Global Airlines New Horizons New Opportunities

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Information about Global Airlines New Horizons New Opportunities

Published on November 5, 2008

Author: TKarlsson



Global Airlines:
New Horizons, New Opportunities:
As global aviation evolves, airlines need leadership teams that understand segmentation, branding and growth.

Global Airlines: New Horizons, New Opportunities As global aviation evolves, airlines need leadership teams that understand segmentation, branding and growth. Five years ago, executives at Asia’s pioneer low cost carriers (LCC) were often asked whether LCCs could survive in Asia. Large, established carriers had a stranglehold on key sectors and the ear of governments. Despite the apparent odds, LCCs have grabbed a substantial share of Asia’s Torbjörn Karlsson aviation sector, stoking demand for affordable travel among travelers and Asia’s cities, much as they did in the United States in the eighties and Europe in the nineties. Legacy carriers, for the most part, have handled the challenge well, but with increased deregulation change will only continue: the aviation industry five years from now will be very, very different. Every day the plight of airlines becomes more urgent. At the recent IATA conference in Istanbul, the world’s airlines agreed to a resolution calling for “governments, airports and labor to take immediate action to help the industry survive the growing financial crisis.” Among the resolution’s six key actions was this: “Governments must eliminate archaic rules that prevent airlines from restructuring across borders.” Moving across borders presents opportunities and challenges for all airlines. The opportunities are many: new markets to serve, better access to airport slots, and new avenues of profitable growth. Conversely these are also challenges, for no airline’s home market will be secure against competition. History shows that if travelers and cities demand certain routes at certain prices, sooner or later they will get them. Perhaps the biggest change will be in how airlines identify and develop the segments they will serve. Traditionally, airlines have opened a route to a destination and marketed that destination to travelers. With deregulation, route combinations are bound to become more complex, meaning airlines will need to more carefully identify the market segments they’ll target - and invest in the appropriate branding and growth strategies. They will also need to be more adept at executing locally, winning loyalty among consumers beyond their traditional home base.

Something unique master brand, but serves up different food around the globe depending on local tastes. “Airlines need to stand for something unique - giving travelers When planning growth in new geographies, an airline’s a reason why they should choose them and not select on understanding of both its segment and brand will be vital, price,” says Jorg Dietzel, a leading brand consultant. “Often, particularly given the limited success airlines have enjoyed support for that positioning is found in the airline’s origin and when trying to grow overseas. Witness SIA’s £600 million heritage, such as ‘Asian hospitality’ or ‘German engineering.’ investment in Virgin Atlantic in 1999, which SIA CEO Chew Airlines can also use country or regional stereotypes and build Choon Seng recently called an “underperforming investment.” on them. But they need to be single-minded, not everything And what of Swissair? Its acquisition strategy saw the airline to all people.” (once known as the “flying bank”) collapse in an ocean of debt He reckons airlines need to find a positioning they can own. after the events of September 11, 2001. Most relevant areas of differentiation are taken. For example, SIA and other airlines own service, Emirates and SIA own young fleet, and Lufthansa owns engineering. “Airlines need Beyond alliances to find the ‘twist’ in their positioning, think about what makes their experience different - another area where heritage can With a clear idea of the segment the brand serves, an airline help. Even within the budget segment, hardware and software needs the right growth strategy. Today, the big airlines have can differentiate: as Jetstar is proving with their successful successful alliances such as One World and Star Alliance. While ‘premium budget airline’ positioning.” such alliances benefit travelers with air mile transferability and code sharing, the partner airlines are still, at heart, rivals. Unfortunately, segmentation is not something that airlines Among large airlines, only Air France-KLM have moved to seem to do particularly well. “Most airlines don’t do a good job the next stage, a merger, where the duo have proved successful understanding the behavior of segments,” says Eric Conrad, at collaborating on routes – while both retain their traditional global industry leader, travel & transport at IBM. “Often they branding as national carriers. structure their segmentation into tiers and create a situation in which customers seek ways to optimize the value they The Air-France-KLM merger is but one example of how airlines receive. Tests have shown that if airlines set status thresholds will grow. Airlines can franchise their brand in a new geography, for customers, the customers will have loyalty only up to that but today’s airline franchises are not pure franchises. Often threshold. Once they’ve passed the threshold they defect to only the brand is franchised, with the franchisor offering little other airlines and build their status there. People who have in the way of management support, training, and repeatable gold status on three alliances enjoy tremendous value. Many processes. The hotel sector, however, is strong at franchising: airlines provide no incentive for a long-term commitment.” hotel brands are extended with the condition that processes and image are strictly conformed to by the franchisee, who Some industries play the segmentation/branding game provides a revenue stream to the franchisor. Another option extremely well. Large hotel groups such as Starwood Hotels & for extending a brand is outright ownership, which can take Resorts offer a range of hotels for different traveling segments. two main forms: starting a new airline, or buying a majority St. Regis appeals to the well-heeled, Sheraton is for the business stake outright. traveler, and W Hotels is aimed at the hip, trend-conscious crowd – when one calls a W, the operator answers ‘Whatever, whenever.’ In automobiles, Toyota does not tackle the high- The impact on managers end with the Toyota brand, but with Lexus. In phones, Nokia is for everybody, Vertu for the elite. McDonalds has kept its Different skills are needed for the various growth strategies.

