Case 4 -PFF?

Issue:

Birkir_Holm_Gudnason_Issue_1: What is an important issue that your company is facing? To this date we probably had the biggest crisis we have gone through when in 2009 the banks collapsed in Iceland and the economy collapsed. Basically we had a lot of passengers cancel their trips here in Iceland and a lot of businesses go away. We had to basically react to that.

Cause:

Birkir_Holm_Gudnason_Cause_1: What caused this issue to arise and why is it important? It was important because we had to survive in 2008. This hit all the Icelandic companies very hard so we had to find ways to survive but also we wanted to use this time to streamline the company, to lower our costs and to be more cost competitive in order to grow again.

Background:

Birkir_Holm_Gudnason_Q1: Can you tell us a bit about yourself and your career path to date? I am the CEO of IcelandAir. I started with the company 12 years ago in the year 2000 I moved a lot. I started in Iceland after my studies in Denmark. I studied there for five years. Then I moved to the U.S. I was in North America for three years. I moved to Frankfurt. I am General Manager of Central Europe for IcelandAir for two years. Then I moved to Copenhagen where I was general manager for Scandinavia for two years. Then in 2008 I took over this position as CEO. Birkir_Holm_Gudnason_Q2: Can you describe a typical workday for yourself? I travel a lot. Usually I travel one day a week. A typical work day is to be in the office at 8:00 A.M. until 6:00 P.M. or 7:00 P.M then usually I am answering e-mails in the evening when the kids are asleep. From 9:00 P.M. to 12:00 A.M I clean up the e-mails. During the workdays I have meetings from 8:30 until 5:30 P.m. So it is very busy with a lot of meetings. I have to use the evening to clean up e-mails and answer people. Birkir_Holm_Gudnason_Q3: What is your role in the company? My role is run the operation. I am responsible for the operation. We have 1600 staff working for us. I have to make sure that things are running smoothly and we are reaching our goals and aims. Birkir_Holm_Gudnason_Q4: Can you describe your leadership style? My leadership style is that I listen a lot. I like to work in a team. I like to be a captain of a tea and be out there. People should not be afraid of me. I listen to my experts a lot. I argue with them. Of course I have to make the final decision in tough cases. I try to get interactions from different experts and different departments. I like to listen to what my people have to say and make decisions with them. Also I like to make decisions. I do not want to wait. I would rather that people make the wrong decision than no decision at all. As I sometimes say 'why wait if you can do it right now. People will just learn from it if in retrospect it was the wrong decision. Birkir_Holm_Gudnason_Q5: What does good performance mean for you in your position? When we work as a team, when we set up goals or aims or budgets and targets and we reach them. The biggest thing of course is that the customer is happy. If our service is good, our on time performance is good, our load factors are good then of course we are doing a good job. Birkir_Holm_Gudnason_Q6: What does your organization do and how is it different? Iceland Air is different from other airlines. There are many things, history, culture and all that. We are the oldest European airline flying transatlantic. We have gone through many difficult times in aviation We are 75 years old this year. We were established in 1937. We started international flights in 1952. We have gone through many difficult times in aviation, 9/11,the economic collapse in 2008 and a number of volcanic eruptions. But we always ended up standing on our feet. Our advantage is really the hub and spoke route network that we run through Iceland. The location of Iceland gives us an advantage with a shorter flying time to the U.S. We can connect passengers to Europe from the U.S. through Iceland with a very short connecting time here in Iceland. With this transatlantic traffic we are able to build our frequency. Birkir_Holm_Gudnason_Q7: How is your company structured or organized? Basically we are part of a holding company call Icelandic Group. There are eight or nine subsidiaries with Iceland Air being by far the biggest. We have around 1600 employees with a very simple structure. In 2008 we streamlined a lot. We took out S&P executive position and we took out five or six middle management positions. The aim was to give more responsibility to the experts the project managers. They are the experts. They run the airline on a daily basis. We are relying more on them and have told them to do things more frequently without asking us for permission. That is our structure. We have a very simple lean and mean structure. It is virtually dynamic. Birkir_Holm_Gudnason_Q8a: Can you describe any key events that occurred either in your life or that of the organization that were crucial to success over time? I think aviation has had a lot of problems in the last two or three years since the economy you could say, collapsed in Europe. the U.S. and much of the world. Iceland was hit the hardest. A lot of Icelanders has stopped travelling in 2008 when the banks in Iceland fell. We had to react. So we looked at this as an opportunity instead of trying to find a reason or an excuse for why this happened. We basically moved all of our marketing firms to offices abroad. We saw an opportunity to bring more tourists to Iceland with the weak Krona. The devaluation of the Icelandic Krona gave us an opportunity to bring more tourists to Iceland. That was a big event and really a turning point for us. Another event was the volcanic eruption of Eyjafjallajokul. That was something that was threatening aviation in Europe and Iceland as well. What was unique about that was how we reacted. Birkir_Holm_Gudnason_Q9: How does your organization make money? The business model of the company is to connect three markets through our route network in Iceland. We have a market called 'To Iceland' which is basically foreigners coming to Iceland. Then we have the home market called 'From Iceland. Then we have the transatlantic market called 'Via'. 