British Airways struggles in the competitive world of airline travel

August 12, 2013

Airlines around the world are competing fiercely for business. Creativity, robust business models and effective leadership will be required to survive

Unsurprisingly, airlines have become one of the favourite sources of business school cases. The American Southwest airlines has been studied for its innovative “no frills/customer care” approach. LWD has looked at Emirates for its complex business model (is it more a vehicle for fulfilling Dubai’s development aspiration?). We have also commented on the often egregious leadership styles exhibited by airline CEOs, such as Willy Walsh of British Airlines.

Why Southwest is a dangerous case to study

I have listened to many student presentations lauding Southwest over the flailing giants of the industry which in comparison show financial vulnerability. One point that is rarely mentioned is that Southwest, a fine example of strategic leadership, is also a relatively simple business to study. [Compare its number of destinations, fleet size, freight business and scheduled passenger distances for example with Delta or even British Airways. However, the case helps Professors make the kind of glib generalization I offered for it above]. Southwest has pioneered the so-called peanut airlines which have replaced meals by peanut snacks. Even within the peanut lines the business models must not be assumed to be identical. Ryanair sees Southwest as its inspiration, but has approached customer satisfaction in a completely different way.

Dilemmas for old and new airlines

The old airlines struggle with older fleets. With a strong business model this may eventually turn out well. The newer airlines have the advantages of the technological advances in the new generations of plane. They also have the disadvantages of untested glitches that beset new models.

Just an opinion

This weekend, I read of the problems encountered by passengers on a British Airlines flight attempting to travel on the Boeing 747 to London from Riyadh, Saudi Arabia [7 August 2013]. After a forced return to Riyadh, believed to a problem with the wing flaps, the plane set off and turned back again.

On my last British Airways flight in July, from Heathrow to Manchester, the plane sat on the runway for nearly two hours. The first announcement said that the safety checks had not been carried out overnight. The second announcement said that a toilet needed fixing, the third announcement that a piece of equipment was being brought to fix a wing flap.

Personal opinions make poor business analyses. I do not suggest from these two episodes that British Airlines is a bad or dangerous airline. I still like its service, and of course its safety record and will continue to use its services. The anecdotes indicate the increasing operational pressures that accompany extremely competitive businesses. I hold a similar view over BP and the factors contributing to the Deepwater Horizon disaster.

Stop Press: BA and the leaders we deserve

A curious little story from Sri Lanka of a British Airlines fight and a political leader who tried to get out while the plane was in motion. OK, so I was attracted by the title of the piece “The Leaders We Deserve”.


A is for Albatross as Airbus struggles with the A400 project

April 18, 2009
Airbus A400 EADS mock up

Airbus A400 EADS mock up

Der Spiegel continues to be the window into the complex world of EADS and its giant subsidiary Airbus. In a major interview with Airbus CEO Thomas Enders, Der Spiegel throws light on the corporate challenges facing the organization and its leadership.

The double whammy

Der Spiegel was in particularly robust mood in its interview with Thomas Enders recently [March 2009]. The two-part report opened with a series of fierce questions challenging the company’s long-term viability. Ender’s truculence comes through, even in translation and from the printed page. The second part of the interview concentrated on a single project, the A400M and that made the story appear all the more damaging

Technological innovation is notoriously risky, and there must surely be additional risk factors emerging as a consequence of the financial turbulence of the last year. The A400M is becoming known as its albatross. The plane, still yet to fly, is a military transport plane promising payload deliveries over extended distances under extreme conditions. Delays and production mishaps have plagued the project (even in comparison with the more publicised woes of the company’s other high-technology efforts).

Der Speigel as rotweiler

Der Speigel runs excellent and probing articles. One can’t help admire its success in its interviews with Germany’s business leaders. [In style it reminds me of the aggressiveness of England’s Newsnight programme and its chief Rotweiler Jeremy Paxman]. In the issue carrying the Thomas Enders interview, there were similarly tough questions asked of Robin Goudsblom, a Lidl senior manager, over the company’s personnel scandal;and of Nikolaus von Bomhard, CEO of reinsurance giant Munich Re, over banker bonuses.

