Former Liat chief executive Mark Darby shares a first-hand insight into the trials and tribulations of relocating to take leadership of a troubled, island-based carrier
When I took up the post of Liat chief executive in 2006, I joined the airline at one of the most challenging times in its history. It was heavily loss-making, technically bankrupt and facing severe competition from Caribbean Star, owned by the now-disgraced Texan multi-billionaire Sir Allen Stanford. Morale was low and it was clear there wasn't room for two airlines. One was going to go under and the money was on Liat. In short, the airline was in deep trouble.
Star appeared to have one objective: to put Liat out of business. They had adopted a "money no object”,” me too" strategy. Whatever Liat did, it would follow, but try to do it better. It copied everything from Liat's schedules to its fleet. Star was relying on offering a higher-quality, more reliable service than Liat, which, at the time, had an unenviable reputation for poor punctuality and customer service. Most critically, neither airline could possibly afford the severe and irrational price war which had been waged since 2005.
Our government shareholders were finding it increasingly difficult to find cash to invest in what appeared to be a bankrupt, lame duck business. However, fortunately for us, Stanford was tiring of losing money - probably $250-300 million since Star's formation in 2000. Although he knew the governments were struggling to keep pace with the losses, there didn't appear to be an end in sight. Liat was critically short of cash, but it had one major advantage over Star: the undying loyalty of the Caribbean public, who, in spite of Liat's reputation for poor service, remained fiercely loyal to the beleaguered airline.
If Liat was to survive, assuming it could generate sufficient cash, it had to step-up reliability, punctuality and customer service to neutralise the irrational competition. Fortunately my appointment at Liat was mirrored by the arrival of new Star chief executive Skip Barnett, a seasoned US regional airline chief executive. Like me, he clearly had doubts about the sustainability of his airline, in spite of Stanford's "deep pockets”. When we met, it was clear that if either airline was to survive, then the status quo could not prevail.
By autumn 2006, we were actively discussing some form of merger. Not surprisingly there was deep scepticism and distrust. This was not going to be a quick process. But with both airlines haemorrhaging cash at alarming rates, we both needed a quick solution to the overcapacity and rock bottom fares.
I developed the idea of a commercial alliance, where Liat would handle commercial activity and the airlines would fly a consolidated, joint schedule. It had the potential to slash capacity by 40% and substantially cut operating costs, paving the way for more rational and sustainable pricing. The structure was put together in a remarkable three weeks. From day one of the combined operation the cash haemorrhaging stopped and some breathing space was created.
2007 saw the completion of talks with Star, which eventually led to Stanford closing down the airline. As a result of the commercial alliance, in 2007 Liat delivered its first operating profit for many years. In addition, and most importantly, the stability created by Star's exit gave our government shareholders the confidence to inject $60 million into the business. This helped resolve many long-standing debts and meant we could negotiate better terms with suppliers. In 2008 we used the new-found stability to improve punctuality and customer service. We carefully managed capacity and fares were kept at realistic levels, despite intense public pressure to cut them to the price-war lows. In 2008 we delivered a second year of operating profits. We also succeeded in dramatically improving reliability and punctuality.
I'm often asked what did and didn't work, what I wish I had known beforehand and what still needs to be addressed. I’m sure many airline executives will recognise the following challenges.
I hadn't appreciated the complexity of three countries owning the airline (and many other islands acted as though they too held a stake!).It became clear that the expectations of small island states are not always entirely realistic.
In 2006 they made one demand: "Don't come back for more cash." The shareholder islands, with their small budgets, simply couldn't afford to plough any more cash into an ailing airline. At times having three owners meant conflicting agendas. It also meant key decisions required a consensus. Beyond the "no more cash" edict, there was a lack of clear shareholder direction.
Inter-island air services are the socio-economic "glue” that keep the Caribbean islands together. Ferry services are poor, road bridges non-existent. Operating costs are high, but populations are typically just 30,000-100,000 with relatively low GDPs per capita. In many other parts of the world the inter-island routes would have come under public service obligation designation, attracting subsidies. While few local governments could afford such assistance, they were happy to look on while our shareholders effectively subsidised air travel by funding the business.
Once the crisis had passed and the future of Liat had been secured, it was disappointing to see island governments (primarily the non-shareholders) regularly make unrealistic demands. Sometimes it was for increased services, but more often they wanted a return to unsustainable fares. Perversely, while they were happy to expect Liat to reduce its fares, they didn't hesitate to raise air travel tax to the point where it often makes up 30-40% of the total ticket price. One of our successes was to sensitise passengers to this burden.
STRATEGY IN A VACUUM
In the absence of clear shareholder objectives, we were left to develop an informal strategy to fit Liat's mission and network. There was no cash to expand outside of Liat's traditional market and, therefore, when we started work on a plan to launch a freighter service, it was because we believed it might make sense -not because it met a shareholder objective.
