How The Airline Industry is Mis-Using Creativity

There are three types of change in running a company. Those that fix the problem. Those that make the problem worse. And those that look like the former but accelerate the latter.

If you apply the forces of creativity to them you greatly accelerate the results. A fact the U.S. airline industry is already experiencing.

This week the eight largest U.S. airlines announced their highest profit margins in a decade. Projections are that in 2011 the industry will earn $5 billion. If all goes well, next year that number will rise to $5.6 billion.

Which sounds healthy, until you realize that during the past nine years the airlines lost $60 billion. And 160,000 jobs.

Which means that even if they can sustain these new levels of performance for another ten years or so, by 2021 the US airline industry will have spent two decades producing a net return for its owners of exactly $0.

And that’s the best case scenario.

The worst case is that this turn-around will collapse like a suddenly depressurized cabin. 

If you believe in the power of creativity bet on the latter.

Because the airline industries have used a lot of it to create this turnaround. And most of it has been applied to finding new ways to take advantage of the customer. Bag fees. Change fees. And now potentially, use of the overhead storage compartment fees.

In fact the additional fees charged by the airlines in 2010 are higher than the industry’s actual profits. Which means that without those fees the airline industry is a loss making business.

But, when the gain to a business comes at the expense of its customers, with no improvement provided in return, the inevitable outcome is short-term increases in profitability followed by long term damage to the desire of the customer to be a customer.

Let’s apply positive creativity to this issue.

Peter Drucker once famously said that the Purpose of a business is to create a customer. The ability to provide something that people value and the ability to do so profitably.

But when a business focuses only on price, it makes irrelevant the thing that is actually most important to its customers.

The reason they paid the money in the first place. Whether that is whiter whites, lower taxes or satisfaction of a personal vanity .

And when judged by the results of a purchase, the airlines offer something of inestimable value.

Our lives.

The virtual guarantee that they will get us to our destination safely.

A value proposition on which to change the world. And one which supported by fair pricing, comfortable seats and an investment in the future would radically change their future.

It’s late in the game for the airlines to be re-establishing their core value. Perhaps too late. 

And when airline travel is finally replaced by something that makes sense, something that delivers us quickly, comfortably and safely without destroying the ozone layer and ending the existence of Polar Bears, something that has no need for pat-downs and retinal scans, something that greets its customers with enthusiasm and innovation, something that stimulates and satisfies its employees, and something that creates shareholder value, it is unlikely that whatever that something is will carry the names of any of today’s airlines. So small is the value of those brands in the eyes of their customers.

Unless, of course, the airlines unlock the power of positive creative thought, and apply it to creating long-term value.

For us.

And thus, for them.

West Point

We're on the train into the city today. A stunning ride along the magnificence of the Hudson.

As I write this we're passing West Point, a powerful monument to strategic positioning and strong foundations. I'm struck by its permanence.

And after being home sick for a week, by our fragility.

I emerged back into the real world this morning, grateful for the power of antibiotics, but regretting last week's decision to rub my eye in an airport terminal filled with germs. It seemed unimportant at the time. Six days later, it's now clear it was not.

The power of technology has allowed me to remain productive. Virtual meetings, online presentations and free conference call services maintaining both our methods and our margins. Important foundations on which to build a better business.

The diversity of companies with which we work continues to expand. One week, a solo entrepreneur. The next, a global holding company. The scale and complexities change, of course. But the fundamentals remain inexorably the same.

What are we trying to achieve?

Why are our customers our customers?

Who will be our next generation of customers?

Every other question becomes a subset of these three.

Profitability: Do you want to maximize operating margin or build scale? Are we a parity product competing on price, or have we found a way to articulate our value in unique ways?

Expansion: Are we taking full advantage of the talent and capabilities we've already built? Do we add offices, services, both or neither?

Marketing: Are we built to talk or built to listen? Are we consistent? Are we surprising?

Talent: Will the people we have today solve the problems our clients will have tomorrow? Do our systems and workflow help them do better work, and help us identify the great ones faster?

It requires discipline to ask these questions. And honesty to answer them clearly.

And you may have temporary success without them.

But if the effort you put into your business is not matched by the quality of the foundations you are building, one of two things are certain.

The cost to repair them will be memorable.

Or fifty years from now, passers by - whether physical or virtual - will be looking at something other than the business you so painstakingly built.