Phil Hauck's TEC Blog

Saturday, April 28, 2012

Air Wisconsin's Rankin: Keep Flexibility and Options

The three planks to Air Wisconsin's strategy, explains CEO Jim Rankin, are Our Team, Our Product, and Our Future.   
        Our Future is the interesting one.  He told a St. Norbert College CEO Breakfast & Strategy audience that thinking about airline industry trends drives many of his strategic decisions, which it obviously should ... and with the objective of maintaining Flexibility and Options.  That has played out so importantly in the past that today, Air Wisconsin is the second oldest airline, at 47 years, never to have experienced bankruptcy.  Since 1978, 119 airlines have gone bankrupt.
It especially showed up in 2005 when its major partner, United, was in bankruptcy and requiring such major cost givebacks that Air Wisconsin would have gone out of business itself.  Instead, because it had saved $125 million in the bank, it had the flexibility to loan that much to US Airways to keep it out of bankruptcy.  In doing so, its quid pro quo was that Air Wisconsin would have the "right, but not the obligation" to become US Air's major regional feeder ... keeping its options!  Several weeks later, it took that option when United pushed them to the brink ... signing a ten-year contract with US Air.
        It's interesting that maintaining fiscal health (e.g., a large savings account) is critical to having "flexiblity and options" regarding the future.  It shows up in so many places. Another way the "flexibility and options" theme is driving them:  In today's negotiations with the company's five unions, it is obtaining what it calls a "growth" clause.  If the airline is able to grow and add planes, that the contract costs for additional employees will be more flexible, even lower if necessary, to cope with the industry's tightening cost model.
During the past decade, he said, Air Wisconsin has operated under a Fee-For-Departure business model, which it initiated in the industry, whereby it contracts its entire fleet to a carrier for a price, thus firming its revenue stream expectations, and shifting its focus to cost control while providing leading service.  Now, he sees the emerging model as a Collaborative Cost one, where US Air and Air Wisconsin (and with United for its ground handlers contracts), to develop system improvements that reduce costs even further.
Today, Air Wisconsin is headquartered in Appleton, but its 2800 employees are spread across the eastern U.S., flying airplanes for US Air, and providing ground handling capabilities for United ... for more than 1000 flights daily.  It has no operations any more in Appleton or Wisconsin.
The major takeaways from Air Wisconsin's experiences, Rankin said:
1.  In negotiations, you ALWAYS have more leverage than you think.  Don't yield too soon.
2.  NEVER bet the farm.  
3.  Grow ONLY where there is a lear path to profitability.  There will always be too many unknowns that will bite you.
4.  Build and nurture good relationships with your key partners, starting with your employees.  Help them out when they have a need.  It will come back to reward you when you are in crisis.

No comments:

Post a Comment