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British Airways CEO Interview: How to Bring a Low-Cost Mindset to a Legacy Airline

Skift Take

Some old-school companies talk about embracing start-up thinking without knowing what that really means. This, though, is what they wish it looked like in practice.

— Jason Clampet

Editor’s Note: Following our previous CEO interview series in online travelhospitality, and destinations, as well as our recent CMO series across verticals, we’ve launched another series, this time focused on the CEOs of leading airlines outside of the United States.

Airlines_CEO_logo2To better understand the challenges facing airlines in an age of fluctuating oil prices, rapid growth, and changing passenger expectations, our Future of Passenger Experience series will allow leaders in the industry to explain their best practices and insights. 

This is the latest interview in the series.

At first glance, Alex Cruz may seem like an unusual choice to lead British Airways, an iconic flag carrier with a lineage dating to the 1930s

Cruz is an upstart, having helped found Spanish low cost airline Clickair in 2006, an airline part-owed by Iberia. Clickair merged with Vueling three years later, creating one of Europe’s more successful discount carriers. Unlike at British Airways, most Vueling customers pay extra for just about everything, from onboard drinks to seat assignments. But base fares can be cheap — often as low as 20 euros, one-way, from Barcelona to London.

After the merger, Cruz became CEO of Barcelona-based Vueling. In 2013, International Airlines Group — owner of British Airways and Iberia — bought a majority stake, and Cruz stayed in charge. 

Three years later, the parent company tapped Cruz for a bigger job, naming him CEO of British Airways. That surprised some observers, since Cruz spent much of his leading short-haul, low cost airlines. But British Airways needed his help. The airline, while profitable, was struggling to compete as discounters like EasyJet, Ryanair and Norwegian Air encroached in its markets.

Cruz says his mission is not to turn British Airways into a low-cost airline. But he is charged with making the legacy airline more nimble and cost efficient. In short, he wants to ensure British Airways acts more like a startup.

Cruz has already made some changes. Several months after he took over, British Airways announced plans to charge for food on shorter flights, a move some loyal customers criticized. In the future, Cruz suggested he plans to introduce new self-service elements to the British Airways product.

Skift co-founder and Head of Content Jason Clampet met with Cruz in November to discuss some of the challenges he faces at British Airways.

Note: This interview has been edited for length and clarity.

Skift: As we meet in November, you’re about seven months into your job. What do you know now that you didn’t know in April?

Alex Cruz: That’s a great way to put the question. When I came in April, I suspected BA was a large, complex organization that took its time to get stuff done. I can now confirm to you that British Airways is a large, complex organization that takes its time to do things.

We’re a very large company anchored on … old legacy practices. I think that what my time over the last seven months has confirmed is that there is a significant exciting and hard challenge to unlock a lot of value that exists.

I found myself with a community of extremely experienced people. There are very few things that I ask about the industry — what we’re doing and not doing — that BA doesn’t know about, hasn’t trialed, hasn’t power pointed, or hasn’t written a book [on]. Expertise and knowledge — there’s a tremendous amount.

I [also] find passion. Some people love the brand. They love to be a brand they feel. [They’re] very passionate about it. There is something about it being a brand that really generates a lot of emotions and sense of ownership and belonging, etc. That’s great, because if you have that you can really work with people.

I’ve also found that we are very slow at managing our business. Slow and really not agile. That’s one of the big things that I’m doing at the moment. We’ve articulated a new business plan which we’ve presented to investors. We talked a little bit about it. I need to now work and do a little bit of a culture change around that. Make sure that everybody knows the world that we live in. Make sure everybody understands why we need to actually take decisions quickly and actually take them to market quickly. There are a lot of people around us that are doing that, including some really large airlines that are doing that much better than us.

Skift: British Airways has gone through various rounds of cost cutting. What are the remaining tough decisions?

Cruz: I don’t think there are any tough decision, per se. I think that there are number of decisions that are obvious that everybody knows about that we have to make. In a way, until they’re made, you can sort of close your eyes and think ‘I hope it’s not made.’ Then the day that it’s made you go, ‘Oh my god!’

For example, it’s really interesting how [we made] the decision on buy on board [meals], on short flights. We had been talking about it for months. It had leaked to the press wrongly first, then rightly at the very end. It was an active conversation internally.

