, to be picked up with a bus for a +3 hour tour to Thuringia. Tourism material did not contain reference to the airport. Questioned about the reason, her reply was “Who knows, how much longer we will have that flight”. Ever since, that became a prime example I use for “negative thinking” or “calling for disaster”.
The next winter, the Thuringian Olympic athletes brought home a record number of medals. But at the following ITB, it was more important to promote Franz Liszt, who lived a dozen years in Weimar. The fact that the Russian-Orthodox chapel, Grand Dutchess Maria Pavlovna who’s invitation brought him to Weimar has built and got buried in is under direct protectorate of the Russion Orthodox “pope”, the Patriarch, such making it a pilgrimage site for the Russian Orthodox church has completely failed to trigger any support by Weimar or Thuringia Tourism. Air Berlin reported it to be a “known reason” for a substantial part of their Russian Berlin-passengers to add Weimar to their travel plans.
In order to promote the government-funded route, after fierce discussions, Cirrus Airlines agreed to offer a low-cost ticket at 99€ return, having only about 6€ after the high taxes on the ticket. That offer was made available especially to the Thuringian government offices and the state development agency (LEG). Nevertheless, LEG planned and executed delegations traveling with the train to Berlin to take flights from Berlin, instead of promoting the route. The same also for the ministries and ministers. Even the responsible minister taking flights from Frankfurt and Munich instead of using the PSO-route he signed responsible for. During the months we’ve actively promoted that 99€-fare also to the industry and the travel agencies and also had it largely available, not one of the flights used up the 99€ tickets allocated to them. Being at the verge of a bankruptcy, Cirrus Airlines finally ceased to operate that route in December 2010.
By the time, working with the local industry associations, political parties I have been able to increase the passenger numbers by about 20 percent. In fact, to date, the airport is far from the 320 thousand passengers I left them with. With Weimar being the neighboring but historically better known city internationally, I pushed forward the renaming to Erfurt-Weimar with the attempt to improve the incoming for the airport. Paid almost completely from the limited marketing budget. A strategic decision executed after our parting-of-ways in December 2010 after my two-year contract was not extended in the wake of the retreat of Cirrus Airlines. A strategic decision though made obsolete by the “political” decision by traffic minister Christian Carius to not replace the route as I recommended with an Amsterdam-service. Sad decision indeed, as with our parting ways, the discussions with KLM were simply discontinued (KLM calling my number reached someone speaking German only, I was gone) and despite their interest in a PSO (public service obligation) financial route support, we had discussed flights based on mere startup incentives and marketing support.
Opposing myself ongoing subsidies, to demand a route but to leave the (substantial) risk completely with the airline is neither the answer. Whereas comparing the CheckIn.com-data about airport catchment areas with the data provided by airports we found that data to be completely off-set in a majority of cases. It caused us to make basic data available for free. But if the data provided by the airport is not hard, but guesstimates or outright lies, when the airline starts a flight based on that data, the airline takes the risk. To not only does the airport sneak out of the responsibility, they increase the airlines’ risk – is that a game? Or serious business?
Now since I started in aviation 30 years ago, the market has drastically changed. In the good old days, there were (often highly subsidized) “national airlines”, used to promote the country. Back in my early days, the airlines were the executive for the tourist offices and also worked closely with commercial development agencies. But ever since, those national airlines have either adapted or went out of business. The emerging “low cost” airlines virtually evaporated the income of the airlines, competition becoming fierce.
As I keep emphasizing with my updated image of Purchasing Power and Airports, there is a relation between a strong airport and the regional purchasing power. It is indeed a hen/egg issue, but if you are a small airport in a weak region, maybe it makes sense to consider how to attract travel (tourism, commerce) to your region. Not how to drain your region of the money by sending the population to the Mediterranean for vacation, but by having incoming, scheduled services, by adding point-to-point routes and to attract low cost airlines.
If we do not talk about PSO (Public Service Obligation) where the government pays for basic flight services, if you build an airport and wait for airlines to find you, keep on sleeping (and burning money). So if you are a small airport and you have little to no money, what can you do?
Having an airport is not enough any more.
The airport is part of the region’s infrastructure. As such, it needs to be integrated into a political and commercial strategy. Whereas in the example of Erfurt-Weimar, the airport is being kept as a scapegoat, being challenged in one sentence for the aviation noise (a good joke with so few flights) and for not having flights. A political punch-ball.
