Airline Deregulation and Airline Economics. Airports you have known?
Airline Leadership
Transcript of Airline Leadership
The New Face of Airline Leadership
Michael BellGlobal Aviation Practice
Spencer Stuart
Our domain is aviation leadership…
What I Would Like to Cover Today…
• Where do we see the global airline industry going?
• What are the implications for airline leadership?
What Are The Major Forces Shaping Airline Leadership in the Future?
• Low-Cost Carrier Phenomenon• Rise of Emerging Markets• Globalization of the Industry and of the
Executive Job Market• Chronic Financial Underperformance• “A Changing of the Guard”
Snap Back to 1995 –The Leaders Then
Fast Forward to 2005 –The Leaders Now
• Region-specific no-frills carrier (EasyJet, Gol, JetBlue, Ryanair, Southwest, Virgin Blue)
• Independent, “larger-than-home” carriers occupying the premium space (Copa, Emirates, Etihad, LAN, Qatar)
• Global alliance player (Star, oneworld, SkyTeam)• Consolidator (Air France-KLM, America West-US
Airways, Air New Zealand-Ansett, Grupo TACA, LAN)
• Focused, niche player serving a specialized market (ACMI, cargo, charter, regional flying)
Five New Airline Models Emerging…
> Aer Lingus
> Air Canada
> Copa
> Emirates
> LAN
> Qantas
> Ryanair
> Grupo TACA
Who has successfully transitioned to a new model?
What are the “New Guard” Doing?
• Setting Product Standards (at both the high-end and the low-end)
• Defining the necessary cost of production• Setting pricing (much to the chagrin of legacy
carriers)• Defining the most efficient distribution channels• Securing the most valuable assets (Chicago
Midway, Dubai, Stansted)• Grabbing the attention and profile of consumers
(much as did PanAm in the 1960s/1970s)• Defining new aircraft requirements (A380 down
through A320/737NG)
• Cost superiority (low-cost carriers)• Product superiority (independent
premium carriers)• Network superiority (alliances)• Loyalty preference (alliances)• “Staying power” (all)
New model carrier hold “all the trump cards”…
• Quality versus quantity of experience matters more…a youth movement underway
• Those with “LCC DNA” seen as the fittest• High quality leaders, frustrated and under-
compensated, are leaving and staying away• Leaders may have to go abroad to get the “right
kind of experience”…and they will have the opportunity to do so
• A new breed of airline executives “moving in” –from both inside and outside the industry
What are the Implications for Airline Leadership?
A Youth Movement at the Top
Alaska Airlines Bill Ayer 51American Airlines Gerard Arpey 47British Airways Willie Walsh 44Continental Airlines Larry Kellner 47Delta Air Lines Jim Whitehurst 38US Airways Doug Parker 44
Average Current Age 45
What was the picture in 1996?
Alaska Airlines John Kelly 51American Airlines Bob Crandall 60British Airways Colin Marshall 62Continental Airlines Gordon Bethune 54Delta Air Lines Ron Allen 54US Airways Stephen Wolf 55
Average Age in 1996 56Drop in Average Age in 10 Years 11Average Age in 2015 34?
Even More Pronounced at LCCs
Tony Davis Tiger Airways 39Tony Fernandez Air Asia 42Carlos Munoz Vueling Airlines 36David Neeleman JetBlue Airways 46Constantino de Oliveira Gol 37Jozsef Varadi Wizz Air 40
Average Age 40
A Youth Movement in LATAM/Caribbean
Enrique Cueto LAN 47Pedro Heilbron Copa Airlines 48Constantino de Oliveira Gol 37Juan Emilio Posada Avianca/ACES 47Emilio Romano Mexicana 40
Average Age 44
• Direct experience in conceiving, launching, or operating a LCC
• Intimate knowledge of the LCC business model• An ability to work within the “new generation”
airline organization– Limited resources– Real work
• An obsessive focus on cost• Creative and innovative, “out of the box” thinking
LCC DNA – What is it?
LCC DNA – Nature or Nurture?> Nature
>You either have it or you don’t
>Legacy-experienced executives are tainted
>Better off with industry outsiders or highly malleable younger professionals
> Nurture
>Good executives are adaptable
>LCC is a mindset that can be acquired
>LCC disciplines are not rocket science; they can be learned
Not as LCC as one would think…CEO – David Neeleman Morris Air/
Southwest
President – Dave Barger Continental
Flight Operations – Dave Bushy Continental
In-Flight Service – Vicky Stennes Delta
Technical Operations – Tom Anderson Boeing
Sales & Marketing – Tim Claydon Virgin
Finance – John Owen Southwest
Human Resources – Vincent Stabile Ziff-Davis
Virgin AmericaAssembled with little LCC DNA
CEO – Fred Reid Delta
Flight Operations – Bob Weatherly Atlas/Canadian
In-Flight Service – Vicky Stennes Delta
Technical Operations – Guy Borowski AirTran/Canadian
Network Management – Brian Clark US Airways
Consumer Marketing – Spence Kramer ESPN
Finance – Bob Dana I-Banking
Human Resources – Frances Fiorillo Canadian
Industry Outsiders at the Top
President – Constantino de Oliveira Grupo Aurea
CFO – Richard Lark Americanas
Several executives formerly with VASP!
