swiss quo vadis? tal drori martin gerhardt taro honda jung su arindam thakur manuel villabona
TRANSCRIPT
Swissair - the good years
Best quality and service (best
service award,1998-2001 successively)
Strong and consistent balance
sheet – “flying bank”
Swiss national pride and flag
carrier
Strong brand name and reputation
4th biggest airline in Europe
Crash of Swissair
Stranded! The Sun (03/10/2001)
National pride driving Swissair deal
CNN (23/10/2001)A nation in shock:
Swissair crisis
BBC News (28/10/2001)
Collapse shatters Swiss image
BBC News (18/10/2001)
Swissair future on
knife-edgeBBC News (15/10/2001)
Reasons for Swissair’s failure
1) Air Littoral, AOM France, Crossair, LOT, Portugalia, TAP, Volare, Austrian Airlines, Balair, Cargolux, LTU, South African Airways, Ukraine International Airlines
Swiss veto against joining the European Economic Area
Small country as home base
Numerous small alliances 1)
Aggressive acquisition of second tier carriers in Europe
Mix of low-cost and high quality carriers
Management hubris
Discounts for journalists
Complex bilateral agreements with all EU-countries
Saturated home-market
No alliance focus
Accumulation of losses
Cannibalization, dilution of brand name
Weak strategy implementation, defection of alliance partners
Uncritical media coverage, shocking end
Tim
e
Main causes Main effects
SWISS International Air Lines today
210 70
Number of aircrafts
138 81
Passengers in mil.
13.9 10.6
Revenue in bn. CHF
Staff in 1000’
16 10.7
5.3 4
Number of destinations
2001 2003
Strategy
• Divestiture of non-aviation assets
• Joined Oneworld alliance Sep. 2003
• Recapturing reputation on service (best service award 2004)
1) SWISS Company information, financial reports
-3000
-2000
-1000
0
1000
1999
2000 2001 2002 2003
273
-2.885
-909-498
Economic performance 1)
Developing a new strategy for Swiss
STRATEGY
HUMAN RESOURCES
VALUE
COST
SPEED
Long-term
Short-term/ turnaround
Strategic options for airlines
Service Level
Price Level
High
Low
HighLowLow-price strategy
Airline-in-an-airline strategy
Full servicestrategy
LufthansaSWISS
KLM
Air France
Singapore Airlines
BA
Ryanair
EasyJet
Quantas/Jet Star
Option 1: Low Cost Airline
Offer low fares
Focus on short-haul
routes that generate
maximum revenue
Maximize air-time
No comfort services
No alliances
Strategy
Overhead
Lower general administrative costs
Lower maintenance costs
Direct Sales over internet
No commission on ticket sales
No 3rd party fees
Distribution
No catering
No in-flight amenities
Passenger ServicesSwitch to Secondary airports
Reduce number of planes to have only 1 type
Airport Costs
15% more seats / aircraft
One plane – one class
Seats
Lower compensation
Reduced complement
Performance incentive
Crew Costs
Low-Cost
Strategy
Implementation
Reduction of complexity
Cost reduction (maintenance
and administrative cost)
Higher degree of automation
(e.g. Internet)
Attract more customers
Lower competition in
Continental Europe
Opportunities
Option 1: Low Cost Airline
Quality-driven instead of cost- driven
Target long-haul operation
Keep hub-and-spoke network
Orient towards business travellers
Continuous invest into infrastructure, facilities and HR
Aggressively build brand
Strategy
Leverage OneWorld alliance partners’ resources
Invest mainly in HR training rather than physical facilities to save cost
Implement new short-haul concept “SWISS in Europe”
Build brand mainly by word of mouth
Launch more long-haul operations Invest more in physical assets Build brand through marketing initiatives
Short-term
Long-term
Implementation
Option 2: Full-service airline
Reduction of complexity
Cost reduction (maintenance
and administrative cost)
Higher degree of automation
(e.g. Internet)
Attract more customers
Lower competition in
Continental Europe
Opportunities
Option 2: Full-service airline
Investing money in
acquiring an existing low
cost airline.
“The Greenfield
approach” -Establish a
separate subsidiary with
its own name and logo
(which can be related to
Swiss) and possibly with
a separate management.
“Airline in an airline” :
Maintaining the full service
and creating a low cost
channel
Combining the advantages
of parallel but differentiated
operations.
Targeting two market
segments in the same time.
