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Herd thinking behind airline failure

Written by Gary Howes

Tuesday, 30 September 2008

Alitalia failure blamed on 'scramble for growth' model says leading business academic.

As the Italian government struggles to save its failing carrier, Alitalia (BIT:AZA), a leading business school academic has criticised the scramble for growth across the international airline industry.

“There seems to be an addiction to the idea that ’bigger is better’ in the industry”, says Professor Pierre Dussauge of the leading European business school, HEC. “However the real truth is that large airlines go broke just as much as their smaller counterparts.”

According to Professor Dussauage, who teaches on the ‘Leading Strategies for Outstanding Performance’ programme at HEC in Paris, the real cause of failure is a tendency to collective thinking in senior management right across the industry.

“The idea that only five or six airlines can survive has become an article of faith, which no-one on the boards of major companies seems to question any more, which is why we have seen so much merger and acquisition activity. But where is the hard evidence behind this belief?” asks Dussauage.

Dussauge also points out that the tendency of senior management to simply accept conventional wisdom is not just a feature of the airlines sector but of a whole range of industries.

“Look at the beer industry for example, which also became obsessed by size. The result was a rapid and artificial increase in the price of businesses to the point where it was impossible to get a return on investment. This ‘bandwagon’ effect can also be seen in the outsourcing sector where the offshoring of manufacturing has created dangerous international competitors in countries such as India and China and where transport costs and increased reaction time often negate the savings made in labour and materials.”

“The organisations that will win are not those that simply follow the herd,” he says, “but the ones that can understand what underpins how effective a strategic decision really is and which then have the courage to do something different to create advantage.”

Latest Alitalia news

Meanwhile Bllomberg reported yesterday that Italy's state-controlled airline, avoided collapse as the last two unions agreed to a 1 billion-euro ($1.4 billion) bailout by Roberto Colaninno's investment group CAI.

Unions representing most of Alitalia's 4,500 flight attendants signed the accord today in Rome after the carrier's seven other labor groups approved CAI's rescue plan last week.

"The agreement of all nine unions confirms the validity of CAI's plan and, in some aspects, strengthens it," Transport Minister Altero Matteoli said in an e-mailed statement.