LCC DNA Obsession – Bordering on the Dangerous
> Some airlines recruiting highly inexperienced executives with LCC experience into positions above their heads
> Highly qualified and adaptable executives from legacy or near-legacy environments wrongly overlooked
> Over-weighting of LCC exposure relative to other important attributes – maturity, lessons learned from experience, resilience
Notable Voluntary Departures from the Industry
• Richard Anderson (NW) Ingenix/United Health Care• Ed Bastion (DL) Acuity Brands (and then back to DL)• James Beer (AA) Symantec• Greg Brenneman (CO) Turnworks, PwC, Burger King• Michelle Burns (DL) Mirant, Marsh & McLennan• Jeff Campbell (AA) McKesson• John Edwardson (UA) CDW Computers• Steve Gorman (NW) Krispy Kreme Donuts, Greyhound• Tom Horton (AA) AT&T (and then back to AA)• Dirk McMahon (NW) United Health Care
• 2000 Tom Horton CFO, AT&T• 2002 Jeff Campbell CFO, McKesson• 2006 James Beer CFO, Symantec
This would not be such an issue had AA not invested hugely in the careers of these industry
stars and would-be successors to the CEO position!
AA CFO Role –Last Stop Before Exit
Primary Reasons for Departure• Poor prognosis for wealth accumulation
– Little/no annual bonuses– Salary cuts to demonstrate unity with labor– Equity wiped out or non-performing
• Lifestyle improvement; not 24-7
• Frustration with labor intransigence– Everything comes down to labor– Executive compensation under the microscope
• Insufficiently fast promotional opportunities– No growth– Blockage at the top
Recruiting Them Back is Nearly Mission Impossible
• They can’t afford to make the move back, even if they wanted to
• Their prognosis on the industry is generally not robust
• Once out, they are better able to separate their passion for the industry from the logic about their professional and economic well being
• Their “currency” wanes the longer they stay away, particularly with the changing of the guard underway
Emerging Airline Markets Drawing Talent
• Latin America – Copa, gol, LAN, TACA• India – Kingfisher, Indigo, Sahara• Middle East/Gulf – Emirates, Etihad, Gulf Air,
Qatar Airways• Southeast Asia – Air Asia, Tiger Airways,
Jetstar/ValuAir• China - ???
Emerging Airline – The Appeal
• “Frontier” airline development• Clean sheet situations• Rapid growth organizations• Professional adventure• “Escape” from unhealthy, frustrating
legacy environments• Potentially huge economic upside
Emerging Airline – The Challenge
• “Frontier” airline development –little/no infrastructure
• Remote environments in sometimes less-than-desirable location
• Foreign culture adaptation risk• Trailing spouse/family issues• Professional career risk; out of the
mainstream• No certainty on economic upside
They are going primarily for the experience…
• Most of the offshore movement is to LCCs, not legacy carriers
• Offshore LCCs who offer little or no “expat” support
• Base salary and bonus compensation is adequate but not enough for wealth accumulation
• Equity participation is usually present but is by no means guaranteed
A War for Talent Brewing• Substantial need for airline leadership in
developing markets (whole teams, not just individuals)
• Pervasive desire for “LCC DNA” with very little of it to be found
• Diminishing desire on the part of proven airline executives to stay in the industry
• Traditional market carriers are going to have fight much harder to attract and retain the best in the face of stiff competition from LCCs and offshore airlines
A New Breed of Airline Leaders is Emerging
• More entrepreneur than corporate executive• More substantial owners than mercenaries• More commercial/financial than operational• More non-airline than airline
– Consumer goods– Bus transportation– Entertainment– Consulting
More Commercial than Operational
• Alaska Bill Ayer Marketing• American Gerard Arpey Finance/Operations• Continental Larry Kellner Finance• Delta Jim Whitehurst Planning/Consulting• Northwest Doug Steenland Legal• Southwest Gary Kelly Finance• United Glenn Tilton Marketing• US Airways Doug Parker Finance/Planning
More Owners/Founders than Mercenaries
• Air Asia Tony Fernandes• Gol Constantino de Oliveira Jr.• JetBlue Airways David Neeleman• Ryanair Michael O’Leary• Southwest Herb Kelleher/Gary Kelly• Vueling Airlines Carlos Munoz• WestJet Clive Beddoe
What Does This Mean for You as an Airline?
• Recruiting executives and senior professionals is going to get tougher, not easier
• Retaining prized talent should become a top priority if it is not already today
• Looking far-and-wide, geographically and industry-wise, will become the norm
What Does This Mean for You as an Executive?
• Seek out the “right kind” of experience, even if may mean a step sideways or backwards
• Don’t be averse to professional adventures abroad, with an eye to a staying connected
• Think and act as an owner, not as an employee