Strategy Implementation
Option 3: Airline-in-an-airline
Enables competition with low
budget airlines
Positive impact of Swiss
brand name
Switch to Swiss for long hauls
The no frills sector is still
dominated by operations
involving UK point
Increase range of customers
Opportunities
Option 3: Airline-in-an-airline
Strategy decision
Financial investment required
Massive restructuring of fleet and operations
Impact on corporate culture
Impact on brand and current customer base
Risk of canibalization
Impact on current alliance membership status
1 – lowest impact/risk 5 – highest impact/risk
5 2
3
4
1
2
5
5 31
5 3
11 5
415
Option 1 Option 2 Option 3Main impacts
Managing the turnaround of SWISS
STRATEGY
HUMAN RESOURCES
VALUE
COST
SPEED
Long-term
Short-term/ turnaround
“If the Wright brothers were alive today, Wilbur have to fire Orville to reduce costs“
Herb Kelleher, Southwest Airlines
“Many companies in crisis mode will just change the CEO. The approach is like changing only the lead husky on a
sled-dog team. Four dogs back, the look and smell
stays the same“G.
Bethune CEO
Motivating and aligning the workforce
New vision and new corporate culture (honesty, trust, dignity,
mutual respect)
Introduce performance incentives
Management changes at all layers
Enhance teamwork and identification
Measures
Heterogeneous organization and culture as legacy from
Swissair and Crossair
Above average personnel cost
People are tensed due to insecure future and layoffs
Lack of trust in management
SWISS today
Service performance
9284,1
79,8 78,7 78,3
0
20
40
60
80
100
0,5
12,1
15,1
18,7 18,8
0
5
10
15
20
25
30 Missing baggage per 1000 passengers 2003
% on time arrivals 2003
Ryanair SWISSLuft-hansa
BA Air France
Ryanair SWISS Luft-hansa
BA Air France
• Little tangible product dimensions
• No time on short flights to demonstrate a wide service range
• Consistency is more important than absolute value
• Negative feedback spreads faster than positive
Difficulties in providing service
Transform service into a competitive advantage
Reasons for choosing an airline other than price
Availability of direct flightsAirport proximity to
city center
Safety
Baggage handling
Punctuality
Involuntary denied boardings
Friendliness of staffCleanliness
AirmilesExpand theworkforce
More investment
projects
Higher profits
Higherproductivity
Eliminate non-value-adding
work
Continuousimprovement
Satisfiedcustomers
Satisfiedemployees
Create a virtuous cycle
C.C. Kong ex-
CEO
“Our passengers are our raison d’être. If Singapore Airlines is
successful, it is largely because we have never allowed ourselves to
forget that important fact“
9%
16%
7%
12%
10%5%
18%
13%
10%
General & Administrative
Sales, marketing & dis-tribution
Crew cost
MaintenanceFuel
Ground handling
Airport charges, traffic control
Aircraft ownership
Average cost composition per available-seat-kilometer1)
1) Association of European Airlines, Civil Aviation Authority, McKinsey Quarterly
Passenger services
17
12
10
7,87,1
4,5
0
5
10
15
20
Average cost per available-seat-kilometer in €ct 2003 1)
Luft-hansa
SWISS Air France
BAEasy
JetRyanair
Cost performance
Sales agents Callcenter Internet
Airline model
Withdraw from unprofitable routes, redefined hub strategy
Reduce number of airplane types, decrease average age
Increase role of Internet-sales
Divest non-core assets
Offer repair, maintenance, and catering services
“We started Internet booking 2 years
ago... resulting in a cut of 56% in sales
cost!“
W.Walsh CEO
Restructuring fleet & operations to reduce complexity
Flexibility as key competency
Cater to customer needs quickly
"The key word is flexibility. As a result of our employees' commitment to low costs,
low fares and high quality customer services, the future for Southwest is
bright " Jim Parker
CEO
Seize opportunities for improving service quality
Manage finance effectively and reduce
cash-to-cash cycle
React quickly to the volatile business demands
Be flexible – improve service quality continuously and fast
Synchronize the entire business process through
effective IT systems
Recommendations
FULL SERVICE STRATEGY
•Target long-haul and business travelers•Build brand on service excellence•Continuous investment in infrastructure, IT, and HR
•Provide more destinations by using hub-and-spoke network
HUMAN RESOURCES
VALUE
COST
SPEED
•Work closely with alliance partners and leverage their resources
•Remove management hubris and change organizational culture to better respond changing consumer needs