Will We Ever Get Back to Normal?

The economy is treacherous and the outlook for the near future is not so bright. The aviation industry has bright spots but there are few celebrations. News reports flood in with rare signs of improvement. It’s tempting to wonder – will we ever get back to normal? In a recent survey by Sharp Resources, Inc, 83% of respondents in aviation indicated that this recession will fundamentally change the way we design organizations. Only 8% believed there would be no change with the rest believing some change will occur. Why such a dramatic result? Economic historians point out that after severe recessions, a fundamental change in the structure of how we organize ourselves occurs. Consider the change from farm to factory. Prior to the industrial revolution most people were independently employed – growing food, hunting or caring for their families. The industrial revolution attracted people to the new cities in droves with the promise of better jobs and the ability to buy what they used to grow or make. As time progressed through economic ups and downs, companies became pseudo-families in their own right – providing lifetime employment, benefits and a solid retirement. Perhaps the biggest thrust toward that model followed the 1929 crash and depression. In recent years, companies have been divesting employees of benefits. The trend started in earnest in the 1980’s and has since been accelerated by off-shoring and outsourcing. Lifetime employment is very rare and most jobs last an average of only five years. Additionally, the recession following September 11th, 2001, had a ‘jobless’ recovery where the economy recovered but employment did not come close. Economists predict the 2010 recovery will be substantially jobless again. The official US unemployment rate hovers around 8%, but when the best estimates of under-employment and people no longer bothering to seek jobs are included, that number is 15.5%. So, will we ever get back to normal? I suggest the answer is an emphatic “no” and it’s a good thing too. The implication for people in the work place is immediate. We need to develop ourselves as Me, Inc. This is not a new concept – career coaches have been espousing it for over twenty years. What has changed is that we no longer confine marketing ourselves to within a company – we all plan, from the day we leave school, to be self-employed at some point, and to be ready and able to move between freelance and corporate jobs as the market dictates. Aviation will, or should move this way too. Our choice of career will modify the extent to which this is true. If our chosen career is a pilot, then there is only one type of job. However we may move among employers and contract buyers throughout our career. This will become the more stable type of role. It is a core activity. For those in non-core activities, careers from now on will be individual, moving from employer to freelance and back. So we are moving back to the pre industrial revolution model of freelancers (although we only need move back to the country for lifestyle reasons). Thanks to modern technologies we can do our work from almost anywhere – and here is the enabler, as big a change to industry as the introduction of the aeroplane itself. If we do not go back to ‘normal’, then how will people cope with the new work marketplace? Social networks become more critical than ever. There are internet-based solutions developing that will allow anything from building a business network (eg LinkedIn.com) to complete marketplaces where freelancers and project buyers make a match (eg ki-work.com). The age of the virtual freelancer and virtual freelance teams is finally here. These teams contain some of the most talented individuals in the industry and they work for the very companies that used to employ them. No wonder that 83% of the survey respondents believe the current recession will make dramatic changes in the way we organize work.

Closure of the Pogo Air Taxi Idea

I'm always amazed by the clarity of vision of my old boss, Robert Crandall. The following news item appeared in Aviation Week, April 16  written by William Garvey. Note that Bob Crandall lists two issues above all - an airplane that couldn't; financing that dried up. There were many other issues but note the clarity of purpose in his remarks. Now - there is some very encouraging news in his comments. We are going to see a lot of alternative models emerge in aviation. 

What I find interesting is that for the past thirty years, there has not been much change. Technology has marched on - the A380 is a sea change from the 707/VC10 era. However, the only fundamental change in the airline model in this timeframe is Southwest (and Ryan, easyJet, GOL etc). Business aviation remains the same, private aviation has seen little change. So how can Crandall claim there will be a lot of alternative models?

I believe the answer lies in two areas. (1) flights scheduled by travel companies that aggregate demand in realtime and 'charter' aircraft fit for the specific need and (2) clubs that blend the private jet industry with flexible demand to offer prices closer to the budgets of the middle class. Both of these offer real change (and many model options). Both of these are in the embryo stage and are being tried.

