How to transform your airline

McKinsey 10 Jan 2019 12:00

Airline transformations are often necessary—and always difficult. We lay out five rules for success.

Major transformations of airlines are common, and frequently disappointing.

They are common for good reason: the industry is structurally difficult. Unit revenues have declined an average of 2 percent per year over the past 20 years as a result of intensifying competition and commoditization. The battle to reduce costs has continually run up against the substantial bargaining power of both labor unions and suppliers, along with the market whims of fuel prices. Meanwhile, governments have often prevented their national champions from exiting the market when times were tough. And, even in good times, airlines must base their plans on the assumption that a downturn is around the corner, as we recently discussed in our article “Winter is coming: The future of European aviation and how to survive it.”

Perhaps not surprisingly, these transformations are also hard—harder than in many other industries. Inertia can come from employees’ transformation fatigue, as many have already gone through multiple programs. It can come from strong functional silos that push back on transformation initiatives. It can result from the safety imperative, which should never be compromised—but whose name is often taken in vain. And it can come from the frequent risk of industrial action. As a result, leaders can be left feeling frustrated when their ambitions for fast-paced change run into a sluggish and change-resistant reality.

Create a granular assessment by breaking down marketing and sales into their underlying drivers.

This effort will require some difficult trade-offs. Typically, most airlines have covered the low-hanging-fruit improvements, and the remaining potential lies in areas that require trade-offs. Reducing complementary in-flight service, for instance, shaves off costs but has customer-experience implications. Trimming scheduled block time to improve aircraft utilization and reduce costs may endanger on-time performance. Such trade-offs are common in the airline world. Making those difficult choices is an important part of the process.

Find and mobilize different sources of meaning

Track progress by the inch

Line-owned initiatives

We note that carriers shouldn’t run these meetings just to please some central entity. On the contrary, the meetings should be pragmatic, helpful, and energizing for the business. There are several ways to accomplish this. First, carriers should ensure that meeting preparations are efficient and informal: elaborate visual presentations are unnecessary; spreadsheets and handwritten whiteboard notes are effective enough. Next, the meetings should focus on resolving issues and immediately clearing any bottlenecks—either directly in the meetings or within hours thereafter. In fact, a sure sign that meetings are going off course is that they are dominated by process updates, not problem solving. Finally, leadership should work with the managers to perform a detailed analysis of each initiative on a rotating basis; in this way, carriers can enable meetings between third- or fourth-level managers and their senior executives, reinforcing feelings of ownership and accountability.

Airlines that have followed these five rules for success have been able to pursue ambitious targets and generate powerful results. One airline, for example, implemented more than 1,000 initiatives, with an average impact of $1 million apiece; as a whole, these initiatives allowed the airline to boost revenues and cut costs by a total equivalent to 15 percent of its preturnaround revenue. The airline not only met its targets for the 18-month transformation but also was able to overcome transformation fatigue, increase employee satisfaction, work across functional silos, strengthen safety focus, and avoid the kind of industrial action that sometimes accompanies major airline change—setting itself up to move ahead of the pack in this challenging sector.

About the author(s)

Jaap Bouwer is an expert in McKinsey’s Amsterdam office, where Sybren Hahn is an associate partner; Dominic Maxwell is an associate partner in the London office, and Jakob Rüden is a partner in the Cologne office.

The authors wish to thank Alex Dichter for his contributions to this article.

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Alex DichterSusie CranstonCologne office
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