Airline managers focus on cutting costs and improving profits

Business travel

August 12, 1991|By Tom Belden | Tom Belden,Knight-Ridder

If you think the last dozen years have been bumpy for the airline industry, you can loosen your seat-belt buckle a little. For the 1990s, airline executives see a different emphasis.

Managers at 97 passenger and cargo airlines around the world said recently that the next decade would not be an era of unfettered expansion and acquisition, as the past 10 years seemed to have been.

Rather than relentlessly seeking to expand their companies, the airline managers said, they are trying to hunker down and improve profits by trimming costs and increasing revenues from their core operations.

The managers made their plans known in a major survey conducted by Cresap, a division of the Towers Perrin management-consulting firm. A total of 230 managers from a wide variety of disciplines within the air carriers responded to Cresap's detailed questioning.

The airlines' emphasis on cost reduction, including cutting labor, fuel and aircraft fleet-renewal expenses, has doubt

lessly been heightened in the past 12 months, as recession, soaring fuel prices and war have combined to bring them record losses, Cresap executives noted.

"The industry is in desperate condition," said Albert A. DeLauro, a Cresap vice president and director of its transportation practice. "Excuses about why we can't cut costs now fall on deaf ears."

The "back-to-basics" theme was expressed by executives at different airlines, whether they were in marketing, operations, engineering or other disciplines, DeLauro added. "Throughout the industry, we're seeing a shift back toward the fundamentals of running an airline," he said.

Even though most hope for a less volatile atmosphere, the executives also realize that there are plenty of changes coming. Indeed, most realize that they can't survive without knowing what their customers think about them and being able to respond to changes quickly.

"What airlines constantly need to do is stand outside themselves and see themselves from the customers' view," DeLauro said. "It's a very dynamic business. If there was ever a case of the race going to the swift, this is it."

International expansion is one of the key areas where the airline managers, at both major passenger and all-cargo airlines, expect change and growth. Indeed, three-fourths of the survey respondents said international growth would be critical to their airlines' future prosperity.

The most important aspect of international aviation to watch, DeLauro added, will be the adoption first in Europe, and later in other areas, of some type of free-market airline competition similar to what the United States has.

"We're on the verge of witnessing a major evolution involving the liberalization of restrictions (on airline routes and fares) and the privatization of airlines . . . and a reduction in the oversupply" of airlines, he said. "It will all come to ground by the end of the 1990s, and probably in the next five years."

Accompanying the move toward liberalization abroad, however, was a concern among U.S. airline managers that the U.S. experience with deregulation and the resulting consolidation in the industry could lead to re-regulation.

Improving the quality of the product that airlines offer is another area of change, with 90 percent of the survey participants saying their carrier would have to do a good job with service to succeed.

Interestingly, DeLauro added, there was no significant relationship between how the airline executives perceive their service and how important they think improvements are. They all want service to get better.

Also of note is how the executives differed from their customers over which carriers they consider tops in customer service.

Among the managers, five airlines ranked well above the rest in service reputation: Singapore, British Airways, Delta, American and Swissair. But in a recent survey of U.S. frequent airline travelers conducted by Zagat, a publisher of travel guides, the top 10 airlines were all foreign carriers. American ranked 11th and Delta 14th.

In an effort to improve their rankings, many carriers are trying trying some of the currently popular management techniques, including striving for total quality management, developing more employee-performance incentives and giving employees more control over their jobs.

"It could be argued that employee empowerment could be the single most important thing facing this industry or any other," DeLauro said.

*** Virgin Atlantic Airways has a reputation as a low-fare carrier that popular with budget-minded vacationers. But there's a good reason many business travelers also pack its flights.

Trying to stimulate business in this sluggish economic climate, Virgin Atlantic is selling one-way "Late Latesaver" tickets to London from Boston, New York Kennedy or Newark airports for $199. Round-trip fares can be as low as $398. The fares are good only if bought the day before or the day of departure -- a restriction that often is perfect for business travelers who have to buy tickets at the last minute.

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