As airlines focus on segmentation, branding, and profitable When building such teams, airlines should bear in mind the growth, it is inevitable that executives from other sectors will unique aspects of the business, and that it will take time for new enter aviation. In the area of segmentation and branding, middle and senior level executives to understand the real and for example, hospitality executives possess deep expertise. To artificial constraints of the industry. A formal on-boarding and succeed at mergers and acquisitions, airlines need a team of orientation process can play a big role in ensuring new hires experienced M&A professionals that can both evaluate and come up to speed quickly and assimilate with the corporate execute deals – and then a transformational leader must be culture, as can the assignment of an industry-veteran mentor. found for the new acquisition. Executives from telecoms and Getting it right is key, for building this talent pool now will technology firms generally shine in the M&A arena. ensure airlines are positioned for new opportunities and strategic openings that will appear in coming years. With start-ups, the team is different. For this, airlines need a ‘point man’ who specializes in getting a new airline up and De-regulation is bound to continue as ever-vocal LCCs running, implementing the processes that led to success in and travelers demand air services that are better, faster, and the home market. This done, a new leader with local expertise cheaper. When planning growth, airlines will think less about can come in, tailoring the airline’s offering for the local geographies and more about segments. Many growth options environment, and leading growth. will become available, but only the right leaders can ensure this growth is successful and profitable, providing a return on In short, airlines need to develop a roster of different talents. investment that again makes airlines an attractive proposition A team capable of handling the different expansion strategies. for their owners. Senior and middle managers with expertise in buyouts, startups, and franchising will create new expansion opportunities for airlines in a de-regulated world – and then execute when the time comes for growth. Such growth leaders should not be Torbjörn Karlsson is based in our Singapore office and is responsible benchmarked against the talent in other airlines, but against for aviation, aerospace and defense industry searches in Asia. He is executives in industries that are effective in key growth also involved in the transportation and supply chain sectors. He can be strategies such as franchising and mergers & acquisitions. reached at or +65 63325001. about Heidrick & Struggles Heidrick & Struggles is recognized as one of the world’s Defense, aerospace, and aviation companies of all sizes depend leading executive search firms. on us to recruit CEOs, COOs, vice presidents, operating unit and field organization leaders and a wide range of other senior For more than 50 years we have been building deep executives, as well as non-executive board directors. relationships with the world’s most talented individuals on behalf of the world’s most successful companies. We count as our major clients many of the leading prime contractors who provide military and commercial aerospace Through the strategic acquisition, development and retention products, both at the system and subsystem level. of talent we help our clients – from the most established mar- ket giants to the newest market disruptors – build winning In addition, we have conducted dozens of highly successful leadership teams. searches for the leading IT consulting, hardware and services companies for whom the defense market is central.

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