Changing the flight plan Featured

8:00pm EDT July 28, 2006
 The airline industry, like most others, goes through regular cycles. The problem comes when management fails to recognize the difference between an ebb in business and the results of a failing business plan.

That was the problem Bryan Bedford faced when he joined Republic Airways Holdings Inc. in 1999.

“The predecessor management team thought it was doing all the right things and that they were going through the typical cycle that airlines go through in terms of losing money, and sooner or later they’d start making money again,” says Bedford, chairman, president and CEO of the company. “You have to be realistic. There’s never a good time to lose money. If that market can’t perform, you have to be honest about your ability to add value to the market, and if you can’t get fair compensation for the service that you’re providing, then you need to exit the market.”

The previous management wouldn’t exit money-losing markets. But that wasn’t the only problem. Bedford’s approach was to quickly stabilize the company and restructure the business model while earning the trust of employees and rekindling their passion for the business.

“Going into 1999, two things were happening,” Bedford says. “One, the company had just executed a new union contract with its pilots that changed dramatically the way that the pilots would schedule their work for the company. That process put the company into a significant crew bind.”

Flight crews were suddenly in the wrong places, which led to poor reliability, and the company wasn’t able to complete some flights, which made customers and its one airline partner, U.S. Airways, unhappy.

“Moving into the back half of 1999, we were faced with two things,” Bedford says. “One was Y2K. And the second is what we can now look back on and see the beginning of the initial recession going into 1999, 2000. Revenues were already starting to deteriorate, yet costs were increasing by virtue of the new pilot agreement and the fact that the company had to play catch-up on its Y2K compliance.”

Bedford took an honest look at the situation, something previous administrators were unable to do.

“No matter how bad you think it is, it’s always worse,” Bedford says. “Make sure you’re not looking through the rose-colored glasses.”

As if those problems didn’t pose enough of a challenge, Bedford recognized that the company’s basic business model — flying turboprop planes in and out of small-town America — was destined to fail. So he chose to restructure the organization.

“Those exit decisions are very difficult to make for any business manager,” Bedford says. “You have to make a very realistic assessment of what your strengths and weaknesses are and try to move the business along to your strengths and away from the things that you’re not competitive doing.”

Bedford’s first step was to stabilize the company’s financial position. Suffering some significant operating losses, Republic’s cash position had been depleted to very low levels.

“We had all the classic worries of a business in financial distress — how do you make payroll?” Bedford says. “Step one was get the flights to complete, get them to complete on time and deliver the customers’ luggage at the end of the trip. We made some strong commitments to them in terms of our steps to remediate crew shortage and the quality concerns on the product.

“We put the money, the time and the management focus on accomplishing those goals. Within 90 days, we had accomplished that. We had to assess where the shortfalls were and why we were having a difficulty. We had to go out and hire more pilots, and we had to acquire simulator training for those pilots, which obviously took time and financial resources. That was an investment we had to make in order to return the operation to a stable, quality performance level.”

It takes eight to 10 weeks to train pilots and get them into the schedule.

“We were looking at ways we could utilize our existing resources more productively,” Bedford says. “You can’t just change pilot schedules. There’s a process by which schedules have to go out for bid and then ultimately be executed.”

With the business more stable, Bedford was able to turn his attention to diversifying the revenue stream.

“That’s not unique to our business,” he says. “If you’re in the automotive business, you prefer not to have one customer in General Motors; you prefer to serve as many customers as you can. Today, we have four. Obviously, five would be better. Six would be better than five. The goal has always been to develop new relationships that leverage our strengths.

“We knew we needed to do a more quantum change for the business. If we were talking football, that’s when we knew we needed to throw the Hail Mary pass. We decided we were going to exit the pro-rate flying (replacing it with a fixed-fee model) and exit the turboprop flying and concentrate solely on operating the regional jets.”

In a fixed-fee model, there is no revenue risk to the company, because the airline’s partners are guaranteeing a certain usage rate, and therefore, a fixed revenue, providing a much more consistent revenue stream. The company also began replacing the turboprops with jets, which made it more appealing as a potential partner to other airlines.

In February of 2000, Bedford inked a deal with the company’s second marketing partner — a point when the company really started turning around. Republic started making money in the second quarter of 2000 and hasn’t had a money-losing quarter since.

Getting buy-in
Prior to Bedford’s arrival, Republic Airways had gone through three CEO changes in two years. There was a lot of skepticism among the ranks, and employees wondered if Bedford was part of the system or simply another face that would pocket a fee and leave in a year.

“Try to make your employees partners in your business,” Bedford says. “As difficult as it is for management to change, it’s even harder for employees because they don’t have the same information that the management team has. Sometimes information is competitively sensitive; you can’t just broadcast it to your employees.

“To the extent you can, you need to make sure you’re being open and honest with your frontline people.”

