A tale of two airlines

I have just spent a very frustrating day with a potential client; they are an airline from the former eastern bloc that is in financial trouble and have recently come back under government ownership. They have no strategy and are currently waiting for the government to decide if they should have a new management imposed on them. No one is making any decisions and they are drifting ever closer to the bankruptcy courts.

This airline has recently purchased a state of the art and very expensive computer system to assist in it load and balance calculations, these calculations are essential to a safe flight. There are a number of “new generation” systems that are replacing the DOS based “old generation” cryptic systems, the new generation systems can bring about productivity improvements in the order of 400%.

A year ago I was invited to make a presentation to this airline to demonstrate how the new system could save costs, I explained that they needed to change their working processes in order to get the productivity improvements that will save them several hundred thousand Euro’s per year. I also offered them a centralised out sourcing option that would reduce the training requirements and training costs of introducing this system by 95%.

Several months ago we heard on the grape vine that they had embarked on a traditional training program and were training all the staff in the outstations to use the system, naturally we assumed that they had decided to undertake the service in the traditional expensive fashion. Last month this airline invited us to participate in a tender for centralisation which we responded to.

We received a request to participate in a meeting with the airline to discuss our offer to them, it was clear from the questions they had pre advised us about that they had either selected us or had selected another provider that did not know how to implement a centralised facility. At the meeting we were advised that we were on a short list of two suppliers to provide the service The other short listed company was there wholly owned ground handling company who were actually present at the meeting so no conflict of interest there then!!!

• During the meeting it became apparent to me that......
  Our offer is substantially lower that there own subsidiary based on the fact that our proven productivity levels will require us to recruit less than a quarter of the staff the subsidiary uses.
  
• They paid to train all the staff at the outstations and now plan to centralise. Had they centralised from the outset they would not have needed to spend upwards of 100,000 Euros on training
  
• Some senior managers in there organisation do not see the need to optimise labour and would appear to be positively against making savings
  
• They have taken the work at the primary airport and simply divided it amongst the staff there subsidiary currently employs instead of optimising the number of staff to the work.
  The outcome of the meeting is that they will not be able to take any decisions for at least another three months as they are waiting to see if the government imposes a new management on them meanwhile they continue to pour money down the drain.

Now contrast this with Adria Airways, another airline that I met recently.

Adria are the national carrier of Slovenia and are based in Ljubljana. Adria have a clear strategy which is to link the Balkans to the main cities of Northern Europe via a traditional “hub and spoke” system. Their aircraft depart from Ljubljana to a number of Balkan locations early in the morning and return to Ljubljana around 9AMthe passengers switch between flights and then the aircraft depart north. Later in the day the flights all arrive back in Ljubljana and the passengers switch between the aircraft before all of them depart south again. Later in the evening the aircraft arrive back in Ljubljana where they remain for the night. This allows for Business (wo)men

• from Ljubljana to get a full working day in a number of Balkan cities
• from the Balkans to get a short working day in Ljubljana
• from the Balkans to get to northern European cities by late morning
• from Northern Europe to get to the Balkans by late afternoon
  

The Slovenian market is small and cannot support a large number of carriers, Adria needed to keep the competition away, there are three main airline alliances in the world, Star based around Frankfurt, One World based around London and Sky team based around Paris. It is clear that the biggest threat to Adria came from the Star Alliance which unsurprisingly Adria are now a member of. This has meant that Adria are a profitable niche carrier that dominates the Slovenian market.

Sooner or later (given that my potential client is in the EU now and subsidy is supposedly forbidden) capitalism and Darwinism dictates that my potential client is going to go bust and that a well run airline like Adria will step in to fill the gap .