Return On Investment

Brian Bedford is a genius. No seriously, he is a very intelligent man. His idea to diversify a one trick pony like Republic Airways by buying not one, but two branded airlines was truly a stroke of master class. He raided the piggy bank and bought a currently profitable Frontier Airlines along with an established, loyal followed Midwest Airlines and paired it with his cash generating fee-for-departure business. Even though the piggy bank is largely depleted, he has guaranteed profits coming in to subsidize any small short term losses that may occur on the branded side of the business. In the sense that he is a genius, he may also be the "dumbest smart person" I've observed lately.

Mr. Bedford may ultimately succeed in this endeavor, but I think the combined entity will go though some serious growing pains in the process. I'm not sure he realized the amount of effort and challenges go into running a branded airline. Don't get me wrong, I think there is no one out there better at running a fixed-fee operation. However, you can run a successful fixed-fee airline while ignoring three of the most important aspects of a branded business; fuel, customers, and employees.

How do you make money in fixed-fee operations? It's simply really and can be explained in one simple equation: Income - Cost = Profit. The equation becomes much simpler when you do not have to factor in fuel into your cost. Income is simpler when you don't have to actually market, price, and sell to your customers. The employee impact on the bottom line is also eased when those employees only expectation is for the job to be a short jaunt or stepping stone to bigger and better things. This keeps your unit costs low because you are continually trading senior employees who move on for new employees at the bottom of the wage scale. Republic leadership have run a successful company in spite of themselves, not because of.

Republic now has to buy fuel, take care of customers, and please employees whose expectation is that their company is a career destination, not a stepping stone. Let's grade the performance of Republic Leadership so far in these three areas.

First let's talk about fuel. To be fair, there is not a whole lot of control one has on the price of fuel. However, one does have immense control on how much fuel is used. A long time employee of Frontier doesn't have to look back far to remember all of the fuel savings initiatives that were put in place over the past few years. Where are those initiatives now? I hear stories of pilots getting asked to fly faster, which burns more fuel, to make up time in the air to save a 10 minute delay. Avoiding delays is admirable, but at what cost? Don't shrug your shoulders and blame your woes on fuel, do everything in your power to burn less of it within reason.

Next, let's take a look at customer service. It seems that Republic has not fully grasped the customer concept yet. On the fixed-fee side of the business, the major airline partners dealt with the customers. During irregular operations and when aircraft divert, you can just dump the passengers off and let the major airline station personnel deal with the aftermath. In a branded operation, you actually have to think before you do anything like that. You can't just send 4 diversions to a small station that only has 2 agents working at that time and leave all of the passengers stranded in the terminal or on the aircraft itself for hours at a time like what happened this week. The communication between operations, the station, and the flight crew must be precise. You can't downgrade an aircraft and take 70 denied boardings because you are not willing to take a delay to wait for an aircraft to clear maintenance or to arrive from a weather delay. Customer Service is chess, not checkers. You need to think three moves ahead, you can't trash your customers and then say "King Me!".

The most important element are the employees. The old mantra is take care of your employees and they will in turn take care of your customers. Just saying "be glad you have a job" is not good enough anymore. Talk to your employees, get to know them. No one is asking you to make us the highest paid employee group in the industry or anywhere remotely close. You however will lose any good will you could have had when you systematically cut front line employees pay scales by close to 30%, or give them 30 days to make a life altering decision regarding uprooting their lives. Everything you have done so far screams that you are willing to sacrifice long term employee good will for short term monetary gains. If you invest in your employees in the long term, the return on that investment will be greater than any gains made in the short term.

This employee group thirsts for leadership. I wonder if Brian Bedford remembers the first time he addressed the employees in Denver after the purchase at the Embassy Suites. I wonder if he remembers the standing ovation, thunderous applause, and heroes welcome he was given. I wonder now, at this point in time, would the employees of Frontier Airlines give him the same adulation if he were to address us again? I personally don't think so, because he and the rest of the Republic Airways leadership has bumbled every decision since then. At every decision making crossroad Republic has encountered, the wrong fork was taken. By my count, only 2 or 3 director and above level Frontier employees have been retained for the combined company. These are the people that know how to run a branded business, that successfully navigated the waters of Bankruptcy when all said it was not possible. You had a chance to take a highly experienced, highly motivated group of employees that are fiercely loyal to their company and ride that wave of enthusiasm to a very promising and prosperous future. Instead, you chose the quick buck instead of the greater long term rewards.