Businessman's Niche : A Case of an Airline Business Turnaround
August 10th 2007 08:12
A case in point is the legendary story of SAS or the Scandinavian Airlines Systems during the sharp recession in 1981. SAS business turnaround amid the downturn was recounted in the book, "Service America." Because of the recession, SAS suffered an $8-million loss that year. SAS president resigned, and the board promoted a young, fast-rising superstar, the 39-year old dynamic Jan Carlzon.
"There is nothing more rotten and useless than an airline seat that leaves the ground empty," he had said. What he did during that recession period? Most airlines desperately cut back on expenses but Carlzon did the very opposite : he launched an ambitious "death or glory" program for Scandinavian. That required an investment of $45 million. The results were spectacular. In about a year, the $8-million loss became a $71 million profit arising from sales of $2billion.
SAS went on to be voted airline of the year and gained reputation for being the most punctual in Europe. Carlzon's turnaround of SAS was based on this philosophy : Make sure you're really selling what the customer wants to buy. SAS focused on the business niche. Scandinavian was to be known as the businessman's airline. Carlzon focused on day business travelers. Afterall, they accounted for their bulk of SAS income, and they were the steadiest part of the market.
"We went through the entire company asking ourselves, is this service, is this production, is this person related to the business traveler's needs or not? If the answer is no, we have to get rid of it immediately," noted Calzon. Pricing anomalies had to go. When before businessmen were asking why they were paying full fare but not getting more value, SAS counter solution was to create a very successful Euroclass service. Business passengers got more comfort and service in a separate section of the plane. They enjoyed faster check-ins, free drinks and newspapers, more comfortable seats and superior food.
Another key move Carlzon made was to make SAS the most punctual airline in Europe. There was so much support that SAS attained the goal in only three months . Late connecting flights were no longer acceptable excuses. Legend has it that Carlzon installed a video system to keep tabs of all flights. Pilots wholanded late were given the message, Mr. Carlzon would like you to call him." This kept up the heat; few pilots wanted to explain why they were tardy.
The logic was elegantly simple."To get a new customer has a price, but to keep satisfied customers is almost without cost. On the other hand, it costs a small fortune to get dissatisfied customers back," explained the SAS president.
"There is nothing more rotten and useless than an airline seat that leaves the ground empty," he had said. What he did during that recession period? Most airlines desperately cut back on expenses but Carlzon did the very opposite : he launched an ambitious "death or glory" program for Scandinavian. That required an investment of $45 million. The results were spectacular. In about a year, the $8-million loss became a $71 million profit arising from sales of $2billion.
SAS went on to be voted airline of the year and gained reputation for being the most punctual in Europe. Carlzon's turnaround of SAS was based on this philosophy : Make sure you're really selling what the customer wants to buy. SAS focused on the business niche. Scandinavian was to be known as the businessman's airline. Carlzon focused on day business travelers. Afterall, they accounted for their bulk of SAS income, and they were the steadiest part of the market.
"We went through the entire company asking ourselves, is this service, is this production, is this person related to the business traveler's needs or not? If the answer is no, we have to get rid of it immediately," noted Calzon. Pricing anomalies had to go. When before businessmen were asking why they were paying full fare but not getting more value, SAS counter solution was to create a very successful Euroclass service. Business passengers got more comfort and service in a separate section of the plane. They enjoyed faster check-ins, free drinks and newspapers, more comfortable seats and superior food.
Another key move Carlzon made was to make SAS the most punctual airline in Europe. There was so much support that SAS attained the goal in only three months . Late connecting flights were no longer acceptable excuses. Legend has it that Carlzon installed a video system to keep tabs of all flights. Pilots wholanded late were given the message, Mr. Carlzon would like you to call him." This kept up the heat; few pilots wanted to explain why they were tardy.
The logic was elegantly simple."To get a new customer has a price, but to keep satisfied customers is almost without cost. On the other hand, it costs a small fortune to get dissatisfied customers back," explained the SAS president.
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