One thing Republic did have going for it was a strong, dedicated group of employees. Bedford knew that for his changes to take root, he needed to win over the frontline workers.

“We discovered we had an airline that had a great corporate culture — [like] a family-run business, a small business, a company with a soul,” he says. “We needed to leverage these strengths with more of a financial discipline and a model that would provide the most value for its customers and still make a profit and return.”

Bedford knew trust and respect could only develop over time by being upfront with employees.

“Just being honest with them about the steps that we were going to take, realizing things weren’t going to change overnight,” he says. “Let’s take a 30-day view of the world, a 90-day view of the world and a one-year view of the world. Here’s what we’re going to do, when we’re going to do it, and then you can grade accordingly.

“As long as we were meeting or exceeding the deliverables, that was building the foundation for trust.”

E-mails weren’t going to cut it. Bedford knew he had to provide, at least in the beginning, face-to-face contact.

“I spent my first 90 days just going out visiting with all the employees,” Bedford says. “We took one of our small turboprops and flew it to all of our cities that we operate in and met all of our employees. Back then, we only had about 600 people, so we could do that. Then we tried to give them an assessment of where we were.”

Despite the fact that the company has grown much larger, Bedford still prefers to deliver his messages face-to-face. Whenever he and his executives travel on business, they make sure to visit with pilots, flight attendants and mechanics.

“In fairness, the employees were just as concerned about the quality of the service that we were operating as our partners and our customers were,” Bedford says. “So, making the commitment to fix the operation was something they needed to hear as well, and then delivering on the commitment.”

A greater purpose
How a business delivers its service is often as important as what the service actually is, so Bedford set out to give the employees some guidelines.

“We tried to enhance what was already a good corporate culture (by) setting ground rules on how we were going to work with one another,” Bedford says. “We put together our mission statement.”

That statement includes all the traditional ideas of commitment and respect. And although it was true to the company’s goals, Bedford recognized the statement wasn’t exactly motivating.

“We decided we needed something that was inspirational and yet true to what we were trying to become,” he says. “So we created what we call our vision statement, which was to recognize there was more here than flying airplanes.

“We did something that some people thought was controversial at the time. We recognized God as an important contributor to our business practices and our business success. There was some resistance to bringing God into the workplace, but it was important that our employees understand where the management team was coming from.”

Instilling the value throughout the company has had a profound effect on the entire organization.

“We do have a Christian value system, and we’re not ashamed of it,” Bedford says. “It’s not a marketing gimmick. I think it was stunning to many people both on the management team as well as the front line employees. By expressing those Christian ethics, it also puts some boundaries on how we do business. We’re not in the business to profit for the end of profit. This is a company that has a soul.

“It’s certainly not a hiring criteria; it’s not a box you check yes or no. People are smart when they’re making employment decisions. They generally make a decision that they want to go to work for somebody that has similar values and virtues that they do. We try to advertise what our virtues are, and we try to act on them.”

One way Bedford acted on the new ethic was by developing the Circle of Stars program to honor employees who go above and beyond the normal call of duty.

“We fly over 850 flights a day all over the United States, so most of our employees work remote,” Bedford says. “We don’t get to see the thousand good things our employees are going to do today. Their co-workers do. Thankfully, many of our customers write us and tell us about the great things our employees are doing.

“We created a program where employees can get together quarterly and look through the nominations for what we would consider our best and brightest employees based on real things that they’re doing.”

Take, for example, the flight attendant who noticed a passenger crying on a flight from Orlando to Columbus (Ohio). The passenger had missed her flight to Pittsburgh, where she was going to visit someone having emergency surgery.

When the plane landed, the flight attendant, concerned the passenger was too distraught to be alone, took the woman to the car rental counter, rented a car and drove her from Columbus to Pittsburgh.

That employee earned a $1,000 bonus for her actions. Republic honors 20 employees every quarter, and at the annual recognition dinner held in Indianapolis every August, Bedford selects President Award winners who receive a $5,000 bonus.

“If you give a person a choice of working at a place like this versus working at an identical company, but one without that soul, they’re going to choose this one every time,” Bedford says. “It does engender a loyalty and commitment that gives us a clear competitive advantage. It’s a nicer place to be. There’s more to life than work.

“If you’re going to have to work, let’s enjoy what we do. Let’s get the psychic income that we’re doing something more than just moving airplanes from point A to point B.

“It’s an absolutely vital component of this particular business, and not having had it, I’m not sure we’d be here at all quite frankly.”

Bedford’s vision has proven successful for the company. He has grown the operation from $85 million in revenue in 1999 to $905 million in 2005.

“Those early months, and even years, building that trust and rapport with employees has been difficult,” he says. “We can look back seven years and say with absolute confidence that we did everything we said we were going to do.

“Our employees are intensely proud of the airline that we’ve all created here. They realize we’re all in this together now.”

HOW TO REACH: Republic Airways (317) 484-6000 or http://www.rjet.com/