Item (2) was discussed in another aviation blog recently: http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&gid=1571937&sik=1239883736371&discussionID=2566051&readyToAnswer=readyToAnswer&trk=ug_qa_usrcomm&goback=%2Eana_1571937_1239883736371_3_1

One thing I have learned well, whether you agree with Bob Crandall on a specific issue or not - never, ever discount his thoughts and predictions. 

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The News Item:

After devoting several years to market analysis, equipment evaluation, pricing structures, service areas and operational planning, Robert Crandall has decided to ground Pogo, his start up very light jet charter operation, before it ever left the ground. He says he's returning what remains of the operation's seed money to investors.

"I feel badly about it," he said April 15 of the decision. "It's just one of those ideas that didn't work out."

Although Pogo was usually described as an "air taxi," Crandall dismissed that label, saying, "I don't know what that means." Rather, he described the intended service as a typical FAR135 charter operation using small jets with trips confined to the northeastern United States. The group had considered several jets, but seemed finally to settle on the Eclipse 500, primarily for its low acquisition and operating costs. However, Eclipse declared bankruptcy earlier this year after delivering fewer than 300 aircraft.

"Two things did us in," Crandall said. "First, the airplane never got built, and in fact the company went bankrupt. The aircraft still can't operate in icing conditions. So the airplane failed. And while we could conceivably use alternate airplanes, that wouldn't have provided as great a price advantage versus existing alternatives. And secondly, you can't finance anything new these days, especially in aviation."

He estimated a need for $80 million for Pogo to begin operations and said he was in New York pursuing financing the day Bear Stearns failed - "Nice timing," he noted.

Even though he is exiting the market, the former American Airlines chief predicted, "You're going to see a lot of alternative models emerge in aviation" because with the continuing contraction of airline service, "it's getting harder and harder to go from Point A to B in the United States."

"There is a market out there for alterative models that will save people time," he said, but added he's unlikely to be the provider. "My guess is it's going to take quite a long time for the market to recover. If it takes ten years, I'll be 83. So maybe I'd try again, but that's beginning to push the envelope."

Interesting Rebuttal to US Airways CEO Comments

I found this rebuttal entertaining. The customer is the enemy! Perhaps airlines would be far better off without them?

Credit: This rebuttal was published in Aviation Daily, Friday April 10th, 2009.

I was amazed by many of Doug Parker’s media day comments. (March 25) He began with standard industry observations on the past and the need for change. But by paragraph seven (“I know what you are thinking—I am nuts.”) I began to believe that his assertion might be true. Arguing that for many years market domination, rather than sustainable profit, was a driving force, he then promotes consolidation, premised on the idea that larger—and hence more dominant—carriers are a panacea. Help me if I am misreading, but that sounds like a position that equates success with market share. Furthermore, like almost all legacy managers, he ignored the fact that there is minimally, one U.S. carrier that has for years operated quite well in a fragmented market.



He then tackled labor relations—an area of first-hand experience given that years following the merger “completion” his company still has outstanding labor issues. I agree that the ingrained boom and bust mentality clearly is untenable. But the idea that management has unilateral power to change the situation strikes as patronizing and the playing field far from level. While management is quick to “adjust” employment and wages, it has been far less willing to curb its own compensation and perks in a similar way. And there is no hint as to just how management might resist demands for better terms in good times. Unfortunately, as long as these groups perceive each other as antagonists, there will be little progress. Both factions need to relearn that everyone at every airline is tied to its long-term success, and should share equally in profit and loss.



The real meat however, comes in the discussion of service and frequent flyer programs. The service aspect is especially intriguing since U.S. legacy carriers have been regularly pilloried for indifferent, and even rude, service. Social media sites reveal that passengers are generally most upset by employees unable or unprepared to deal with everyday problems. If many reviewers cite surliness, or some variation thereof as the predominant problem, the fix is pretty evident; see that staff are better trained and friendlier. There is scant evidence that that is happening. Southwest and JetBlue have not won customer satisfaction surveys because of their lavish meals but by consistently meeting the expectations of their customers. Attitude is a differentiator that resonates with the consumer.



