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If You Were The CEO ...

Wed Sep 22, 2004 12:12 pm

It is easy for us to say that an airline should do "A" or "B" to recover from a crisis, but:

If you were invited to be the CEO of an airline (like Swiss, Varig, AA, United, etc ...) facing economical problems, what would be your first 3 measures?


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RE: If You Were The CEO ...

Wed Sep 22, 2004 5:34 pm

1) act like FR's CEO: O' leary (works)
2) dump employees (cost to much)
3) specialize in something
FlightS in the next 3 months: MSP, PHX, MEM, NCE, TFS, BCN. All round trips from AMS
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Wed Sep 22, 2004 5:58 pm

1st- acknowledge that your employees are its most valuable AAsset
2nd-acknowledge that your employees are its most valuable AAsset
but also tell them they need to make pay cuts

3rd-acknowledge that your employees are its most valuable AAsset
but tell them that you can no longer afford the wages that your
making and your $9/hr res job is now going to E.D.S. in nova scotia

4th-acknowledge that your employees are its most valuable AAsset
but due to 9-11 we no longer need you

cheers, jerry
bus driver.......move that bus:)
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RE: If You Were The CEO ...

Wed Sep 22, 2004 6:16 pm

1. Hire a really smarmy, stingy, mean, absurd, pushy, dedicated, relentless team of lawyers as negotiators. It works. My dad is a lawyer and I've seen him negotiate and plead for the most amazing things and it works.
2. Go to bat with unions keeping my costs at an absurd level, tell them that either they can have jobs with lower wages or no jobs with no wages, their choice. I'll be glad to find ways to get rid of them if they don't work with me. Some groups are getting too heavy for our canoe, if their excessive weight causes us to start taking on water, who am I going to throw overboard first? Hmmm...
3. Renegotiate any and all leases and contracts. With all vendors. Everywhere. Till they cry. Till the last hours. Till we are blue in the face. And even more blue. All contracts can be negotiated, especially now. Interest is low, business anywhere is coming back but not spectacular.
Ich haben zwei Platzspielen und ein Microphone
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RE: If You Were The CEO ...

Wed Sep 22, 2004 7:19 pm

If I were a CEO of an airline like US or United, I would give myself and the board a pay cut, force the unions to accept pay cuts sighting the reason that if they don't accept a lower wage, it will soon be no wage at all.
Look at all the expenses and cut whats no nessecary to keep pax and employees happy, while somehow maintaing a service that keeps everyone happy.
Outsource costly functions, perhaps sell certain departments... Sale and lease back of aircraft to free up cash in the short term
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RE: If You Were The CEO ...

Wed Sep 22, 2004 7:31 pm

Since this seems to be a serious question, let me see if I can give you a serious answer, based on my experience, both with United and Alitalia in management:

Ok. Let's assume that the airline for this purposes is Unitalia (code UA). Let's further assume that the carrier is in bankrutpcy in the US and that it has not been able to secure government backing. It has been able, however, to obtain DIP financing to keep the airline operating while in bk, but the cash is dwindling and the carrier would have only about 90 days worth of cash left. Let us further assume that the carrier has the route network and the aircraft structure of United and some of the hub issues that Alitalia faces at Malpensa (which is pretty true of O'Hare as a matter of fact.

So the question is, what are the first three measures that CEO would put into place in order to keep the airline flying in the short term and in the second place try to get it healthy and out of bankruptcy.

Now that we have created a situational framework from which we can operate, let's start to look at the issues:

The biggest, most immediate issue is raising cash to continue operating. Assuming that most of the assets are airplanes which are owned and few leased, we can make certain constructive initiatives:

The second issue, which really drives the first is where the money is being spent. Is it a revenue problem or a cost problem.

The third is the hardest of all, identifying the opportunities to grow revenue while at the same time, reducing costs to the bone.

If we look at these three points, this is the crux of where one has to start to immediately fix the airline's cash flow position, which will then give time to adderss the structural issues that are driving these problem in the first place.

OK First raising cash:
1. Depending upon how heavily leveraged the aircraft are, this would be the first action. Either sell and lease back, or outright sell some aircraft. If the banks and the court would allow this, this would be first.

These aircraft would be taken from routes which are not performing well and suspend service for a short time. We may need those aircraft elsewhere.

Once a through assessment of the route profitability and hub needs, I would pair down the fleet, along with reducing frequency and/or outright suspending service to those cities that did not product for the company.

If necessary, and the cash flow situation was dire, I would park the airplanes in the desert and immediately reduce the capacity of the airline. The point is for no 1....reduce capacity=reducing costs in areas in which the traffic cannot support the aircraft. This would apply to all short and long haul routes.

Note: With regard to fleet capacity reduction, consideration would be given to reducing aircraft type. The 747 is too big. I would get rid of them immediately (if possible). If this means giving them back to the lessors, so be it. The idea is to reduce to two long haul aircraft types and two aircraft short haul types. By doing this, costs are immediately cut in a large number of areas with the least number of actions.

Once the aircraft and rifs are in motion (with the cooperation of the unions, of course....otherwise it won't work.

2. Immediately place a reduction in force action (short to medium term, depending upon the cash situation). The once that can accept a unpaid leave with a guarantee of recall with benefits once the crisis passes or that they will take a buyout spread out over time, once the immediate cash crisis is over.

3. Immediately put into motion a service reduction measure, meaning to withdraw certain services from certain flights which are not items which would not be easily detected by the passengers. One less f/a per flight, reducing liquor cost and comsumption on board. Again, these measures must be temporary, designed to not overly impact the customer and one that would provide the most immediate positive cash result.

There are other measures that can be taken, especially in the operation that can save costs; but for now, these are the three to raise cash.

Identifying the problem: Usually, poor revenue performance comes from a number of factors: Poor high yield traffic, poor cargo performance, poor ground operation utilization. Again, if the issue is revenue driven, the closing the worst performing routes on a temporary basis, until the economy return and the routes can be restored. Remember, we are only talking in this context about routes that are not prime routes. It is usually the secondary performers that develop this knid of problem.

Generally speaking, to come out with a long term solution to a financial crisis takes a few criteria:
1. What is the 'vision' of the new airline?
2. How do we make the airline leaner, but still provide excellent service. On this one, I would go to the employees. They know where they can do to be able to solve problems within their own airea of expertise. This means communicating the vision, but also getting the employees to buy into it. If all employees are pulling in the same direction. then it is easier.
3. Right-sizing the airline. This means reducing fleet to meet demand, plus have aircraft available to be able to be put into the schedule quickly in order to fill up the gaps. What is important is that the airline can be safe, secure and be lean in its operation in order to gain the efficiencies necessary to compete toe to toe with the LCCs if they want to go there. Of course, the FFCs make a huge differene.

There are many more things that can be down within the framework of a reorganization and some of these are just few of the initiatives that would need to be taken to ave the airline from becoming a dinosaur.

I hope this answers your questions.
David L. Lamb, fmr Area Mgr Alitalia SFO 1998-2002, fmr Regional Analyst SFO-UAL 1992-1998
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RE: If You Were The CEO ...

Wed Sep 22, 2004 7:40 pm

Pillage the company treasury by giving myself a huge bonus, then run like the wind  Big grin
"There are no stupid questions, but there are a lot of inquisitive idiots." - John Ringo

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