Airline Mgmt -- Ops. vs. Finance

[shon7]

What, in your opinion, is the reason that airlines have more Finance guys in senior management positions rather than Operations. Ironically, its almost always the "financial wizards" that bring down their respective carriers.

The one example that comes to mind is Bob Baker. From what I have heard he was a highly respected, highly regarded Ops. Chief but passed over for the top job. What were the reasons behind this? And coming back to the first point -- why aren't Operations people running airlines!

 

[Publishers]

Good Question

Perhaps the answer is somewhat as follows.

To run a major airline today requires a number of disiplines. While a knowledge of operations is important, in the big scheme of things, financial knowledege and marketing sense are considered more important.

As I have talked about before on these boards, in your basic airline, the pilots do not play a significant role in the business success of the airline.

On the other hand, buy the wrong aircraft and put in place the wrong route system and you are doomed before the first operation. Hence senioor management tends to be financially oriented.

 

[CitationLover]

to use the us army as an analogy.

the us army has far more support troops, ie financial side, versus combat troops, ie flight operations personnel.

the financial-types are used to display the value the ops people create.

 

[bvt1151]

Look at who ultimately does the hiring...the shareholders. They want results on their stock and the financial wizards appear to be able to bring those results. Unfortunately for the rest of us, the shareholders are more interested in making a quick buck with a fast moving stock price than they are in the overall long-term health of the company.
Typically financial CEO's spell quick fixes followed by the bottom falling out (Mullin, Lorenzo, Wolf, Carney) while the operations guys tend to offer slower growth at a much healthier pace (Kelleher, Bethune, Neeleman.)
There have been several academic articles written on this very topic, and a significant correlation has been found. Do a search through some academic journals such as jstor and you'll find what you're looking for.

 

[Groucho]

This issue is somewhat related to another thread up the board about labor cost. Finance and marketing are now in the drivers seat at the Legacy carriers because it has always been so with the hub and spoke system. They tinker with the schedule and traiffic mix and attempt to maximize yield rather than attack inneficiencies in the operations side.

In Airline Management for the 21st Century, a text used in a course I am taking for a Masters, the authors state that the hub and spoke concept only works as long as the spokes deliver higher yield and traffic. Because the costs increase greatly over a point to point operation.

At US Airways a study was done in which all the employee costs were factored out. I mean all the related costs from the CEO on down, and then compared with Southwest. US Airways could only match SWA not beat them even with all the labor costs out.

The revenue was higher, but the inefficiencies inherent in the operation were higher still.

Look for operations types to become more to the front as time goes on. The legacy carriers must look more like SWA, JetBlue etc. from an operations standpoint. The hub and spoke model no longer yields the revenue premium it once did. The business model doesn't work the way it did. It leaves the hub carrier open to have his best traffic picked off by a LCC carrier even if the labor costs are identical.