There was a general degree of acceptance that it was going to happen, and then the day that it was actually confirmed that we were doing it internally, — just internally — there was like a big uproar of ‘Oh my god, look what we’re doing’ and everything else. Now that we’ve got 4,500 [and] counting crew that have come through the training for it, we’ve got consistent very positive feedback. I knew it was the right decision from the very beginning without any doubts because of all the feedback we have from consumers.

[Editor’s note: British Airways says it finds customers would prefer to buy a more upscale snack than receive a free one of lesser quality.]

Skift: What about self-service? Do you expect BA will introduce more self-service at airports and elsewhere?

Cruz: There’s a lot of technology-related decisions like self bagged drop-offs. You go to New York, you go to see JetBlue, you see the other carriers — it’s there. I think everyone is going in that direction. If you’re not a premium customer, ultimately you can just go to a machine, wait, get the tag put in, [and] boom off it goes. Or self boarding gates, or access to lounges. We’re right now going through the consultation process as its called in the UK [to introduce] the push back vehicle that requires only one person rather than three.

Are these difficult decisions? Yeah they are. Are they obvious? Yeah, they are, they’re pretty obvious. There’s new technology that comes in that makes operations safer, [and] faster. Lots of customers want to use this sort of technology to access the plane, to get around. I think there are a number of those [types of ideas] that will be coming. But I don’t think [you need to say] ‘cut your staff by 3 percent.’ No, I don’t go by that. What I go by is what business process needs to change in order for us to be more competitive or for us to be more efficient or provide a better customer service. Then behind that, there may be a a difficult decision, but there’s a reason why you’re doing it.

When I first came into BA, lots of people thought ‘Oh, he comes from a low cost carrier.’ Or, ‘Oh my god, this is the end of the world, he’s going to start cutting cutting cutting.’ I repeated over and over again that cutting costs just for the sake of cutting costs would destroy an airline like British Airways.

There has to be a purpose, and I think there will be tough decisions that need to be made. Ultimately, it will be pretty obvious that you have to make them.

Skift: Do you think it is more difficult for employees to accept changes than customers?

Cruz: Yes.

Skift: Is that mainly because consumers already expect some of this stuff because they’ve flown lost carriers like Ryanair for years?

Cruz: There’s been education. I think it is every single airline now in Europe charges for a bag or has a fare without a bag. Roll back ten years ago, and that would have been revolutionary at Lufthansa, Air France, and BA. It’s crazy. Now we’re in, and it is accepted.

[With] food on board, I think we’re nearly there. I think there’s only going to be two airlines left that don’t charge for food. There may be a couple more things. I’m not sure there are many. I don’t think there’s an infinite number of things that you can do.

Ultimately, we’re trying to be competitive. I want people to travel with us, not with our competitors, so when it comes down to economies and non-premium seats, we actually do have to consider the price factor a great deal. It makes a huge difference.

Skift: As in the United States, flying in Europe is cheap compared to historic prices. Is there a way you can say to consumers ‘hey, it is pretty cheap!’ Or is that just a losing game?

Cruz:  Let me tell you something. On BA, on the entertainment system, there is a BA TV channel. I knew it existed but yesterday I actually went in and watched all the videos. They are about 10-15 minute long videos of the 1930s, ’40s, and ’50s around British aviation and things like that. There is one of the early color films of this Italian actress lady who I didn’t recognize going out to the sales office in downtown London saying ‘I would like a ticket to Rome,’ and the guy says ‘sure madam, it’s 41 pounds.’ I’m thinking, 41 pounds? I bet we’re selling a lot of tickets right now for 41 pounds or less, which is crazy! That was the ’50s or something like that.

It is amazing to consider how the prices of tickets have been going down over a long period of time — over and over and over again. [We have] new models, new ways of operating, and yes, some evolution. I was going to say compromises, [but] that’s wrong.

Without actually unbundling, you probably wouldn’t have been able to make it there. I think we’re reaching towards the end of unbundling. I’m not really sure what else can we unbundle, but more people are flying now and I think it’s going to keep going. If you look at the IATA stats at the last 50 years, it’s 4 percent [growth per year]. I think that will continue going for the next 50 years. That’s a lot of people — 4 percent compounded every year. That’s a lot of people flying.

