Handling alliance relationships has become a key strategic role, especially within the global groupings. A study by international executive search firm Spencer Stuart investigates the qualities demanded of today's alliance executive
Whether you believe they are little more than a powerful marketing device or the key to survival in an industry headed toward consolidation, alliances, in all their many forms, have become an integral part of today's airline business. And as the importance of alliances has grown so has the necessity for strong management leadership, especially in balancing airline interests with the demands of global alliance membership.
There is little doubt as to the strategic importance now placed on the alliance relationship. "Alliances allow you to achieve global network coverage without capital investment," says Paul Matsen, senior vice-president (v-p) for alliances at Delta Air Lines, explaining the lead reason that alliances have become such an attractive business proposition for his carrier. Air Canada's alliances v-p, Ross MacCormack, who serves as chairman of the Alliance Management Board at Star Alliance, puts forth another benefit: "For us, alliance membership has been unbelievably successful. It's probably the highest leverage proposition we have pursued and we estimate that 10% of gross revenue would not have been there without it. On top of that, it's revenue at higher margin levels."
For all its benefits, the alliance comes with a cost of admission. Issues ranging from competing brands to disparate safety records and incompatible information technology systems all play a significant role in the day-to-day operations of member airlines. In the end, what is left is a conundrum of parts that must be deftly assembled. Who better to assemble them than the airline alliance executive?
The alliance executive
Originally a marketing position with responsibility for maintaining bilateral relationships, the alliance function within an airline has evolved into a complex role: part strategist, part technologist and all politician. As member airlines commit greater resources to these partnerships, the alliance executive has emerged as a general manager of sorts who must not only handle the challenges facing the alliance but also do so within the context of what is best for their own company.
Members of Spencer Stuart's Global Aviation Practice earlier this year conducted a series of interviews with airlines around the world about the emerging role of the alliance executive. Those interviews gathered views from a range of senior players from presidents to alliance and human resource executives, each of whom outlined the skills necessary to best fill the position.
As many executives revealed, this is largely uncharted territory. While the looming possibility of consolidation has sparked a heavy reliance on alliance membership, it will also shape the outcome of their scope. Guiding an airline through this rapidly changing course requires broad strategic vision, as well as solid management skills, making this ambiguous and challenging role a fertile proving-ground for senior staff.
Although the alliance function is often housed in the marketing department, all the interviewees agreed that the alliance executive must have a broad understanding of business. The individual in the role must be equipped to deal with a variety of issues - from technical concerns to operational procedures.
"You need a multi-disciplinary, almost general management background," says David Cush, American Airlines v-p for international planning and alliances, "with exposure to airports, sales, ITand capacity planning, among others." Paul Matsen agrees and adds a few more criteria: "You need someone who has a clear understanding of overall airline strategy and corporate objectives," he says. "You need someone with a broad understanding of network, operational drivers and customer drivers. The individual must understand finance and how alliances create value. Broad strategic skills are also critical."
The executives polled revealed that, although the alliance manager will need to address a host of management issues, the successful candidate will have experience in five core business areas.
Marketing
Perhaps the most tangible benefit to alliance membership, the power of cross-marketing can also be one of the most volatile issues an alliance member must face. The issue? Loss of brand.
Interestingly, Star and oneworld have addressed the branding issue differently. In Star, the alliance brand is much more dominant. As check-in counters across the network make perfectly clear, consumers are flying a Star airline. By contrast, oneworld, has taken a different approach. The alliance is a "very junior brand" compared to that of the individual carrier according to an executive within the alliance, who adds that this is largely due to the "personality of the carriers involved".
"Airlines are naturally very protective of their brand.They won't allow it to be 'polluted' with an alliance brand if they feel that the latter won't deliver," notes Paul Birch, former executive general manager for human resources with Ansett Airlines, which has itself been through a merger with Air New Zealand (ANZ). Alliance executives must understand the role branding plays in market positioning, as well as be able to assess the merits of subverting it to the alliance brand.
