Strategy.GroupA08.SwissAir

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swiss
Tal Drori
Martin Gerhardt
Taro Honda
Jung Su
Arindam Thakur
Manuel Villabona
QUO VADIS?
Swissair - the good years
Strong and
consistent balance
sheet – “flying
bank”
Strong brand name
and reputation
4th biggest airline
in Europe
Best quality and
service (best
service award,19982001 successively)
Swiss national
pride and flag
carrier
Crash of Swissair
Stranded!
The Sun (03/10/2001)
Swissair
future on
knife-edge
BBC News (15/10/2001)
National pride
driving Swissair deal
CNN (23/10/2001)
A nation in shock:
Swissair crisis
BBC News (28/10/2001)
Collapse shatters
Swiss image
BBC News (18/10/2001)
Reasons for Swissair’s failure
Main causes
Swiss veto against joining the
European Economic Area
Main effects
Complex bilateral agreements with
all EU-countries
Small country as home base
Saturated home-market
Numerous small alliances 1)
No alliance focus
Time
Aggressive acquisition of
second tier carriers in Europe
Mix of low-cost and high
quality carriers
Management hubris
Discounts for journalists
Accumulation of losses
Cannibalization, dilution of brand
name
Weak strategy implementation,
defection of alliance partners
Uncritical media coverage, shocking
end
1) Air Littoral, AOM France, Crossair, LOT, Portugalia, TAP, Volare, Austrian Airlines, Balair, Cargolux, LTU, South African
Airways, Ukraine International Airlines
SWISS International Air Lines today
Economic
performance1)
2003
2001
1000
Number of destinations
273
2000
0
210
70
2001
2002
1999
2003
-498
-1000
-909
Number of aircrafts
-2000
81
138
-3000
Passengers in mil.
13.9
10.6
Staff in 1000’
16
10.7
Revenue in bn. CHF
5.3
4
1) SWISS Company information, financial reports
-2.885
Strategy
• Divestiture of non-aviation
assets
• Joined Oneworld alliance Sep.
2003
• Recapturing reputation on
service (best service award
2004)
Developing a new strategy for Swiss
Long-term
STRATEGY
VALUE
COST
SPEED
HUMAN RESOURCES
Short-term/
turnaround
STRATEGY
VALUE
COST
HUMAN RESOURCES
SPEED
Strategic options for airlines
Singapore
Airlines
High
SWISS
BA
Lufthansa
Air France
KLM
Service
Level
Full service
strategy
Quantas/Jet
Star
Airline-in-anairline strategy
EasyJet
Ryanair
Low
Low-price strategy
Low
High
Price Level
Option 1: Low Cost Airline
Strategy
Implementation
Distribution
Crew Costs
 Offer low fares
Lower compensation
Direct Sales over internet
Reduced complement
No commission on ticket sales
Performance incentive
No 3rd party fees
 Focus on short-haul
routes that generate
maximum revenue
 Maximize air-time
 No comfort services
 No alliances
Overhead
Seats
15% more seats /
aircraft
One plane – one class
Low-Cost
Strategy
Airport Costs
Lower general
administrative costs
Lower maintenance
costs
Passenger Services
Switch to Secondary airports
No catering
Reduce number of planes to
have only 1 type
No in-flight amenities
Option 1: Low Cost Airline
Opportunities
 Reduction of complexity
 Cost reduction (maintenance
and administrative cost)
 Higher degree of automation
(e.g. Internet)
 Attract more customers
 Lower competition in
Continental Europe
Option 2: Full-service airline
Strategy
 Quality-driven instead
of cost- driven
 Target long-haul
operation
 Keep hub-and-spoke
network
 Orient towards
business travellers
 Continuous invest into
infrastructure, facilities
and HR
 Aggressively build
brand
Implementation
Short-term
 Leverage OneWorld alliance partners’
resources
 Invest mainly in HR training rather than
physical facilities to save cost
 Implement new short-haul concept “SWISS in
Europe”
 Build brand mainly by word of mouth
Long-term
 Launch more long-haul operations
 Invest more in physical assets
 Build brand through marketing initiatives
Option 2: Full-service airline
Opportunities
 Reduction of complexity
 Cost reduction (maintenance
and administrative cost)
 Higher degree of automation
(e.g. Internet)
 Attract more customers
 Lower competition in
Continental Europe
Option 3: Airline-in-an-airline
Strategy
 “Airline in an airline” :
Maintaining the full service
and creating a low cost
channel
 Combining the advantages
of parallel but
differentiated operations.
Implementation
 Investing money in
acquiring an existing low
cost airline.
 “The Greenfield
approach” -Establish a
separate subsidiary with
its own name and logo
(which can be related to
 Targeting two market
segments in the same time.
Swiss) and possibly with
a separate management.
