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BA: a brilliant example of how cost-cutting increases costs

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BA: a brilliant example of how cost-cutting increases costs

Unread post by bimjim » Thu Aug 03, 2017

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British Airways: a brilliant example of how cost-cutting increases costs
July 19, 2017

In the 1990s, Sir Colin – later Lord – Marshall, Chief Executive of British Airways was being interviewed by a journalist. The latter asked him, as leader of a famous brand, what he feared most. Sir Colin said something along these lines: “the pilots can be ill, the food can taste bad, the plane may be late and we lose the passengers’ baggage. I know I can fix these things and I will. But the thing I fear most is our Information Systems going down. We are critically dependent on our IT people for delivering our customer experience and for our survival. Our IT is of strategic importance and I keep my Chief Information Officer really close to me. Our IT is so important we would never outsource it.”

Sir Colin was a deeply experienced leader who had invested very heavily in creating the unique British Airways’ customer experience for the “world's favourite airline”. He made mandatory attendance at a training program called Putting People First and attended in person at the end of every program to take employees’ questions. All those in leadership positions went through its sister program Managing People First and he attended that one too. A charismatic forthright, rigorous and determined leader, he made British Airways a customer driven company.

Sadly, none of his successors have had the IQ or the EQ (nor the training he had as a Purser in P&O) to understand the world's favourite airline customer experience or to keep it going. Since the Marshall days the British Airways’ customer experience has been progressively eroded by a succession of cost cutters. We have had Ayling, Eddington, Walsh and now Alex Cruz who has just had what is probably the most catastrophic meltdown of any information systems in modern times. As a public relations disaster, it is up there with United’s Dr David Dao event.

Here is a vignette of what it meant to one high-margin customer:

The customer was flying from JFK to LHR in business class. Half an hour before the flight was due to leave, the information board said: “flight delayed”, and then soon after “cancelled”, without reason. The customer was told to go back through security to the BA desk, where BA’s staff had no idea that the flight has been cancelled or why.

The customer was then told to collect his checked-in luggage from the returns area and “in the meantime the BA staff will look at other flight options”. The bag was returned last despite being a business class ticket holder, at which point the customer had to join the back of the queue (fortunately the priority queue) to check in for the next flight. Once at the front of the queue the desk agent told the customer that their new flight “is departing now”; he needed to rush for it. The customer checked with the check-in desk that the luggage would also make the flight, and the desk confirmed this. The customer then rushed to the departure gate and just made it before the doors were shut.

After landing at LHR and waiting at the luggage belts it was apparent that his luggage had not make it onto the plane. On enquiring with the service staff about the location of the bag, there was no record of it. The customer filled out a lost bag form along with instructions to deliver the bag in the evening, as no one would be at home if the bag was returned in the daytime.

The following day the customer received a text message from BA stating that their luggage would be delivered to his home address between 1pm and 3pm, a time when he was at work and was unable to receive it. Delivery was rescheduled for the evening of the next day.

All-in-all a poor customer experience delivered by British Airways. Bad communication about the delay and subsequent cancellation of the flight. Followed by a poor procedure to rebook and recheck-in people and luggage. And then finally poor handling of the return of the luggage despite the customer being explicit about the time when they would be available to take delivery.

Of course BA's competitors are in heaven but won't say it. Ryanair immediately took the opportunity to make public the fact that none of their IT is outsourced and that backups exist in three different countries.

This sad story is all because of cost-cutting Cruz and his naive team who have now increased costs for British Airways. At time of writing the extra costs from the IT meltdown are estimated to be £120 million. You may assume that this figure will double or even treble when the costs of customers switching to other airlines, for ever, is taken into consideration. This will be far more than BA hoped to achieve by cost-cutting. Running a full-service airline using operational effectiveness techniques just does not work and never will. It is a major strategic error.

I'm writing this on a British Airways plane, on the tarmac at Heathrow, away from the jetty, where we are waiting for take-off from Frankfurt. The plane has been delayed by two hours by thunderstorms in Germany. Not British Airways’ fault. But the cabin crew are still insisting we have to pay for the Marks & Spencer's food, rather than giving us free drinks and food as Virgin did when I experienced the same problem several years ago. They don't get it, nor clearly do their managers. It's not the crew’s fault but it is Cruz’s. Their managers are not encouraged to empower them, a key component of a high performing customer experience.