Skift: Just to go back in time a bit, you were at Sabre in the 1990s, right?

Cruz: I joined American Airlines on the 13th of August 1990 in Dallas. I was there in Dallas in that group for five years. Then I moved to London with that same group. Another five years. The last year of those ten I was a Sabre employee, so I had to change from American to Sabre. Then I left. [Editors note: In 1996, AMR Corp., American’s parent, which had owned Sabre, took the company public, though AMR remained majority shareholder. In 2000, Sabre became a fully independent company.]

I was only doing internal American Airlines work for the first two and a half years of those ten years. The rest … I was actually doing consulting studies and all kinds of technology and operations research stuff for other airlines around the world, including Northwest and Continental. I got to see a lot of different airlines and places around the world. What a great thing to do when you’re 24, 25, 26, 27. It was a great experience.

Skift: You’ve been in the industry a long time, and you’ve long been interested in tech. Looking back a couple of decades ago, did you expect the booking and passenger experience to change so much in a short period? What’s been the biggest change you’ve seen?

Cruz:  The big change, I think, has been the ability to compare. The ability to be able to take a look at multiple options right there and then, and to actually trust the comparison. Before you could go to a travel agency and have that interaction, but you never really knew if it was complete or if it was biased or unbiased, or how biased. Unless we make a conscious effort, we tend to, by default, agree that things are not biased even though we know better at times.

That, I think, has been the biggest driver of change. Now [passengers] can compare more and, therefore, they can look at more choices and they can make a more informed decision. The question for me is, what comes next, because we’ve had that for the last 20 years.

I do wonder if the airline industry … [is] in tune with thinking about what sort of disruption may happen. For the last three or four years everyone has been saying ‘Well, there’s no Uber in the airline industry,’ [but] ‘Oh yeah, we have our low cost carriers and this and that.’ That’s actually BS. That’s not what disruption is going to be coming in. It’s going to be coming in in other ways.

Skift: What will the disruption be?

Cruz: It’s going to be about other people beginning to build significant consumer databases that will be able to predict travel events. Or they will be able to fine-tune pricing algorithms in a way that has never [been done.] I told [our] revenue management department, ‘Sorry, you guys are going to be out of a job.” I said, ‘OK, not yet, but soon. I can’t tell you when, but [it will happen] because the way in which we price in the industry today is not survivable.’ We’re going to have to price separately because the amount of data and information we’re going to have is going to have to be much more personalized.

We’ve been talking about being able to walk up to McDonald’s and a Coke costs [a] different [price] at any time of the day. Ultimately, a Coke is going to cost different if it’s you or I that goes up to the counter. I think pricing is going to go in that direction. In the beginning, [the company] will be able to know who we are, where we are, [and] what sort of need we have. How much are we really willing to pay for the ticket?

Today we know things. We know it’s Friday. We know it’s 4 p.m. We know it’s raining. We know you actually left on Sunday, not on Monday. We know you’re married. We know you have three kids, and you kind of want to go home. We know your flight is delayed, and we know there are two seats available on another flight. That is a very valuable piece of information — for both [the airline and the customer], by the way. If you make that proposition to somebody, [you can] say ‘hey look, I know you’re stuck with this flight, but I’ve got another option.’ I want you to know there’s a price that comes with that different option. It’s up to you if you want to do it.

All the feedback we get is that a lot of people would be very interested in targeted, high-value based propositions. I think we’re going to go through a period in which people are going to get it wrong. If I go to Amazon and I look for something, and then for two weeks every time I go onto Amazon I see advertisements even though I already bought it somewhere else, that’s not getting it right. Amazon would say ‘Well I didn’t know you bought it through somewhere else.’ OK. That’s not my problem. Don’t badger me.

I’m not sure the whole industry is thinking enough about what that future is going to be, and I do get the feeling that there are a lot of companies out there that are not airlines — that don’t have access to data airlines have — that are perhaps already disrupting. But certainly [they] will disrupt more in the future.

