By: Michael Bell

Global Aviation Practice
Spencer Stuart


"How is it that the industry has been able to retain its top leaders? It certainly can't be the money"


Michael Bell
 © Billypix

What have the past 25 years taught us about leadership in the airline industry? In a few words: "It's tough as hell."

Whereas many are prepared to throw the first stone at airlines and their leaders for what they consider to be poor business practices, few are willing to step into their shoes. Let's face it, it's a tough grind. After posting record profits in 2000, the industry has lurched from one major sea-change crisis to another - the internet bubble burst, 9/11, SARS, the Iraq War and then the Afghan War, the push for "green", spiking and then free-falling fuel prices, the worst global recession in decades, and even Icelandic volcanic eruptions.

Not only is leading an airline a gruelling experience, it's a highly public one at that. The airline industry is constantly under the microscope by the media, regulators, special-interest groups and the public at large. With each crisis - big or small - airline chief executives are thrust into the spotlight and expected are to speak with authority on the issues at hand.

So how is it that the industry has been able to retain its top leaders? It certainly can't be the money. The industry has generated a negative cumulative profit since inception and the impact on the wallets of the chief executives has been no less severe. By most measures, their base salaries are quite low. American Airlines chief executive Gerard Arpey's $669,646 base salary in 2009 is far below what a comparable $20 billion company chief executive earns in the high technology, life sciences or financial services sectors. Moreover, airline chief executives can hardly put through increases to their base salaries without raising the wrath of labour leaders. Truth be told and labour propaganda aside, airline chief executives aren't doing it for the money.


What motivated Richard Anderson, the former chief executive at Northwest Airlines, who had gone to the relative sanctuary of the highly profitable health management industry at UnitedHealth Group, to return as Delta's chief executive in 2007? It certainly wasn't the cash. Instead, his was a return of passion, driven by the once-in-a-lifetime opportunity to steward an iconic industry brand back from the brink. As they say, the kerosene still flows in his veins.

Without question, the profile of the airline chief executive has evolved considerably over the past three decades. In the 1970s and 1980s, it was commonplace to see airline operators at the helm. Back then, "real" airline professionals proved themselves in flight operations or maintenance and engineering. Today's profile couldn't be more different. Out are the operators and in are those who paid their dues in finance, commerce, and legal. When Joe Leonard took his retirement from AirTran in 2008, he was the last US major airline chief executive to have come up the operations route. In today's economically volatile and transaction-intensive industry, it is the legal eagles, revenue managers and balance-sheet engineers whose skills are most coveted in the chief executive suite.

But, as much as things change, they stay the same. Having experimented somewhat with introducing outsiders at the top (Glenn Tilton at United; Leo Mullin at Delta), the vast majority of airline chief executives today are complete insiders. Among the 10 largest airlines in the USA today, all but Tilton are industry veterans and he just finished packaging his airline for sale and will undoubtedly soon exit the sector. The story isn't much different in Europe, with the likes of Air France-KLM, British Airways and Lufthansa all led by long-time airline executives.

Truly, the only part of the airline industry that has witnessed a material influx of outsiders has been the low-cost carriers and, then, only because many of those were also their founders. Constantino Oliveira at Gol, Tony Fernandez at Air Asia, and Michael O'Leary at Ryanair have each fundamentally reshaped the industry in their regions and none is an airline person, per se. That said, their tenures in the industry are such that they too are rapidly becoming insiders. And, many of the LCCs founded by non-airline people are now firmly under the direction of airline veterans - Gregg Saretsky at WestJet as an example.

History has taught us that the kind of leaders the industry will attract are airline people. And what do they have in store for the next 25 years? Time will tell but, in the meantime, buckle up, it's going to be a rough ride


Sleepless nights


Bell and his colleague Thierry Lindenau explored the issues keeping low-cost airline chiefs awake at night, following up with ways to overcome these challenges.

Source: Airline Business