I have been a member of British Airways Future Lab for over four years. This is the British Airways method for obtaining detailed feedback from customers. It is done via a special website and a series of questions we members answer every week. It appears most of the members are, like me, Gold Card holders. These are the 20% of customers who provide 80% of British Airways’ revenue.

Over the last few months I have noticed a trend in the comments on Future Lab. Many are frustrated that British Airways does not seem to pay any attention to what we say and takes no action on our suggestions. This is despite that, from reading the comments, it is clear that members of Future Lab want British Airways to be successful and make the airline competitive, improving and to have an excellent customer experience.

And it is not just the customers that are unhappy. Currently about 58 cabin crew are resigning at Gatwick every month; this is not sustainable.

So here are a few messages for Messrs Cruz and Walsh.

Firstly, Mr Cruz, resign. It happened on your watch, do the honourable thing get out of the way and let somebody who really understands how to run a full-service airline take on the job.

Mr Walsh: find Cruz’s replacement from a decent airline; I recommend Cathay, Singapore or Emirates. If not, do what Apple did and go to a top-class hotel chain. They know how to create a branded customer experience.

Stop trying to compete with the low-cost airlines; as I have said many times on Future Lab: THEY ARE NOT YOUR COMPETITION! Lufthansa, Cathay, Finnair, Qatar, Emirates, Singapore, United, Delta and Etihad are.

Switch all of the energy that you currently devote to cost-cutting into reduction of any errors, waste and rework that is destroying the BA branded customer experience. Singapore Airlines is the best example of doing this but, if you cannot attract anyone from them, go to Nissan in Sunderland. They know how to reduce failure demand; that is demand on the system caused by failure (often called rework or doing it right the second time when you got it wrong the first time). The average organisation has 35% re-work, and cutting that delights customers, employees and shareholders. It also increases loyalty and profits. You will save far more money this way.

Take a rigorous and very detailed look at the way you select, train, lead and subsequently develop your people. Focus selection on the right attitudes required to deliver the customer experience which itself is about 70% related to people and 15% to do with the product. Put in place lean methods for continuous improvement of the customer experience. The new Chief Executive needs to follow Sir Colin’s example and attend every training program to demonstrate how important they are to him.

Take a leaf out of Ryanair's book: bring all of your information systems in-house and have at least three back-up systems in different countries so that if one goes down you have a failsafe back-up. Don't outsource it to India or to Spain, it is far too important to do that.

Stop cutting the customer experience. Get rid of the Marks & Spencer's food and paying for it, you are not the ghastly Ryanair and should be moving in the opposite direction to the lightweight O’Leary. Then really make a very big deal about free baggage, free food and drink, easy-to-get-to airports and genuine service offering as in “To Serve To Fly”. Make your customer experience the centre of your differentiated service offering. Don’t copy, differentiate!

Re-train all of your customer-facing staff and make the training mandatory and assessed. Get rid of some of the old deadwood (and goodness me there is plenty of it) and enhance the customer engagement with newly selected and properly trained staff. I've only ever handed out two Golden Tickets and one of them was to a ground crew person who sorted my lost baggage. Oh and for goodness sake pay them properly! Make properly paid people the focus and the gathering of customer feedback the two issues that you pay attention to at the highest level. Do not focus on satisfaction but on the performance against what your customers expect. Get Future Lab to do that, using people who really do know how to do this; the current people in Future Lab obviously do not. It is not about satisfaction; that is an idea beyond its sell-by date.

Engage much more at CEO level with British Airways Future Lab. Invite us to come and talk to you, in-depth and often. Bring us into your closest decision-making, listen to what we say carefully, act on it and go on using us. We are willing to do it for you (for nothing) providing that you engage with us.

Don't outsource your call centres! They are critical to your customer experience and should be run by well-paid and well-motivated BA employees not by some people who do not understand your culture or how to delight your customers.

Do that and you will have, just possibly, a chance to recover from this disaster.

Fail to do so and Sir Colin will continue to spin in his grave.

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