Operations
The flip side to marketing, operations is another critical area which alliance executives must understand. While marketing offers the consumer the promise of seamless global travel, how capable member airlines are of keeping that promise is key to delivering value to its constituents. It is also one of the primary issues which members face.
In addition to the need for co-ordinating levels of service, carriers must deliver uniform safety standards. "Within the alliances you have some very big, very strong, high quality carriers with good reputations for safety," says Birch. "The reputation for others is mixed. Do you go with the lowest common denominator or do you try to raise the bar? And in this case does the particular carrier have the capability to match the higher standard set?"
Alliance executives must be capable of addressing operational concerns for their airlines and the alliance alike, making recommendations that will gain support of senior management, and fighting for change.
Technology
Perhaps the greatest challenge to maximising the true potential of alliances is technology. An issue across all industries exploring shared resources, the lack of technical standards is particularly significant to airline alliances. In these somewhat fluid partnerships, members must grapple with numerous issues inherent in integrating their distinct platforms.
"Common IT platforms are a huge issue," says Martine Jager, manager charged with groups sponsorship at ANZ-Ansett and previously a head of alliances for Ansett. "In Star there are eight different reservation platforms and in oneworld there are three."
Although perhaps not as critical as the other prerequisites, it is important to be conversant in the IT element of his or her trade.
Labour
To say that unions play a significant role in the airline industry is a massive understatement. One need not look far to justify the importance of familiarity with labour relations to any senior level executive. Perhaps then it is no surprise that the issue of alliance-based unions was one which interviews highlighted as being of increasing prominence.
"We are starting to see Star Pilot Groups and Star Cabin Crews," explains Carolyn Tremain, senior v-p for human resources and organisational change with ANZ/Ansett. "We have had no negotiations as of yet, but these groups are far more affected by the alliance phenomenon than many of the other member airline employees based in a single regional location. By contrast, their work place is much more global."
Clearly, airline executives are concerned about the implications of alliance-based labour negotiations and actions. Could it be that labour uses the alliance platform to seek the "highest common denominator" in wages and conditions? Or, worse, could alliance-wide labour action bring an entire global network to a grinding halt? To address these types of potential threats, the airline alliance executive must be labour savvy.
Regulatory Bodies
No discussion about the airline industry would be complete without the mention of antitrust issues. The same is doubly true within the context of airline alliances. "We talk about common IT platforms, frequent flier programmes and market gaps at meetings," explains Jager, "but we can't talk about price because of the antitrust problems."
Not all alliances enjoy antitrust immunity - British Airways-American being the most famous example - making it all the more difficult to take full advantage of the relationship. Accordingly, the capable alliance executives will be well served by having an understanding of the regulatory landscape.
In addition to having broad business skills, the interviewees agreed that it takes a special breed to fill the top alliance role in an airline: a first-rate mediator. "You need to be a careful listener - paying attention to what your partners say and asking good questions," says Friedel Roedig, founding chief executive of Star Alliance. "Many airline executives have gained such skills through negotiations, but in an alliance it's different. If you negotiate only for your own interests, you will lose. It must be win-win."
It is no surprise to discover that one of the top-rated traits is the ability to handle the politics - both within the alliance and on the home airline front. These political skills will include being able to represent the carrier's interests within the alliance.
According to one Star representative: "within Star there is very good camaraderie, the relationship between carriers is very equal and the small players are surprised at the voice they get. It is one player, one vote." A representative from a major oneworld carrier has a different perspective, citing frustration at the "disproportionate amount of voice" the small carriers get.
These polarised perspectives have less to do with the individual alliances as with simple group dynamics. Bringing disparate groups with differing, sometimes competing, goals together is a delicate situation, particularly when you're working within the context of alliances involving one or two "anchor" airlines - a major like United, Lufthansa, American, Singapore Airlines or BA for example - and many smaller airlines that fill in the strategic geographies around the globe. Whether at a large airline or a smaller carrier, an alliance executive must be able to get their airline's views heard and understood without disturbing the overall harmony of the alliance. To successfully navigate this landscape, an alliance executive must be able to understand the personality of the group, as well as the people within it.
