If anybody asks whether human resources management is important, we believe no one will reply "no" because machines definitely will not be able to function without people.
But if anybody asks how important it is to the business, there are various answers, as each business has its own economic factors such as capital, technology, machines and knowhow.
However, for the airline industry, players can be compared easily regarding human resources management because of the similarity of machines in Boeing and Airbus, the same international aviation rules and regulations and some similar operating standards, for example.
“Therefore, in this dynamic competitive business, we are able to demonstrate the importance of HR easily,” Ariya Furkfon, managing consultant at Hay Group, said last week. Citing data from IATA, she said an effective airline is one that can develop effectiveness in three key productivity drivers – fuel, aircraft and labour.
In the past 40 years, due to the limitation of improvement in engineering, fuel and aircraft productivity have had less of an impact than improvement of labour productivity, making a difference between good and bad performers. As a result of fierce competition, the airline industry’s earnings before interest and taxes around the globe did not even reach 1 per cent of revenue on average from 2000-09.
However, there were some airlines that showed a significantly better operating profit margin –more than 8 per cent on average during that period. There are also two airlines on this list – Southwest and Singapore – that are in the top 20 of the World’s Most Admired Companies (WMAC) for 2014, a study that Hay Group conducts in partnership with Fortune magazine.
WMACs are companies that are great in managing their own company effectively in nine categories – innovation, people management, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment, quality of products/services, and global competitiveness.
The companies are well regarded by their employees and other companies around the world. Their revenue is also admirable due to their great management.
In the second article, Ariya will share the details of how airlines compete. We will understand how full-service airlines and low-cost airlines differ in their work systems and people management, resulting in differences in profit making.
Hay Group is a global consulting firm that works with leaders to transform strategy into reality. This is the first in a two-part series.