Of course, you can think of the Googles of the world and the Facebooks of the world. They have the resources, the time, the intelligence [and] the money to invest. Beyond that, I think there are a lot of little startups that come up here and that are making your life as a consumer easier. You know that it says [your flight is] delayed 45 minutes and you know that’s not true. It’s not true because that plane hasn’t left Salt Lake yet. You know the tail number. [You] know more than the gate agent. We’ve had that case by the way [where] someone walked up to a gate agent and said, ‘you’re lying.’ The agent said ‘what?’ [The customer said, ‘[the] flight cannot be delayed 30 minutes …. because the flight hasn’t left Amsterdam yet. It’s impossible. Are you going to change the aircraft?’

So there’s a lot of disruption coming this way [for] airlines, travel agencies [and] OTAs. The next level is undefined yet, but we’re beginning to get ideas of how it could develop, and we’ve got a lot of work to do in the airline industry to prepare for that.

Skift: On one side you have the potential — these fantastic insights that could transform everything. On the other side, you have a large organization that’s not very agile and has, I’m sure, 48 different legacy systems that all plug into each other. How do you reconcile those two things? How do you live in both of those worlds?

Cruz: No. 1, there has to be a collective awareness that makes us nervous when we get out of bed every morning. It’s going to take a while to change here. [Sometimes] I want to do something [and I learn] that’s going to take six months. What do you mean six months?

[Having] concern and awareness about our competitive position, I think that’s No. 1. [We can’t] take things for granted. The BA brand is absolutely great, but it’s not a guarantee of anything for the future.

Second, I think, it’s [about making] bold decisions as to how we manage inventory, how we price [and] how we sell. Looking at the overall chain, I think that we [need to] make small, incremental decisions together with [International Airlines Group] to drive us towards testing new models [and] understanding how those new models work. You may have seen the press release about us reaching an agreement with Concur, the expense measuring company. It’s a small little thing, but it’s interesting in terms of how we could interact with corporate clients.

The only way to deal with this is to absolutely be aware of what’s going on and where we are. And then be absolutely clear [in knowing] what are the three, four, or five things that you need to be focusing on. While that’s going on, [we need to] work on that legacy stuff to try to clean it, make it more agile.

We’re prisoners, in a way, of really old technology which is very difficult to change. We [did] a little check-in system change this summer and it was torturous for 12 days.

How do you reconcile it? Focus, focus, focus. Quick, quick, quick, quick — no bullshit, just get things done. One of my most repeated sentences [is] “why are you doing that?” We came up with a business plan. It has, very typically, four pillars: customer, operations, efficiency, people. Now I see people doing things and I go ‘Which pillar does that fall under?’ People get nervous. I think it’s just focus, and determination, and drive, and having people very aligned around that.

Until robots take over, we are a people business. We need to make sure everybody is conscientious of where we are. There’s hard work. You have to work your ass off. That’s what my Grandpa told me.

Skift: Just to go back a little. You helped start Clickair in Spain. How did that come about?

Cruz: In 2006, I joined Accenture. I had my little consulting company for three years and began to get a little size. Ultimately, Accenture made me a proposal, and I joined them. I was a partner there and we heard about this project that Iberia was trying to create an airline. At that time I thought I was a person who knew a lot about airlines within airlines, I spent a lot of time looking at them, so we went to talk to Iberia, blah blah blah.

At some point we began to attract the board of this little new company, and there was no CEO, no CFO, nothing. I told them ‘guys, you’re asking us for these Accenture services to be ready for Oct. 1, and that’s impossible. There’s four months left.’ They said ‘well, we don’t have the team in there.’ I said ‘how about if I pick up three managers and we get the airline started?’ They said ‘OK, bring us a business plan project by tomorrow.’ Overnight, we did a project on how to start up an airline. We presented it the following day. They hired us.

When you hire the COO and the first 30 pilots and the first hundred flight attendants [and] you select the brand and the color, and the website and all this other stuff, you start attaching yourself to it. Because I was the partner running the project, I was kind of like the CEO enacting the project. In November, I talked to the board and they wanted me to stick around, and it was probably one of the best decisions I’ve ever done.

Skift: What are some of the things you learned at a start-up airline that have stuck with you since?

Cruz: I think we’ve covered a number of them, so let me tell you some others.

At BA — and I know in American Airlines it was the same thing 20-30 years ago — making mistakes is not something you tend to admit.