Relationship management
"One clearly needs good relationship management skills," says American's Cush. "Regardless of how good the relationship is with a particular carrier, you will have points of conflict and they must be resolved."
A common theme that emerged from discussions is the extra demands this situation places on the resources of the member carriers. This hits the smaller carriers hard, as they try to ensure that they have representation on the numerous alliance committees. "As smaller carriers, we do a pre-meeting meeting to ensure that we get a voice," says Jager at Ansett. "It is also dependent on the representative that you have on the committees. If there is a problem we can lobby back through the Chief Executive Board." She adds that "the level of influence carriers have is cultural. Ansett is good at getting across the Australian viewpoint versus some of the other members."
That raises an interesting point: the global nature of the business and especially the alliances themselves make cultural sensitivity and international experience a mandatory element of an alliance executive's background. Star carriers represent 14 countries; oneworld eight; SkyTeam five; and the Qualiflyer Group 10 nations. With such a diverse group of executives from different countries and cultures, bridging the cultural gap is a necessary prerequisite for the position. "The [alliance] executive must be an international manager and be culturally sensitive," says MacCormack. "He or she must really understand cultural differences and how to work within them." Without the ability to communicate with counterparts from other parts of the world, the already difficult task of achieving agreement becomes impossible.
With thousands of employees, layers of management, competing agendas, and different cultures and time zones, consensus building is often not only demanding, but also time-consuming. That which takes little time to do at the carrier level can quickly consume too much time when other opinions and agreements must be sought. While both Star and oneworld have set up management companies, important decisions still need ratification by the individual airlines - a process that can be lengthy and not without frustrations. As one executive notes, "the size, scale and complexity of an alliance is quite overwhelming; it's like a fleet of oil tankers, very cumbersome and slow."
Roedig shares this view. "You need to bring a lot of stamina. Alliances involve decision processes that require co ordination across many entities. If you are an impatient person, you will probably lose the other partners' preparedness to really join in the process," he says.
Perhaps the greatest challenge faced by an alliance executive is the fact that alliances are works in progress. There are few existing examples in any industry from which to draw best practices. "There is no template for what we are doing, which makes it hugely exciting," says one senior executive. "I am very surprised that it is working so well."
While interviewees cited the financial services and hospitality industries as potential organisational models, all agree that the learning process provides some leeway. "We've practically pioneered the way ourselves," Roedig suggests "We know that in the service industry you have co-branding constructions that are somewhat similar in other sectors. For example, there is the VISA product that is offered on a co-branded basis through a variety of bank partners."
Cush notes that oneworld is also learning as it goes. "We looked at it from a power concentration standpoint, and compared the alliance to the EU," he says. "We've asked whether it's better to have a loose federalist approach versus a strong centralist approach. The more power you're willing to cede, the more efficient it will be to implement things. Hopefully, at that point, you eliminate the second guessing. That's the most difficult thing to manage."
The strategic mindset is a paramount requirement for an alliance executive. United's Montie Brewer handles the carrier's alliance function among other key portfolios. He comments that "the individual has to be both a strategic thinker, to understand the concept, as well as somewhat well rounded to understand where the leverage points could be with respect to where value can be created through synergies among the carriers."
While the alliance executive must be prepared to balance numerous issues within the alliance, the airline representative must be prepared to handle an equally varied set of challenges on the home front. The foremost of these is balancing internal and external demands. As Air Canada's Ross MacCormack notes: "Time consumption has become an issue for all parties involved. You'll find some individuals involved at airlines where they are more focused on alliance issues than they are on the needs of their own carrier." Tremain at ANZ adds: "Balancing things internally with a view to getting a deal done externally is the biggest challenge. It's a fine line between what is in the best interests of the company and the broader benefits to the alliance."
Considering the resources that airlines are committing to these ventures, it is perhaps surprising that corporate buy-in ranked right next to balance as one of the top challenges the alliance executive faces. "One of the top challenges I faced was convincing people within the airlines that the alliance is important and permanent," says Ansett's former head of human resources, Paterson. "Air New Zealand/Ansett is an alliance airline, not an airline with alliances."