Other, successful airports like Memmingen in Southern Germany are integrated into and understood as a strategic value for the regional development. In fact, Memmingen is not politico-owned but owned by more than 60 co-owners from the region’s industry. Such, instead of being a scapegoat for political power games, everyone in the region understands the need to actively support the airport. Anyone harassing the airport confronts everyone in the region. A political suicide!
At Erfurt, I was asked to establish flights to Moscow. One company. 10 employees. Even with a small (expensive) 50-seat aircraft and weekly flights only (which are usually not sufficient for commercial demand), we talk about 40 seats by 52 weeks in two directions or 4.160 tickets to sell every year. But for a decent offer that is useful to the industry, you need at least twice weekly flights.
Leaving that task to attract airlines to the airport alone, at the same time running blame games and scapegoating, the airport cannot justify such flight. But what if the state development agency and the chambers of commerce, on demand by the political PTBs (powers-that-be) qualify the demand from all those small and midsized companies? Not on a low-cost, but with reasonable ticket prices. Not at prime time at the maximum risk for the airline. Maybe instead of a weekly, can the region sustain a double or even triple-weekly flight making it interesting for the companies in the region? Are those companies willing to support the launch period by committing to use the flight, even if slightly more expensive than a flight from Frankfurt or Berlin? Keep in mind, the people have to get there, you also pay for gasoline/parking or rail. Transport to those hubs is not free either. And the longer check-in times make them even less attractive, right?
Interesting approach. I’ve talked to several smaller airports where they agreed that their chamber of commerce and regional development agencies “pre-purchased” tickets at the cost of the average ticket price needed to cover the operational cost. Then they to sell it to their members. Not covering the full cost of operations, but simply taking their share of the risk! Why should they not, if they believe in the numbers and data they provide to the airline to promote their business case?
Then talk about Tourism. Given such flight, are the local tourism PTBs ready to promote such flight in the outlying region? What about other promotion? Don’t leave it to the airport! Is there a joint concept by the political PTBs, the state development and commerce PTBs, the tourism PTBs on what flight they want, how they will promote the flights?
“We have an airport”. That’s nice. But not enough.
And for a Minister President even only on a state level? You better think about a strategy. Or close down the airport. Having flight to summer vacation is not enough. It drains money from your region into those destinations. What’s in it for you? Why do you fund an airport? No scheduled services? No incoming? Do your homework.
It’s no longer the job of the airline to promote your region! They simply don’t have the funds to do that. It’s not their business case.
It is the job of the political, commercial and tourism PTBs to qualify what they finance an airport for and come up with ideas and business cases for airlines to take the risk to fly there. And no, a “business case” is not necessarily paying subsidies. If you have a good business case that the airline will make money on the route by flying paying passengers, I can rest assure you that the airline will prefer that over subsidies that are usually associated to political nightmares.
Compiling sound numbers is a good start… And yeah, I might be willing to help you with that.
Food for Thought!
The highest paid workers in Silicon Valley are not software engineers … but “project managers”.
Reading this, it reminded me of my own experience, as well as something my dad told me decades ago: “Keep in mind that the people doing the productive work pay for all those supportive jobs.”. Including the bakers, the medical, schools, trainers, … Not talking about all those “managers” that nowadays make a living by explaining how to do things differently.
Growing up with American military, there was a saying that you can’t have more chiefs than Indians. In fact, it’s a clear pyramid with given salary schemes where the general earns more than the private, but in a reasonable amount. At the same time, there were only about four generals and flag officers for each 10,000 uniformed personnel*. Today it’s seven. And they soon have more “admirals” than ships…
Looking at current structures in the industry, we have too many Chiefs and too little Indians. In fact, I know companies (i.e. consulting) having 10 Chiefs on a single Indian or less. Mostly secretaries, IT support and cleaning staff, often enough outsourced. And we pay the Indians badly and feed the Chiefs. Some figures in Germany make me afraid. In the last years, the numbers of people living of social security despite having a job increased year over year. Yes, they have work. But not enough to live from, they need state support to survive!
The number of retirees needing a side job to survive grew the past years from 15 to 35 percent. That means that one out of three can’t survive of the retirement plan they paid into most of their life?
German Wirtschaftswoche (“Commercial Week”) magazine reported 2015 that top managers make 54 times the salary of an average employee. This is the average. At Volkswagen they made 170 times the salary of their workers, Adidas 100 times. In the U.S., they make in average 273 times the salary of their workers the German Zeit (“time) magazine reported. 30 years ago, top managers made approx. five times that of the average employee. This is about paid managers. It’s a different issue on the owners of the company, but even those usually made about the same income as their top managers and invested the revenue into the company, their employees and reserves. When there was a “crisis”, they had reserves to dig into. Where today the managers fire their workers (same time often increasing their own “salaries”).
