Report by Michael Bell and Thierry Lindenau of executive search firm Spencer Stuart
The rise of the no-frills carrier is encouraging airlines of every persuasion that they need an injection of low-cost DNA from their new executive recruits. But is it really the cure-all they perceive it to be?
As brokers of talent in the airline industry, the most common request from our new generation of airline clients is for individuals who bring that mystical low-cost carrier DNA. At every turn start-ups or morphing airlines, regionally focused carriers or intercontinental long-haul providers, airline founders and top executives are asking repeatedly for one thing - professionals who can bring with them the "genetic make-up" from the low-cost carrier world. Their interest in this type of talent has almost become obsessive.
This trend is so pervasive that low-cost carrier experience is becoming almost a "must have" on the resumé of any self-respecting airline executive. The pressure to have this type of experience is pushing traditional carrier executives to acquire this new genetic code, either by jumping ship to a pure low-cost carrier or by transforming their own businesses in that vein.
But what do we mean by low-cost carrier DNA? Essentially, it features some or all of the following:
■ Direct experience in conceiving, launching or operating a low-cost/low-fare carrier
■ Intimate knowledge of the low-cost airline business model
■ An ability to work within the new-generation airline organisations, featuring limited resources and an environment in which everyone does "real work"
■ A relentless, even obsessive focus on cost containment and avoidance
■ Creative and innovative thinking - finding new ways to do business.
By this definition, to have low-cost carrier DNA is to have worked for a new-generation low-cost carrier. Given the limited number of such airlines, the number of such executives is inevitably finite and small.
There is a myth that successful low-cost carriers are staffed at the top with professionals who all have low-cost carrier DNA. The facts tell quite a different story. Take, for example, US low-cost carrier JetBlue Airways, which of late has been the role model of the new-generation low-cost carrier industry.
Apart from founder and chairman/chief executive David Neeleman, who earned his stripes at Morris Air and briefly at Southwest Airlines, and his recently retired chief financial officer John Owen, with whom Neeleman worked at Southwest, the rest of the management team is drawn from regular carriers such as Air Canada, Continental Airlines, Delta Air Lines, US Airways and Virgin Atlantic Airways (see table below). If adaptable executives from such airlines can make the cut at JetBlue, surely others like them should fare well at other low-cost carriers.
A similar story is unfolding at Virgin America, the low-cost carrier start-up in San Francisco looking to get off the ground. With legacy-experienced Fred Reid (Delta Air Lines, Lufthansa and PanAm) as chief executive and a group of top executives from the likes of Atlas, Canadian, Delta and US Airways, there is not much true low-cost carrier experience at the top of that venture either.
AirTran Airways is one of the true success stories in the North American industry, even though it is not one of the new-generation low-cost carriers. As the table below shows, its top leadership team is staffed almost exclusively from legacy carriers. The same is largely true at fellow North American low-cost carriers Spirit and Frontier Airlines. Considering the success of such carriers, who says you cannot teach an old dog new tricks?
Even Brazil's GOL, darling of the Latin American airline industry and a hugely successful low-cost carrier, has no previous low-cost carrier talent in its ranks (most likely because there was none to be found in the region). It has even staffed many of its senior operations leadership positions with alumni from VASP, Brazil's now-defunct legacy airline. In Canada, WestJet even experimented by hiring former Air Canada executive Steve Smith as its number two executive.
Does Europe tell a different story? A close examination of the ranks of the two leading low-cost carriers in Europe - easyJet and Ryanair - suggests that they too are not averse to taking on talent from traditional airlines. Top-level executives in both the commercial and operational ranks have brought big airline experience to bear from the likes of British Airways and other traditional airlines. Ray Webster, recently retired chief executive at easyJet, was a long-time Air New Zealand executive and brought no previous low-cost carrier pedigree to the job. His former chief operating officer Ed Winter only gained his low-cost carrier stripes at goFly, a subsidiary of BA, after spending the previous 34 years at BA and its predecessors.
All in the mind
The story in Asia is much the same. AirAsia, probably the most successful low-cost carrier in the region, was founded by Tony Fernandes, a former music industry executive who populated the management ranks with other non-aviation executives. What low-cost carrier experience did he bring? His key rival in the region - Tony Davis at the helm of Tiger Airways - was himself a classic big company airline executive from BA, British Midland and Gulf Air. Davis is living proof that the answers lies much more in mindset and flexibility than in pure experience.