Enders comes clean

Under fire, Thomas Enders is remarkably direct. He was first reminded of a recent wager.

SPIEGEL: Mr. Enders, on December 31 you won a bottle of champagne. You had wagered that Airbus would manage to complete 12 of your super-jumbo jets by the end of the year. That bottle could cost your company millions because, in the heat of the race against the clock, quality and safety may have fallen by the wayside.
Thomas Enders: No, we haven’t made any compromises here. Our customers are generally very satisfied with the A380. But, as you know, it is an extremely complex aircraft, which now unfortunately — like every new model during the introduction phase, I might add — has some teething problems here and there

Then he faced equally direct questioning on a range of general topics such as Government subsidies. These did not result in subsequent wider headlines, perhaps because they were ‘nothing new’ either in question or reply.

Part two of the report gave a focus to the entire interview in the plight of the A400M. The level of openness from Enders deserves attention from students of leadership:

SPIEGEL: Your biggest worry is currently the planned A400M military transport aircraft, which has been in the news for months. Which countries could cancel as buyers in the future?

[Enders denied the specific charge of cancellations and accepted accusation that the company had to shoulder some blame]

Enders: EADS should never have signed this contract. Our American competitors would never have accepted such conditions. We’ve made big mistakes, and errors have also been made on the customer side. We should now rectify these together.

Enders went on to deal frankly with equally tough questions on ‘[r]ivalries and power struggles between the Germans and the French’, consolidation of the European headquarters in Toulouse [‘maybe a good idea’], and the loss of a major American military contract.

Leadership notes

I was struck by the tone of the interview and by the fascinating technical insights provided into corporate and production management.

How important is the interview to EADS? This is one of the questions open to reflection and debate. I suggest that Der Spiegel is a media leader in news of the Airbus adventures from a European perspective. Its interviews are guaranteed widespread subsequent coverage. A typical example is the report in Aerospace [30 March 2009]. Even The Economist draws on the Spiegel interview, although its piece shows evidence of its own deeper research [bonus points to the Economist for that].

The interview has to be taken seriously by the company leadership. A faulty performance (and it is a performance) would become part of a subsequent narrative developed in the media.

How well did Enders do? You could assess the interview for strengths and weaknesses. A misguided remark might become a hostage to fortune for the company in the future. On the other hand, the impact is mediated by several communities deeply concerned with the future of the company and whose judgments go to make up the ’conventional wisdom of the dominant elite’ . Enders has the responsibility to defend his position without being too defensive, and avoid easy-to-refute claims. Which in this case involved a painful level of openness. If he appeared a bit testy at times, that might be a permissible weakness rather than a fatal one.

Despite tough times, the corporate leadership of EADS seems to have stabilized under the urbane Louis Gallois, and his Airbus CEO, the former paratrooper Thomas Ender.

To go more deeply

We have followed this story in earlier posts. The Economist article on Airbus can be found in its April 11th -17th, 2009 issue.


BA backs the Bus and the Dreamliner

September 29, 2007

willie-walsh.jpg

British Airways splits its future plane purchases between Boeing and Airbus. Although earlier statements suggested that the company was not interested in a Superjumbo sized carrier such as the new generation A380, Willie Walsh and his team show a chess-like grasp of strategy

Speculation in Seattle was pretty much right. A week before any official announcement, Industry insider James Wallace noted

The campaign is a key showdown between the A380 and 747-8 Intercontinental and the 787 and A350 . So far, only Lufthansa has ordered the passenger version of the 747-8. But Airbus also needs another major international customer to back the A380. It has repeat orders from Lufthansa and Singapore Airlines, but Airbus has long sought to bring BA into the A380 fold.