At the same time these highly paid managers reduced their personal risk in case of failure by insurances and contractual clauses. But imply that their mega-salaries are because of all the responsibility they have for the company and its employee and their well-being. Whereas the net income of their workers have in reality dropped many years as a result of inflation, tax and social security increases, etc. And not to forget by making “Leiharbeit”, subcontracting labor. That way, the history of working for a company throughout your lifetime became a myth, companies, no, not faceless companies, but company managers are no longer loyal to their workers. And not paying subcontracted labor a surplus for the job risk but paying them mostly even less than their own.
My friend Erica was hired for a temporary job with one of the large global players. While they denied her any surplus for the risk of a temporary contract she was asked to not do any side jobs. Similar for me when SITA acquired delair. The same time that they both denied us any job security. Are they crazy? Companies recently start paying minimum wages, adding contract clauses that the workers are not allowed (!) to have a second job. Forcing them to live of state aid, despite a full-time job, often in combination with unpaid overtime. That is reality. Now Erica is happy to leave the bureaucrats, I was quite happy to part ways with SITA (with +400 peers). I prefer smaller companies with less hierarchy but also support and fair pay for the Indians. Recently there’s studies and case studies proving better payment proved to be far better on the motivation of the work force with substantially higher return on the “investment”.
Another issue on salaries is “variables”. I truly believe a fair base salary and a fair results scheme are motivating. Unfortunately – and I hear that from a lot of friends – the “targets” set are unrealistic. Such you can rarely rely on them. The manager’s goal not being motivation, but cost savings, is also counter productive. Aside, it’s simple greed and also just aside, that’s a mortal sin.
Food for Thought
Academic – Epidemic
During my vacation, I just had another discussion with a “senior manager”, showing how little many of these highly paid people understand about the value of networking. It often seems to me that this is nothing they ever learned during their university times…?
People buy from people, not technologies.
No matter, how good your product is, no-one will believe it, if they don’t believe they “know” it.
The Wrong Questions
I had some questions and statements (Q) repeadetly the last years and think it might be wise to share my answers (A). If that stuff is voiced that often, you may be faced with the same smart people…
Q: “It’s very much about being at the right point at the right time.”
A: And the right point is the mind of the someone who thinks about buying. If you’re not in the mind, you won’t come to mind and you won’t sell.
Q: “Why should I go to this event, I can talk to them on the phone.”
A: Do you know, how many phone calls that someone gets every week, from people trying to enter their mind and memory? At these events, like-minded people meet. With the possibility to speak longer with people and face to face, trust can be established. An important factor for purchasing decisions.
Q: “Why should I be active on LinkedIn?”
A: For one, there are a lot more people on LinkedIn than you likely ever meet on trade shows. If these people are allowed to attend trade shows in the first place…
Q: “Then why should I attend trade shows – the people I seek to meet are not there!”
A: Because even if they themselves are not there. Their colleagues who are allowed to go will tell them. If you leave some impression.
Q: “Is it better to have a stand or not?”
A: That depends. Can you attract people to your stand (it does require a catchy stand design and/or an established brand awareness). In my experience and for conferences with exhibition: If you are alone, skip the stand. Meet your audience face to face. Conferences are not about sitting around, but to meet and to talk to people! What I recommend though is that you use accessories that show who you are. Be it a cap, a polo-shirt (or light jacket) with logo or a catch phrase that attracts the right people to you, be it a bag – under all those black-ties, you got to stick out showing “Here I am!”
Interesting side note: I know a lot of sales & marketing people being too proud to “show off”. If you don’t want to show off (your product) you maybe got the wrong attitude for the job…
Q: Hey, I got invited for a speaker slot. I can present my product there.
A: If you can have a speaker slot, don’t use it to sell your product, but make sure you provide lasting value for your audience. If they are interested, they’ll be interested in your product. And after you paid for some of such slots, the organizers (if they’re worth their money) find you valuable and maybe even worth-while to invite or even pay you next time…
These opinions of managers do remind me too much of an old quote: “If you don’t try, you cannot win”.
But have they understood that they sell to people having their own priorities, agendas and opinions?
Food for Thought
The past weeks have been quite a dramtatic change to me. Taking over the marketing at Erfurt Airport was the right decision. It calls for a fire fighter. And the first weeks produced a lot of bureaucratic overkill that made my life more miserable than it hat to be – challenging and fun as these weeks were.
