Strange goings-on in the airline industry

The four big carriers reported 2Q results last week. Here are a few thoughts:

  • They all made money. As the WSJ reported (paywall), “Those announcements came as American, United and Southwest reported record-setting second-quarter results, building on Delta’s solid performance a day earlier.”
  • How did they do this? Again, the Journal:

Airlines are prospering as mergers have reduced competition, making it easier to keep prices high and raise billions from extra fees. They used bankruptcy to squeeze costs from employees and suppliers such as the smaller carriers that operate regional flights.

  • Competition is definitely down. The four legacies now control 82% of domestic capacity.
  • Another way they make money is by shrinking themselves down to those routes and those aircraft where they can make a profit. This means fewer flights to fewer destinations, at least domestically.
  • If they aren’t investing in new capacity, what are they doing with their money? Well, customer service may be in the pits, but shareholder service is great. All four are buying back shares, and three of the four — all except United — are paying dividends.
  • And finally, virtually all the profit made by the four majors came from fees. In other words, the price of the ticket covers just the cost of the seat.* Profit has to come from something else. This raises the interesting question, so beloved of MBA professors, of what business are they actually in?

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No, Johnny, no!

As Business Intelligence reports, John Chambers, long-time CEO of Cisco, recently told attendees at the Fortune Brainstorm conference in Aspen:

On the one hand, he hints that Cisco might carry more fat on its payroll than it should, but that he “doesn’t have the heart” to implement some kind of brutal, competitive HR practice, like a stack ranking performance review, where employees are rated against each other and the bottom percent are let go.

“A well-run organizations turns over 10% of their organizations, including senior leadership. I don’t have the heart to do that.

Arrrgh!  Either Einheit is important or it isn’t. If it isn’t, then a “stack ranking performance review” is a wonderful way to kill it. Deming pointed this out in Out of the Crisis and it’s embodied in his 14 points. He was right then, and he’s still right.

Stick with your instincts, John.

Alternatives to EBFAS?

Boyd’s organizational climate stokes up creativity and initiative throughout the organization and harmonizes them to accomplish the purposes of the organization. Examples run throughout his work:

Without a common outlook superiors cannot give subordinates freedom-of-action and maintain coherency of ongoing action. Patterns 74

… exploit lower-level initiative yet realize higher-level intent, thereby diminish friction and reduce time, hence gain both quickness and security. Patterns 79, repeated on Organic Design 18

How do we generate harmony/initiative so that we can exploit variety/rapidity? Organic Design 9

A similar implicit orientation for commanders and subordinates alike will allow them to diminish their friction and reduce time, thereby permit them to exploit variety/rapidity while maintaining harmony/initiative Organic Design 23

The EBFAS climate is designed to do just this: With a basis of Einheit, intuitive skill, and mental agility, it employs the Schwerpunkt concept to focus the efforts of the entire team and the Auftragstaktik device to assign missions to individuals.

Sounds awfully militaristic. Are there alternatives? Continue reading

Diseases of Orientation, II

In this case, the danger of an inward focus, particularly in groups. As Boyd explained, this something you want to do to your competition. No reason to do their jobs for them. Let’s start with this quote from Strategic Game, which I also used last week:

Mentally we can isolate our adversaries by presenting them with ambiguous, deceptive, or novel situations, as well as by operating at a tempo or rhythm they can neither make out nor keep up with. Operating inside their O-O-D-A loops will accomplish just this by disorienting or twisting their mental images so that they can neither appreciate nor cope with what’s really going on. (emphasis added) SG 47

What does it look like from the inside? It can be hard to detect because for most people trapped in such an environment, inside is their world, it is what’s really going on. Continue reading

Imperial Class: A little background

If we do end up with (most) airlines converting to premium offerings and ditching coach class, we’ll be right back where airline travel started. My old friend and former boss at Lockheed, George Hamlin, has a column, “Suite Life,” that talks about this and other factoids from the era of super glamorous air travel over at Air Transport World.

As he recalls:

Airline service began by catering to a premium market. … As commercial aviation advanced, there were numerous other aircraft types that were fitted with berth-type sleeping facilities. In addition, as aircraft became larger, it also was possible to install more luxurious passenger accommodations. Continue reading

Fastest way to kill a company?

I don’t know, but an effective way is to move your Schwerpunkt off of cheng / chi. When this happens, your ability to generate chi will atrophy (it’s hard enough to keep it going, anyway), and eventually cheng will follow. Here’s an example.

From an article in Monday’s Wall St. J. (subscription required) on recent problems at Target:

Creative leeway—once the DNA of the chain affectionately dubbed ‘Tar-zhay’—took a back seat to rigid performance metrics.

Auftragstaktik (as we might describe it) was replaced with control:

Initiatives once left to divisional leaders to execute on their own became subject to consensus and extensive testing, say former executives. Even small projects, like a mobile app, became bogged under the weight of giant teams.

What happened out in the marketplace, what customers experienced, was predictable:

The chain “lost a lot of what used to make it unique,” says Barclays analyst Matthew McClintock. “There haven’t been exciting reasons to shop at Target in recent years.” (emphasis added)

Kill creativity and you kill agility and then … Continue reading

Bad news for Imperial Class?

You may recall my prediction that in about five years, the three legacy major airlines in the US will merge and discontinue coach class service. This would leave them with a 2-class product, business and a superpremium offering I called “Imperial Class.”  You can read more in the press release, available on the Articles page.

Grant Martin, however, notes in a piece on Quartz.com, that none of the all-business-class airlines, started during the last decade, succeeded. The sole survivor, Open Skies, now flies a dual coach / business class configuration. Continue reading

What customers want

Gregory Ciotti has an interesting column on LinkedIn today, “Why Steve Jobs Didn’t Listen to His Customers.”

The subject is market research, and the question is: Should you ask customers what they want? My answer: Sure. Why not? You going promulgate an edict: “Never ask customers what they want.”?

The big issue is what you do with this information. Well, why not just build what they say they want? Sometimes this works. If I had to guess, I’d say it works pretty often because you can reliably predict that customers want problems fixed. As Ciotti notes:

Perhaps this is the truth behind Apple’s innovation — Steve Jobs did actually listen to customers, but only to find out which problems they faced, and to identify the biggest points of friction they had.

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Figures and maps from Certain to Win

I know a lot of you have bought electronic editions of Certain to Win (“a lot” being relative, but I’m highly grateful and flattered, nonetheless) that did not have legible figures and maps. My sincerest apologies.

I’ve uploaded a PDF file with all the graphics in the book. There’s a link to this file on the Articles page.

Some electronic editions also didn’t play well with Table I on page 43. I recreated that table in an earlier post and have also added a link on the Articles page. Continue reading