Jefferies & Co. analyst Howard Rubel told the AP he believes investors are expecting British Airways to split its order between the two aerospace rivals.
“I think B.A. wants to bring a little competition into the mix,” he said.
BA Chief Executive Willie Walsh has visited Boeing and Airbus for briefings on their planes.
The airline recently ordered more 777s.
Even though British Airways early on said the A380 was too big for its needs, Walsh has said the airline is now interested in the big Airbus jet, which will enter airline service next month with Singapore Airlines after a two-year delay.

Wallace’s blog also attracted a remarkable set of speculations about the prospective decision. Most seemed to be based on ‘sources close to Boeing or BA’. The following was typical

Posted by unregistered user at 9/20/07 9:21 a.m.
I’ve heard 10 A380’s + options on 10 more , 20 787’s + 10 options and 10 A350’s + 10 options

When the news of the decision was formally announced it was widely replicated from news agency sources. I took this from The BBC, but found it on all the main news feeds.

BA will buy 12 Airbus A380 superjumbos and 24 Boeing 787s, to be delivered between 2010 and 2014, for a reported $8.2bn (£4.1bn). The group also has options to buy seven more A380s as well as a further 18 Dreamliners from Boeing.
Further negotiations will occur so that BA can replace its remaining 747-400s. This appears to be between the 787-10 and the 777-300 ER from Boeing, and the Airbus A350

The Boeing reaction was between gritted teeth:

The Boeing Company [NYSE: BA] is honored that British Airways has selected the 787 Dreamliner as a key element of its long-haul fleet renewal

What’s going on?

Leadership geeks may be tempted to see unfolding a story of strategic leadership. If so, it is a story which has to place leadership with a wide cast of strategic players. We may start by thinking of Willie Walsh as the dominant decision-maker in the story, with some billion pounds/dollars to invest in the future of his company.

The evidence of Mr Walsh’s leadership style suggests that he will have been very active in the processes building up to the decision, internal to British Airways. At present we can only speculate. However, the decision has enormous significance. It will impact on the travelling lives of millions of people some more directly than others. Arguably it will impact on the future of employees of Boeing, EADS, and a myriad of suppliers and sub-contractors including Rolls Royce who will supply the engines. At another level, the debate on political influence and subsidies to Airbus and Boeing continues to bubble away.

However charismatic and autocratic his leadership style, Walsh will have been flying in tricky conditions and with a chief pilot’s usual near-overload of advice and chatter. Advisors, and advisors of advisors will have examined assorted risk assessments from in and outside BA into which data will have been fed from numerous sources. Somewhere in these the influence of various governments and global institutions will have been factored in, as well as the much-publicised production delays at Airbus and more recently at Boeing for the A380 and B787 projects. Willie Walsh keeps sane by following what the great Herbert Simon called satisficing, or simplifying the decision through a set of personal mental filters.

In an avalanche of articles and books since the 1950s, Simon ..focused much of his attention on the issue of decision-making – and [developed his theory of ] “bounded rationality”. Agents, he claims, face uncertainty about the future and costs in acquiring information in the present. Thus .. they have only “bounded rationality” and are forced to make decisions not by “maximization” by “satisficing”, i.e. setting an aspiration level which, if achieved, they will be happy enough with, and if they don’t, try to change either their aspiration level or their decision.

I have taken the view that such processes are those which chess-players also have to make. In this chess-game, BA wants to avoid fixing the position, when there is much to be said for keeping options open. So the overall decision on replacing the fleet of aging 747 400s may or may not have been made. It makes sense to keep options open, even to the extent of splitting up the decision between the two giant contenders for the business. That is partly why decisions also involve options as well as firm commitments.

Those with a liking for logistics theory can debate the merits of smaller planes and P2P (point to point) strategy, and larger ones with a Hub-based strategy. Whatever.

A judicious mix of planes of differing size keeps both strategic options open. A judicious mix of ‘top-down’ leadership actions, and ‘data driven’ analysis may also be appropriate.