Down under, Jetstar and Virgin Blue have opted for somewhat differing models in their leadership teams. On the one hand, Virgin Blue originally staffed itself with ex-low-cost carrier executives, largely from Virgin Express, but has recently found value in introducing talent from more traditional carriers including Stephan Pichler as chief commercial officer (ex-Lufthansa and Thomas Cook) and Andrew David as chief operating officer (ex-Air New Zealand). Jetstar, which has arguably done a remarkable job of fending off Virgin Blue's push in the marketplace, is staffed at the top almost exclusively by ex-Qantas executives who were given the latitude to create an independent low-cost culture within Qantas.
What one does see in the leadership ranks of low-cost carriers, more so than in legacy carriers, are professionals from outside the industry. Perhaps because the founders or creators of these carriers are themselves often industry outsiders - Clive Beddoe (WestJet) from real estate, Tony Fernandes (Air Asia) from the music industry, Stelios Haji-Ioannou (easyJet) from shipping, Michael O'Leary (Ryanair) from public accounting and most recently Andy Harrison (easyJet) from the automotive industry. Having found themselves in no way handicapped, perhaps even advantaged, by their non-industry thinking, these leaders have not hesitated to attract executives from industries such as the internet, financial services and the media.
Given these success stories, why do many low-cost carriers shun big airline executives, seeking instead to lure away those from other low-cost carriers? Do they suspect that low-cost carrier individuals will bring the "secret formula" with them? Do they assume they can accelerate development by bringing in individuals who have "been there and done that" and therefore will not be learning at the expense of shareholders? Whatever their reasons, we believe they are running two major risks.
Risk one: while it is absolutely true that many legacy airline executives simply cannot make the leap to the new world - and should therefore not be considered for low-cost carriers - it is simply not wise, nor fair, to give all legacy airline professionals that label. It is our experience that many fine and highly adaptable big airline executives are not given due consideration from new-generation carriers.
Risk two: just because an executive has worked in a low-cost carrier, it does not necessarily mean that he or she is suited, or prepared, for a top executive position. We have seen low-cost carriers pass over more experienced and capable executives in favour of significantly less experienced and truly junior professionals who had their "15 minutes of fame" in a low-cost carrier, sometimes one that never actually got off the ground or made money. In so doing, they neglect other critical considerations in their executive selection processes - leadership experience, organisational maturity and the hardening that comes from having been through a few airline industry cycles.
There are other risks associated with trying to buy low-cost carrier experience. With such rapid changes under way and new approaches being piloted regularly in commercial areas such as distribution and marketing as well as ancillary non-aviation revenue, transplanting low-cost carrier experience may not accelerate development at all.
On the operating side, with low-cost carriers increasingly under stricter regulatory scrutiny, are they not better off securing seasoned, well-proven operating talent from respected legacy carriers so long as they bring an open mind and entrepreneurial spirit? This is why most low-cost carriers opt for bigger airline experience when selecting their top operations professionals.
In the end, the low-cost carrier DNA debate comes down to a question of nature versus nurture. Those in the nature camp believe that it is something that you are born with and that those with large legacy carrier experience simply do not possess it. Those in the nurture camp, however, subscribe to the philosophy that smart, open-minded, and adaptable executives from any sector - airline (traditional or otherwise) or non-airline - can learn the principles behind a successful low-cost carrier.
Value of experience
Judging by the data and the actions of those most successful in the low-cost carrier space, our vote would go clearly in the nurture camp. After all, can it be that a fifth-level professional at a developing low-cost carrier is more capable than a second- or third-level executive at a traditional airline that had been dealt a tough hand of cards? The law of averages would suggest otherwise.
Equally, while low-cost carriers have been busy working their new business models, traditional carriers have certainly not stood still. Many have transformed themselves into low-cost carriers or near-low-cost carriers, including Aer Lingus, America West/US Airways and even aspects of BA. Willie Walsh's drastic actions to reshape Aer Lingus into a high-performing low-cost carrier set the stage for his selection at BA, where he is busy at work on a similar transformation in certain parts of that carrier.
Other airlines have launched low-cost carrier subsidiaries and, in parallel, undertaken massive cost reduction programmes in their core businesses. Some have been so successful in these efforts that they have folded the subsidiaries back into the mainline parent when the costs of the latter equalled those of the subsidiary. Air Canada/Tango is a fine example of this. Would the leaders driving these programmes not have acquired low-cost carrier-type DNA through their actions?
Looking ahead, perhaps would-be and existing low-cost carriers should focus less on acquiring that elusive low-cost carrier DNA and more on introducing good executive talent capable of coming up with an even better airline model - regardless of source. ■
Source: Airline Business