Option 3: Airline-in-an-airline
Opportunities
 Enables competition with low
budget airlines
 Positive impact of Swiss
brand name
 Switch to Swiss for long hauls
 The no frills sector is still
dominated by operations
involving UK point
 Increase range of customers
Strategy decision
Main impacts
Option 1
Option 2
Option 3
Financial investment required
5
2
4
Massive restructuring of fleet
and operations
5
1
3
Impact on corporate culture
5
1
3
Impact on brand and current
customer base
5
2
3
Risk of canibalization
1
1
5
Impact on current alliance
membership status
5
1
4
1 – lowest impact/risk 5 – highest impact/risk

Managing the turnaround of SWISS
Long-term
STRATEGY
VALUE
COST
SPEED
“If the Wright brothers were alive today, Wilbur have
to fire Orville to reduce costs“
Herb Kelleher, Southwest Airlines
HUMAN RESOURCES
Short-term/
turnaround
Agenda
STRATEGY
VALUE
COST
SPEED
HUMAN RESOURCES
Motivating and aligning the
workforce
SWISS today
Heterogeneous organization
and culture as legacy from
Swissair and Crossair
Measures
New vision and new corporate
culture (honesty, trust, dignity,
mutual respect)
Above average
personnel cost
Introduce performance
incentives
Lack of trust in
management
Management changes
at all layers
People are tensed due to
insecure future and layoffs
Enhance teamwork and
identification
G.
Bethune
CEO
“Many companies in crisis mode will
just change the CEO. The approach is
like changing only the lead husky on a
sled-dog team.
Four dogs back, the look and smell
stays the same“
Agenda
STRATEGY
VALUE
COST
HUMAN RESOURCES
SPEED
Service performance
100
% on time arrivals 2003
92
84,1
80
79,8
78,7
78,3
BA
Air
France
SWISS
60
Difficulties in providing service
40
• Little tangible product dimensions
• No time on short flights to
demonstrate a wide service range
• Consistency is more important than
absolute value
• Negative feedback spreads faster
than positive
20
0
Ryanair
30
Lufthansa
Missing baggage per 1000
passengers 2003
25
20
18,7
18,8
BA
Air
France
15,1
15
12,1
10
5
0,5
0
Ryanair
SWISS
Lufthansa
Transform service into a
competitive advantage
Reasons for choosing an
airline other than price
Safety
Punctuality
Availability of
direct flights
Airport proximity to
city center
Baggage
handling
Involuntary denied
boardings
Friendliness of
staff
Cleanliness
Airmiles
C.C.
Kong exCEO
Create a virtuous cycle
Eliminate nonvalue-adding
work
Higher
productivity
Continuous
improvement
Higher
profits
Satisfied
customers
Satisfied
employees
More
investment
projects
Expand the
workforce
“Our passengers are our raison
d’être. If Singapore Airlines is
successful, it is largely because we
have never allowed ourselves to
forget that important fact“
Agenda
STRATEGY
VALUE
COST
HUMAN RESOURCES
SPEED
Cost performance
Average cost composition per
available-seat-kilometer1)
Average cost per available-seatkilometer in €ct 2003 1)
20
17
Aircraft
ownership
General &
Administrative
Airport
10%
charges,
traffic
13%
control
9%
16%
Sales,
marketing
& distribution
7% Passenger
services
Ground 18%
handling
15
12
10
10
7,8
7,1
4,5
5
12%
5% 10%
Crew cost
0
Fuel
Maintenance
Luft- SWISS Air
BA
hansa
France
1) Association of European Airlines, Civil Aviation Authority, McKinsey Quarterly
Easy Ryanair
Jet
Restructuring fleet & operations
to reduce complexity
Airline model
Divest non-core assets
Withdraw from unprofitable
routes, redefined hub strategy
Reduce number of airplane types,
decrease average age
Increase role of Internet-sales
Offer repair, maintenance, and
catering services
“We started
Internet booking 2
years ago...
resulting in a cut of
56% in sales cost!“
Sales agents
Callcenter
Internet
W.Walsh CEO
Agenda
STRATEGY
VALUE
COST
HUMAN RESOURCES
SPEED
Flexibility as key competency
Synchronize the entire
business process through
effective IT systems
Cater to customer needs
quickly
Be flexible – improve service
quality continuously and fast
Jim Parker
CEO
Manage finance
effectively and reduce
cash-to-cash cycle
React quickly to the volatile
business demands
Seize opportunities for improving
service quality
"The key word is flexibility. As a result of
our employees' commitment to low costs,
low fares and high quality customer
services, the future for Southwest is
bright "
Recommendations
FULL SERVICE STRATEGY
•Target long-haul and business travelers
•Build brand on service excellence
•Continuous investment in infrastructure, IT,
and HR
•Provide more destinations by using hub-andspoke network
VALUE
COST
SPEED
•Work closely with alliance partners and
leverage their resources
•Remove management hubris and
change organizational culture to better
respond changing consumer needs
HUMAN RESOURCES
Questions?
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