This lack of shareholder clarity was compounded by weak corporate governance. A board should provide strategic leadership. It should manage corporate values, obligations and resources against a backdrop of controls aimed at assessing and managing risk.
Unfortunately the role of Liat's board was never that clear. Instead it operated more like a government department with greater emphasis on reporting than on setting the strategic agenda and guiding future direction. I suspect this was because, like many state-owned companies, several directors were either career civil servants or NGO officials. Few had held senior roles in major companies. Board members got themselves involved, through board committees, in operational areas that are usually the preserve of executive management.
This is one of the company's greatest weaknesses. Unless the role of the board is clarified, and its size, composition and the role of its committees is addressed then many of Liat's past problems will reoccur.
ON THE PULSE
A further challenge was that, while most of the management and supervisory team were extremely enthusiastic, loyal and hard-working, in many cases they lacked exposure to current industry practice. The financial resources simply hadn't been there to provide access to training and overseas conferences. Hopefully this will change.
We also suffered a lack of choice when it came to external recruitment. Finding quality, experienced staff was always a challenge and a number of key positions took months to fill. We were in fierce competition for the best candidates, up against financial institutions and Internet gambling companies which were able to offer more attractive packages.
When I took over at Liat, there appeared to be a 'disconnect' between management and the workforce and I decided to adopt a very direct and 'hands-on' management style. At times I am sure this was resented and seen as micro-management, but I felt it was necessary to get a clear understanding of what was really going on in the business.
I also felt it was important to make myself and management available to the wider Liat team. For example, in response to a poor ability to get the first flights of the day away on time (with resultant knock-on delays), I set up a roster where executives took turns to be at the Antigua base at 0400 every morning. They made sure that the operations control centre was up and running, check-in was open, the contracted number of staff were on duty and any misconnected passengers from the previous night got away. This worked well.
When I could make the time, I would drop in to the hangar or the cargo, ramp or call centre departments for an informal visit and I encouraged other executives to do the same. I believe this was appreciated by the staff, but some managers resented what they saw as an intrusion. They felt they were being checked up on. In a business that is running 'like a well-oiled machine' perhaps this approach isn't necessary, but this wasn't the case at Liat. We needed to address serious staff morale problems, caused by years of working for a carrier teetering on the brink of bankruptcy. I saw this more direct management style as a way of re-engaging with the wider team.
Although we only had 900 staff, we had 11 unions. This was obviously too many, and an administrative challenge, but we were generally on good terms with most of them. The only exception was the pilots' union. We were frequently at loggerheads. The root cause was a poorly constructed and ambiguous union contract that originated from the 1970/80s.The original negotiators must have known precisely what was meant by the terms, but they failed to adequately document the deal. This led to many acrimonious disputes, especially after a more militant pilots' union executive was brought on board.
Inordinate amounts of management time were taken up defending various legal challenges and dealing with threatened and actual industrial action. The pilots' attitude created quite a gulf, not only with management, but also with the rest of the staff. During my time at Liat one of my greatest regrets is that we failed to resolve these differences.
My three years at Liat were fascinating and hard work, but rewarding. It's good to feel you can really make a difference. I wish the company all the best for the future.
If you are considering committing to a similar post, I would suggest that you do your own due diligence first. This is doubly important if you are moving overseas. From a business perspective, I would recommend:
- Establishing an appropriate governance structure. Is the board the right size? Is its role and strategic direction clear? Do you have the right people on the board?
- If your airline is state-owned, clarify the real objectives of your shareholders. Test if the objectives are viable and whether you have adequate resources to fulfil them
- Even when times are tough, continue training your staff. Exposure to the wider industry is critical, particularly if you have a relatively static workforce. Encourage them to attend conferences and overseas training seminars
- Use” management by walkabout” tactics. Make sure executives are accessible. Morale will improve. The job will be more interesting and rewarding. Most of all, you will hear of issues before they become major problems
- In negotiations, comprehensively document understandings and agreements. Also ensure that the full implications are fully understood. A quick deal that solves today's problems could be storing up problems for the future.
Away from the office I enjoyed my time in the Caribbean. The people are friendly and the carnival was great fun. I developed a taste for 'buss up shut' and 'goat water', steel pan music, fêtes and discovered hashing, and lime-ing (hanging out on a beach with cold beer in hand).
Oh! And did I mention the weather?
Mark Darby began his aviation career in 1979 as a planning engineer with Laker Airways and later BCAL/BA. In 1989 he changed direction and spent the next 17 years as a specialist air transport consultant. Since leaving Liat he has returned to consultancy while looking for his next aviation industry opportunity