I’ve introduced in the employee magazine [a feature called] the ‘Mistake of the Month’ because I want people to know it’s OK to make a mistake and it’s OK to talk about it, because that’s how we actually learn. I’m having a tough time getting people to actually admit their mistakes. We have to go and look at them. There’s 45,000 people in the company [and] no one makes a mistake? Come on!

The important thing is to not spend all your time looking at every single angle and doing budgets and [then] not doing [the project]. Yes, if you get it wrong [and] it didn’t work, that’s OK. What are the learnings? [We need to] make sure that we do the right communication on those learnings, and we move onto the next thing. We try the next thing and we’re going to get it right.

That whole culture of giving more importance to getting things done quickly and having tolerance towards honest mistakes with a mission behind it is something that doesn’t exist, and probably is not part of a very large company culture. I’m trying to drive it, and it’s been very liberating for some colleagues. They’re actually feeling like, ‘this actually feels different.’ Still a small number of colleagues, but with time we will go.

There is a lot of redundancy work, meaning lots of reports. If I have a meeting cancelled in the office, I get around and start walking around the office, and it’s all glass walls so I’ll see a room and there’s a PowerPoint and there’s like 10 people, I’ll just open the door and walk in [and say,] “Hi guys, if you don’t mind I’m going to sit down, I’m learning.’ A few times I’ve done it, there was no reason for the meeting to take place at all. But I can’t blame them, because the people that called the meeting really felt that there was a need to have that meeting for a number of reasons. Those reasons are no longer compatible with managing a company in today’s world.

Skift: And the meetings last too long, right?

Cruz: Sometimes you’ve got to have the meeting to prepare for the meeting. You’ve got to talk to a few people and have coffee with them before that meeting so they’re aligned. Some people in the office are getting nervous.

[One time] I told [someone], ‘Do you have anybody you would like to hire’ [And he said,] ‘Oh yeah, I know this fantastic guy and he’s available now.’ I said “OK, hire him.’ He said “OK, all right, great, fantastic, I’m going to submit the paperwork.” I said, ‘No, just call the guy, tell him to start working on Monday.’

It was like [talking to] a robot — ‘I can’t compute.’ He started getting nervous. I said, ‘No no, tell the guy to start working on Monday!” [He said,] ‘Yeah, but we have to appraise his salary and the position because that position doesn’t exist.’ “I said, ‘just do it this way.’

[He said], ‘Man I’m going to get in trouble.’ [I said] “I’m the boss, you’re not going to get in trouble, just do it!’

You really have to push people in this respect, and support them in the process. There’s some really good people. They’re just not used to working in that environment.

Skift: What would you say is one of the biggest misperceptions by the major legacy carriers when it comes to low cost carriers?

Cruz: We’ve gone through the different stages of human emotion right?

Skift: Like grief?

Cruz: Denial. Grief, etc. Pretty much around the world, I’d say, with a few exceptions, we are all fairly aware of the reality of these carriers.

Having said that, every week, at least once or twice, I drop my famous chart of [costs] by airline. Most people look at it like ‘Oh really? Are we really five times more costly than Ryanair?’ Yes, we are! Exactly right! Do you know what that means if we’re operating the same route with just about the same airplane?

I think the awareness is there. I think the acknowledgement of those carriers is very much there. What I believe that has changed is no one is underestimating any longer what affect it may have in the marketplace. I’ve been guilty [of that] in my career. Sometimes I feel like a real legacy guy. I don’t think I am, but sometimes I act and think that way. At least I catch myself doing it.

Skift: Do you think legacy carriers more often match products offered by low cost airlines?

Cruz: We don’t have such that strong culture of matching stuff in Europe [as in the United States] because of the fragmentation of the markets, languages, and cultures. I think that we will all continue to look for ways to be competitive. That means costs, absolutely. BA staff told me last night on the plane, ‘Alex, are we really going to have another cost reduction program?’ I said ‘no. No more cost reduction programs.’

We’re always going to be reducing costs, but there’s no more programs. It’s now injected into the DNA. If one particular day we don’t come up with an idea to reduce our costs, then we’re not doing our job. I want to confirm to you [there will be] no more programs with a name, with a set of objectives. This is now ongoing. There are people dedicated only to reducing costs. I think it’s been happening across the whole industry.

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