And then miles. Unless US Airways differs markedly from its peers, it sells miles as well as seats—and quite profitably. At times some carriers have reported that this was the most profitable aspect of their operation so it’s pretty clear that airlines have done well by this strategy. To assert that any carrier’s sole benefit is a bunch of freeloaders is fantasy. Is US Airways ready to relinquish that revenue source? If so, I wish him well in his singular attempt to abolish the practice, at least more success than the airline’s failed attempt to charge for water and coffee.



Finally, while I would agree that the politics surrounding airlines can be complicated, the carriers themselves regularly play the system to their advantage. Witness the continuing hulabaloo surrounding Virgin America’s ownership. Apparently, arcane rules are only deemed absurd when one’s own ox is being gored.



Few would disagree with the idea that aviation both in the U.S. and globally badly needs new ideas and insights. As an industry vital to global commerce, it still is often treated as a local fiefdom, and regulated with disregard of the bigger picture. Until the world’s airlines and their regulators take a broader view, no company, irrespective of size, will achieve its full potential. Mr. Parker’s suggestions provide little to advance that goal.



Ron Kuhlmann is an aviation analyst and former editor of the Unisys Scorecard. http://web.me.com/ronkuhlmann/Site/Welcome.html

Time to Think Differently

"This is the moment for business to think different and think big. The great dying off of quintessential 20th century business presents vast opportunity for entrepreneurs. And so as some of the huge, dominant, old-growth trees of our economic forest fall, the seedlings and saplings - that is, the people burning to produce and sell new kinds of transportation and media in new, economic ways - will have a clearer field in which to grow." Time, April 6th, 2009, Vol 173, No 13, "The End of Excess."

"...management, at its best, is an intelligent response to outside forces, often disruptive ones. Times of severe economic duress, management experts say, can serve to sharply accelerate trends already under way." New York Times, March 20, 2009, "How Crisis Shapes the Corporate Model."

At a time when stories of gloom, failure and despair seem to dominate the landscape, there are an increasing number of voices that see this challenge as a seminal moment in which longstanding and outmoded business models and practices will be either radically reformed or completely replaced. To paraphrase an old adage, nothing focuses an organization more than its possible demise. And in the present environment, there can be little doubt that such an outcome is a real possibility for corporations and organizations across the full spectrum of human endeavor.

Globally, the focus of late has been on cost reduction. No one would discount the idea that cost containment remains a vital component of corporate success. Unfortunately, the drive to reduce cost has all too often also involved the removal of employees with the expertise necessary to sustain a culture of excellence. We have all encountered the customer service representative who is clearly reading from a script, with limited product knowledge and even less authority to deal with difficult situations.

But simple longevity at an organization does not ensure quality. That is supplied by employees who are passionate in their expertise, who bring a level of competence and experience that can be neither scripted or taught. Such persons also supply perspectives that cannot be imparted by recent hires who often have little investment in the corporate ethos.

Given those realities, organizations are increasingly seeking assistance and guidance from external entities. Consultancy has exploded as ever-more tasks are ceded to third parties. However, too often the reality has failed to reflect the promise and both time and money are invested in ways that provide scant return - and very often fail to solve the initial problem. As indicated by the opening quotes, the time for disruptive change is at hand. It is time to find new ways of accessing those pools of expertise in a targeted and cost-effective way.

As with much else in our current environment, the Internet and its extraordinary ability to link the world, will play a vital role. Virtual teams, comprised of members with specific and vital skills can be assembled in a flexible and cost-efficient way that supercedes and improves on the classic consultancies that have fixed locations and employee resources. The billings of virtual teams are devoid of overhead and fixed costs that are inherent in the traditional model and the teams are chosen, not from a limited cadre of employees, but from a broad-based pool of experts that can be specifically configured to meet the needs and challenges of each assignment.

This is an idea whose time has come with the potential to provide targeted, cost-efficient assistance and solutions across a full spectrum of demand.