Invest heavily in staff and see total costs plummet
28 April 2009 8:06am
"New entrant" airlines investing heavily in employee development and resisting the urge to "slash and burn" their workforce during economic slumps are outperforming the industry giants, says a new book on the flight trade.
Airlines with the highest labour costs have some of the lowest total costs, say Monash University's Professor Greg Bamber and North American business academics Jody Hoffer Gittell, Thomas Kochan and Andrew von Nordenflycht in Up in the Air: How Airlines Can Improve Performance by Engaging Their Employees (Cornell University Press ISBN 9780801447471).
They seek to cut expenditure through "underlying process improvements" and building employee commitment rather than "adopting a narrower focus" on reducing staff numbers.
Employee morale within the airline industry is at a next-to-all-time low, the authors say. In 2007, a survey revealed that only 25 per cent of pilots and flight attendants believed that morale in the industry was high, compared to more than 60 per cent just seven years before.
Regular lay-offs over that period have led to increasing cynicism among employees regarding airline management, the authors say. (Just two weeks ago Qantas announced plans to shed 1,750 fulltime-equivalent positions.)
Low morale often results in poor quality service - alienating many customers - and a spike in flight cancellations as disgruntled employees begin "working to rule" (contributing the bare minimum) and declining overtime assignments.
"Labour cost reductions may have been a necessary condition for survival at some airlines," the authors say, "but they are far from sufficient for fostering a return to sustained profitability.
"[They] can even be counter-productive when they are carried out in a way that allows total costs to grow and service quality to decline. When service quality declines, costs can rise even further due to the costs of service recovery."
Southwest Airlines entered the US market in 1971, and - in what the authors describe as an "unusual feat" in the deregulated industry - has been profitable every year (but its first) since.
Southwest's initial competitive strategy was based on the rapid turnaround of aircraft between flights, which required "high levels of coordination" across all elements of the business.
According to the authors, the airline is characterised by "frequent, timely problem-solving communication between functions" attributable to HR practices focussing on "building shared goals, shared knowledge and mutual respect".
Southwest's strategies include:
a hiring process that seeks to identify candidates "with an awareness of other people and a respect for their work", as well as a willingness to go above and beyond their specialisation;
a training process that builds on this foundation. Employees receive on-the-job training by a coordinator who explains not only the tasks to be performed but how these tasks impact other functions;
job descriptions that outline specialist tasks but encourage flexibility, with broader language such as, "whatever else is needed to ensure a successful operation";
a high supervisor-to-employee ratio, enabling leaders to actively engage in coaching, respond to feedback and relieve workloads at peak times;
performance management that focuses on problem solving rather than the assignment of blame. Southwest also uses conflict resolution to build a shared understanding of work processes across different functions;
a work/family balance policy aimed at encouraging workers to have fun - because if they are "there is a good chance they are doing well" - and to take time off to "renew themselves" and maintain their family and community commitments;
trade union partnerships. Southwest is the most highly unionised airline in the US, but has one of the lowest conflict levels in the industry, and has only suffered one strike in its history; and
job security. The airline has avoided lay-offs during downturns, the post-9/11 crisis and in the face of customer-service automation.
According to Southwest co-founder and former CEO, Herb Kelleher, "nothing kills your culture like lay-offs".
"Nobody has ever been furloughed at Southwest," he says. "It's been a huge strength of ours... Not furloughing people breeds loyalty. It breeds a sense of security. It breeds trust."
According to the authors of Up in the Air, Virgin Blue Australia has for the most part followed the Southwest model.
It seeks to achieve cost savings primarily through efficient work practices rather than reducing pay and benefits or by sacking the workers it has "invested its resources" in, they say.
It looks for candidates with "flair", aims at developing a happy, motivated and committed workforce and encourages flexibility.
Virgin Blue experienced growth rates of up to 200 per cent in its first five years (after it entered the market in 2000), and maintains "unit" costs that are approximately 35 per cent lower than Qantas's.
Its operational reliability and on-time performance are also consistently higher than that of Qantas, the authors say.
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