The alliance executive must also wield the necessary authority to commit the airline to a partnership. As one executive notes: "It is a prerequisite that they have the authority to make decisions at the alliance forum. It tends to be that the operating committees work out the details and the chief executives ratify the outcome."
Management position
Although the reporting relationship for alliance executives varied from a direct report to the chief executive through to a senior marketing officer, the position clearly requires access to senior management. They must be privy to the overall strategy of the airline in order to incorporate it into alliance decisions.
"It is a prerequisite for any alliance that the people involved really know their own airline," says Austin Reid, chief executive at bmi british midland. "This gives them the opportunity to protect their own airline's interests and make sure they get the right things out of it, as well as contributing to the bigger picture."
The position also affords the executive a certain amount of influence. "It's important to maintain the level of interest and focus in your home airline and get managers to focus on alliance issues. There are views in parts of the organisation that the alliance is a nuisance with people thinking 'go away, I'm trying to do my job' rather than seeing it as part of the future. People need to start thinking about alliances and the possibilities," notes one executive. It is a view shared by BA chief executive Rod Eddington: "The access that the alliance executive has across the organisation is important. A person has to have influence."
Having laid down the qualities required in the ideal alliance executive (see checklist above), the next question is plainly: where does an airline go to find a such a well-rounded individual - someone with a broad functional background, in-depth knowledge of the airline industry and superior people skills to boot?
Not surprisingly, all the interviewed executives suggested looking within. Tremain is among them: "Direct commercial airline industry experience is essential. They must understand the travel industry, the fare hierarchy and how the sales and distribution channels work in an aviation setting. The person [also] needs very strong negotiating skills. I could see the person coming from government or corporate affairs or possibly legal."
While an airline's legal department was a frequent suggestion of places to find alliance talent, many of the interviewed executives also suggested the sales and marketing functions as a prime training ground. United's Brewer says that the core function which these alliances have been built around and the related importance of this skill set in the alliance executive's background must be recognised: "All in all, it's a network game; if you're a good network person, you're doing the 'alliance thing' for your company anyway. Network people have typically been forced at some time to see the big picture and that helps them work in alliances."
Others, such as American's Cush, suggest roles with an even broader view. "In the end, the alliance issue ends up on your desk and you had better to be able to handle it on a real-time basis," he says. "It's likely best to get a former regional manager into the role, given the breadth of exposure they should have had."
However, as the alliances themselves mature, experience within the industry may not be the deal breaker it is today. Roedig, for instance, says he would not exclude an industry outsider, particularly if the alliance has reached a certain degree of maturity. However, he adds a caution that the deeper you take the alliance the more you need a broad knowledge of the industry. "Things are so interlinked within an airline that you must have the whole picture to deal within the airline successfully."
Perhaps one of the most striking points that the study uncovered is how strongly alliance duty is viewed as an important leadership development tool. Indeed, from a human resources perspective, many executives believe the alliance office is the ideal place to groom future senior-level executives. One seasoned airline executive sums up this line of reasoning: "Alliance management is a fantastic opportunity for an airline to develop its executive talent. It's a great training ground for a more general management role in the airline. For your people, it provides exposure to best practice in different countries, common management training programmes and management exchanges. The career path is limitless in terms of the alliance executive position being a great grounding for general management roles. Therefore, you only put your best, high potential, people into the role."
Regardless of whether you believe that alliances are the wave of the future or just another stop before industry consolidation, it is critical that the correct people be chosen for the role of managing them. And, with all the resources being committed to these partnerships, it is clear that an alliance executive must not only be able to handle today's challenges but also position his or her carrier for success in tomorrow's uncharted territory.
About the authors
The article is based on a study into alliance leadership conducted earlier this year by members of the Global Aviation Practice of Spencer Stuart, the international executive search firm. Those involved in the study include:Gillian Ainsworth, senior associate in Atlanta; Michael Bell, managing director of the aviation practice based in Miami; Edgar Kaufmann, director in the Munich office; Liane Kemp, regional director for Asia-Pacific based in Melbourne; and Andrew Tallents, senior associate in Manchester.
Source: Airline Business