What I discussed with family and friends is actually the thought, why bureaucrats are that way. Why is it, that they require reports and statistics on obviously clear things? Why do they knowingly destroy instead of create? I will never truly understand it, but we are all facing them, so the bureaucrats are somewhat a part of life we got to live with.
Some discussions on LinkedIn address the same topic. What makes a “leader”? My first ever boss told me some basic rules:
- Keep your supplier in mind. Only if you pay decently he will produce good work and only then he will remain your supplier. And suppliers are a small family always – they know each other. So once you go the cheap route, you will have trouble getting decent quality.
- A leader decides. Get as much data at as short time as possible and decide. Sometimes you have no data. Trust your experience. Some call it “intuition”. It’s as good a guide than any made-up figures. Future holds no guarantees.
Thinking about the last sentence: We all learned that lesson well last year, did we not? But one sentence is also true and may make the bureaucrats happy. We do need the bean counters. They shall question us. We better have a good idea, what we are doing. But we are here to do something. Not to count the beans.1 - click to show Jürgen you liked the post
What is money all about?
First the financial market in the United States failed. Constructs where a single person is responsible for the loss of 50 Billion US$ are just the top of an iceberg. That ice berg turned and we all feel it’s repercussions.
But it was not the U.S. that caused the problem, but the greed of financial managers and the corruptibility of the politicians that made it possible. German’s federal state banks had to be sold, only to learn the buying banks from the other states are simply in similar troubles.
Deutsche Bank manager Ackermann and Deutsch Bahn boss Medorn keep up the facade of the reasoning for the indecent salaries they and their buddies in other corporations pay themselves, blaming others in their companies for the problems their companies face. Isn’t it the CEO who is ultimately responsible? If he has his company not in check, he may not be worth his salary. If his company looses money, they make a bonus? When they fire people, they make another bonus? “No risk, just fun” the yellow press recently titled…
Companies asking for help, often “suddenly” coming up with hidden “treasures” and financing leaks often as high as the losses so far admitted. Oops. If I have a management that has no up to date information about their financial situation, I can imagine this in a start up or small company – but we talk “global players” here! My advise: Fire them! Sue them! You got to, they got to learn the basics of business before they are allowed any management job again!
Politicians having been informed as early as August about the financial troubles of German Hypo Real Estate but now claim their innocense?
In Russia, Oligarch Boris Abramovich lost first the control on AirUnion, which meanwhile “somewhat” restarted as Rossavia as a state airline, now looses Malev as well. His buddy Lebedev is out of a deal to take over German Öger Tours, he’s short on money – weren’t these the people anyone worldwide envied for their incredible wealth?
And wasn’t “U.S. President” a synonym for integrity? Thank you Mr. Bush… What a legacy for Barrack Obama.
So with all these crumbling facades, it is not the time for blame. But it’s time to roll up your sleeves and work to get us out of the mud hole these irresponsible and greedy idiots drove us all into. I am daily facing cases, where good people loose their jobs to managers, still thinking to cut heads is the solution. Or airline managers believing that it’s important to increase revenue at all cost. Flights take off fully booked but causing the airline to loose money?! That has nothing to do with bad sales, but with a bad, price-only-focussed strategy of short-sighted managers. Good service needs good people. But our industries miss to show their own strategy. What makes an airline commercially successful? More aircraft with less people? A drop in service? A university graduade being sent to the key account having no idea what a cross ticket is or what makes a travel reseller select one airline vs. another? Pay for coffee inflight? The next business for airports and catering companies is logically to have vending machines offering snacks and drinks at the gate (or on the aisle infront of the waiting room) at cost below that offered inflight…
But what keeps my mind busy is the question, why the facades visibly crumble, why we work in an industry where everyone tells me no one in his right mind would invest in? I did question the human “resource”-thinking. I hear from Lufthansa that the “Lufthanseat” (the employee news) is off reality. American Airlines staff tells me they have never heard of the company update video I remember from the 80s.
Our industry is like the opposite to the car industry, but not any better: Where they focus to build the big cars for big money and ignored the growing demand for low-consuming cars, our managers seek quick revenue at any cost…? Load factors and market share at the cost of yield and income.
We can learn from the current U.S. president. Airlines got to learn again that the manager is head of the family. That means (s)he also has to look after the family income and budget. But they got to get out of their glass domes, listen to staff and customers alike and finally start face reality!!! And come to grips and learn to make money!
Food For Thought – your thoughts about this sure are welcome…0 - click to show Jürgen you liked the post