Yesterday I blogged about reading telltales. Catching small bits of information that can help you predict a company’s behavior and longevity. But sometimes we don’t need a telltale – because the signs are as obvious as a gale force wind. That happened yesterday in my email inbox, when I received a letter from the heads of the major airlines telling me to write my legislator’s to implement and enforce greater regulation on oil traders (read about the letter and see a copy of the text here).
I’ve long been a detractor of the leaders at United, American, Delta, US Airways, Northwest, Continental and the other "major" airlines. These companies were founded by former military officers who created airlines in a regulated environment. Subsequent management has never varied far from the original Success Formula, nor the Lock-ins, choosing to believe they will somehow make money if they just do more, better, faster, cheaper. In reality, the only person who created an airline that made money was an attorney, Herb Kelleher, by founding Southwest.
Now their Success Formulas are on the brink of collapse. So they are pointing the finger at someone else. Simply put, these leaders have never been willing to Disrupt their ineffective Success Formulas and use White Space to try doing anything else. They have remained Locked-in to the hub-and-spoke systems that are highly inefficient and thus reliant on low fuel prices. They have never challenged their complex pricing formulas, nor their antagonistic relationships with employees, nor their indifference toward customers. Even when they decided to open alternative businesses (Song, Ted, Eagle) they remained Locked in to their historical strategies and tactics, requiring these services give out frequent flier miles on the programs, use the existing gates, work with existing employee work rules and maintain the historical reservation systems. These leaders never tried to do anything really different. Despite strikes, government interventions and even bankruptcies they have maintained commitment to their Lock-ins and been unwilling to implement White Space.
They of course could have done many things differently. They could have migrated to a point-to-point airline. They could have improved employee relations. They could have allowed subsidiaries to use different technologies (different planes, different reservation systems) and try different practices (like Southwest’s extensive use of fuel hedging which has kept it profitable during this fuel price spike). But that would have required some Disruptions and establishing real White Space with permission to do new things. Which never happened.
What can we now expect? One or more of these airlines will fail. This letter from the CEOs is a signal as strong as a gale force wind that they have no idea how to deal with their company problems. Lacking any viable solution, they want the government to regulate their suppliers (something they’ve tried for years with their employee unions by the way) so costs will be controlled for them. This letter is an admission they expect to fail unless someone else saves them. Of course they aren’t taking responsibility for being in this position – but they are willing to admit failure is just around the corner and likely without help from a higher power.
What will be the impact on us? A major airline failure (say United) will be a national security issue. Several cities will become isolated islands unable to physically connect with the rest of the country. 100 years ago if the railroad bypassed your town you had to move the town – and many did. What will happen to cities that no longer have air service? How about the thousands of people that use these airlines for international travel? How many Americans will be stranded abroad? How many will be unable to reach facilities in remote countries? Without internal transportation system bogged down, we would be a sitting duck for terrorists wishing to create havoc with people stuck in locations they don’t want to be.
As these airlines fail, are we ready to outsource air traffic? Like we’ve outsourced the production of steel and other products to foreign companies? Are we ready for Lufthansa to step in and take over United’s routes (and some assets) between Chicago and New York, LA, San Francisco and the other thousand cities United services? Or Swiss Air? Or Virgin? If we use foreign carriers for domestic travel, what happens to our safety systems on what has historically required domestic companies for national security?
It’s not hard to recognize the kind of Lock-in to outdated solutions this letter signed by a dozen CEOs indicates. It’s not hard to see that failure is a likely outcome. When Lee Iacocca told Congress "Guarantee my loans or all these Chrysler employees will be unemployed" he made it clear that his company would fail without help. These CEOs are saying the same thing. And it’s really unfortunate, because Southwest has never been secretive about any part of its Success Formula, and it makes money to this very day. So for the major airlines, failure is obviously more acceptable than change. And everyone will lose with that kind of thinking dominating the executive suite.