80% of our passengers are foreigners. We have a small home market of 300000 people. We have 2000. Our market is to connect the transatlantic traffic through Iceland which is usually the most direct way from Europe to the U.S. Most airlines fly over Iceland. And build up a frequency for to and from traffic for foreign tourists to come to Iceland. Birkir_Holm_Gudnason_Q10: How is the airline industry changing? I think airline have seen a lot of external cost increases. So they have to work on their internal costs, salaries and staff and all that. things like that. We are seeing increased fees from airports and others in the value chain and overflight charges. Governments are raising taxes. There is also the emissions trading scheme. It is not helping the aviation industry. With a lot of low cost competition coming in it makes it tougher for the network carriers to survive. Birkir_Holm_Gudnason_Q11: How do firms compete within this industry? The most important way to compete today is to be competitive in unit cost and offering options of gateways through alliances and code sharing. Good service is important. The most important aspect today is to be cost competitive and to be able to compete against low cost carriers that are coming into the market or emerging. Those airlines that have costs or a cost structure that is too high will not survive in the future. Birkir_Holm_Gudnason_Q12: How are companies in the industry dependent upon others for their success and what are some of the actions that can be taken to reduce these dependencies? If you look at the aviation market today especially the transatlantic market between the U.S. and Europe, it is heavily based on three alliances that probably have 80% of the market share. There are very few airlines outside of an alliance. Then you see new developments such as joint ventures that almost look like an alliance within an alliance. It is difficult to forecast where this is heading. The joint ventures might make the smaller airlines in the alliance angry and push them to leave. The trend is going to fewer and larger airlines. Trying to merge and joint ventures is the name of the game now. The name of the game today is called capacity discipline. Airlines have started to realize that over capacity hurts a lot. Investors are calling for capacity discipline to get more profits from existing routes before your start growing. Birkir_Holm_Gudnason_Q13: What is the role of regulators or government in this industry? I think it is too strong. We see it in the European Union. There have been huge problems implementing single European skies. You are seeing the Emission Trading scheme. It is not a global product. It only applies to Europe. We see governments raising income taxes, passenger taxes and other taxes. It is heavily regulated and it is not helping the aviation industry. It is a tough business to be in and it is not helping things to be highly regulated as well as we can see in Europe. Birkir_Holm_Gudnason_Q14: What big issues will companies in your industry be addressing in the next five years? I think the biggest issue is how you can adapt quickly to changes in the environment like we have been doing to deal with the bank crisis and the volcanic eruptions. The important thing is to be cost competitive and be able to grow to meet the competition. Of course the environment is important because of the emissions trading scheme and all these things. The important thing is to be cost competitive. Really the issues for the coming years are, how do you meet the increased costs, how do you cope with it and how do you meet the increase competition? Birkir_Holm_Gudnason_Q15: Can you offer some fast facts about your company? The airline is 75 years old. We are a part of Iceland Group. We have been flying transatlantic for over 60 years. We are famous for flying between Luxemburg and New York. Our predecessor LoftAir Icelandic used to fly between Luxemburg and New York and was one of the first low cost airlines on the transatlantic route. Since then a big turning point for the company was when this route network was established by connecting traffic via Iceland. We saw a lot of passenger growth after that. We have been growing annually at 15 percent for the last three years. We are able to build up a frequency with this model. We consider ourselves a niche carrier. We look for niche markets and niche gateways where were can offer the fastest flying time on transatlantic routes between Europe and the U.S. Birkir_Holm_Gudnason_Q17: How does your organization deal with failure? Our philosophy is to try to learn from it and map it. For example after the six week period during the volcanic eruption we decide to map it up. Where did we make mistakes? What were good decisions? What were bad decisions? So we mapped up the time process and what decisions were made and to from it so it does not happen again. I think it is very important to make decisions even though they were wrong because they were made based on assumptions that were right at the time but in retrospect they may have been wrong. It is very important afterwards to evaluate what could have done better and how you should react or make decisions next time. We have a culture that we would like to complement people more than hanging them out to dry. Everyone makes mistakes and we would like to learn from them. It is also important to not just to continue and not evaluate what happened. You have to evaluate what went wrong or what decisions were good or bad so that you learn from it for the future.

Company: Icelandair Size: Medium Industry: Airline Business Activity: Transportation and Storage Type of Entity: Private Company Number of Employees: 500 to 10,000 Country: Iceland Headquarters: Reykjavik, Iceland Yearly Revenue: Greater than $25 million Gender: Male Subject: Turnaround Keywords: