Ownership Structure and the Performance of Air Malawi
Greenwell Matchaya, PhD
Leeds University-Business School-UK
__________________________________________________________________________________
In this article effort is made to highlight some theoretical mechanisms through which Air Malawi’s ownership structure could affect its very ability for innovation and ultimately, performance. The article further considers some of the many possibilities that Air Malawi may need to try in order to survive these hard times.
If records are correct, Air Malawi became independent in 1967 following the dissolution of the Central African Airways that year and since then the airliner went through a series of tough and good times. A number of aircrafts were bought and added to the airliner’s fleet and at the turn of the political upheaval in 1993 the company had just acquired the Dornier 228, Boeing 737-300 and the ATR 42. It appears however that the dawn of the many changes in the political ecosystem in the mid 1990s also marked the end of the company’s heydays such that by the year 2000 news that the company was facing enormous financial difficulty were rampant.
In this article I do not claim to give solutions to the ailing company nevertheless, it is my intention to endeavour to remind those responsible, of some important principles that govern efficiency in the hope that someone, somewhere, sometime will find these useful in their bid to breathe life back into Air Malawi. Perhaps the fact that having a national airline is pivotal for national prestige as well as economic growth cannot be overemphasized. A nation without an airline misses out on important opportunities that could foster development.
Since 2000, it appears that Air Malawi has vainly attempted to partner with South African airways, Zambezi air ways and has only managed to get a less than better deal with Comair. It appears that the attempts taken by relevant authorities to bring back life to Air Malawi have not been that successful, and at present, pundits seem to predict only one possible outcome-air Malawi will extinct! This is not only disturbing to potential customers, is defeating to nationalists, and it is certainly not a plus from the perspective of development in general. What might cause such inefficiency at Air Malawi when other regional airlines such as the SA airlines, Ethiopian airlines, Kenyan airlines etc seem to be thriving well?
As is often the case with any organisation where there is separation between ownership and control issues of ownership are potentially very important. The fact that Air Malawi is owned by the state may imply a number of important issues namely that a) managers at Air Malawi have to be answerable to authorities that are poorly defined compared to what would be the case if Air Malawi was privately owned and shareholders acted as bosses to the managers, b) The company may implicitly have a multiplicity of objectives some of which may be antagonistic, such as profit maximisation and employment, c) Air Malawi can basically not go bust as it enjoys soft budgets from tax-payers money, and d) separation of ownership and control itself implies principal-agency problems where the tax-payer is the principal and the Air Malawi managers are the agent.
Based on ownership structure alone, it should be trivial to make some predictions as follows: Air Malawi managers have little incentive to be efficient because the company cannot go bust, and it is difficult to take them to task not only due to the antagonistic and sometimes fuzzy company objectives, but also because the principal (the tax-payer) really does not have much leverage in matters of performance monitoring among other things. These factors may stifle managerial incentives for innovation leading to mediocre performance.
In a world where markets for managers and corporate control exist, separation of ownership and control of Air Malawi may not necessarily pose much of a problem because it would be common knowledge among managers that poor performance could be read by the market as a sign of X-inefficiency, which could attract bids for hostile company takeovers at the expense of their very jobs. In those cases managers would work harder to be efficient to avoid potential hostile bids for takeover. Nevertheless, it appears that within the spheres where Air Malawi operates there are no active markets for managers and corporate control. No other parties apart from the government or its agents can fire Air Malawi management or take the company over. It may be the case that this factor works together with the ownership issue to increase the likelihood of slack at Air Malawi’s managerial level.
The managerial slack that is generated and perhaps reinforced as a result of the ownership structure and absence of markets issues, leads to dismal strategies across the board. Some of the areas that could be affected as a result are marketing planning, airline scheduling, aircraft and aircraft equipment maintenance, pricing strategies, staffing and research and development. A quick look at the air Malawi website or a quick stop at an Air Malawi tickets office clearly reveals that little consideration has been given to investment in infrastructure that could ease marketing. More often than not, purchasing an air ticket online is next to impossible, buying tickets at air Malawi offices using a credit or debit card is unthinkable while most air Malawi ticket offices have no functioning phone numbers. Marketing in this digital age should involve all possibilities or an efficient combination of strategies and should make good use of the internet, credit cards, debit cards, not just cash!
Of course the infrastructure in mention requires money to acquire, and an argument may be levelled that the company never gets enough money for such ventures to be feasible. However, research has shown that non-state owned companies do tend to have a higher tendency to invest in such important technologies than state owned ones, given the same level of resources.
Anecdotal evidence suggests that while Air Malawi may only have few functional aircraft at times, the company continues to overstaff perhaps to honour the employment objective that is characteristic of state-owned companies. For sure airline business is labour as well as capital intensive, but there should be an allowable threshold below which the business is not doable. Air Malawi’s labour force in these troubling times need not significantly deviate from such a threshold.
The airline needs to embrace innovation by adding programs to attract more customers, gain market share and boost revenues. This is not easy to do and this is why the organisational ownership structure must provide incentives and/or mechanisms to ensure that management works towards this goal. These programs, if not already in place may be, those for earning travel miles, attractive price discrimination where those who travel as a group receive a lower fare, or ask travellers to buy a certain number of tickets and they can get one for free, giving fares that include accommodation in Malawi lodges/hotels etc.
Anyway, the bottom line is that as aviation fuels show no sign of becoming cheaper anytime soon, profitability of Air Malawi possibly depends much on, not only pay and job cuts, but also on managerial innovation and search for new paradigms of marketing that place the customer first. Air Malawi needs to take advantage of this digital age to reduce its long run costs of marketing and operation in general by fully embracing technology at least in the area of advertising and selling. Various programs aimed at attracting customers may need to be introduced, a new positioning strategy should be thought about while it is also pertinent that the company properly defines its target segment. In these infantile stages, it will not pay to fly everywhere.
On the dimension of ownership and control, it appears that the effectiveness of all the recommendations implicit in this article depends so much on the incentives for managers and owners of the company to work towards the goal of profit maximisation. It seems that some form of public private partnership is required. Regulation could be important as well, but as long as regulatory bodies are state structures, the system may still be clogged by the same agency problems. Schemes that would see the government and the people of Malawi and outsiders owning some portion of the company, or participating in management would probably reduce the agency and incentive problems that exist in purely state owned companies. Management should again endeavour to explore the applicability of profit sharing schemes to Air Malawi, and must further critically study at least some of the world’s small but successful budget airlines such as Ryanair, Jet2, flybe and many others. Certainly, the future of Air Malawi is in the hands of all of us, and while it is obvious that we may be centuries behind our competitors within Africa and beyond, with a little bit of critical thinking and a desire to do good it should be possible to revive the airline in less than half a decade.
Feedback to matchayag@yahoo.co.uk
Leeds University-Business School-UK
__________________________________________________________________________________
In this article effort is made to highlight some theoretical mechanisms through which Air Malawi’s ownership structure could affect its very ability for innovation and ultimately, performance. The article further considers some of the many possibilities that Air Malawi may need to try in order to survive these hard times.
If records are correct, Air Malawi became independent in 1967 following the dissolution of the Central African Airways that year and since then the airliner went through a series of tough and good times. A number of aircrafts were bought and added to the airliner’s fleet and at the turn of the political upheaval in 1993 the company had just acquired the Dornier 228, Boeing 737-300 and the ATR 42. It appears however that the dawn of the many changes in the political ecosystem in the mid 1990s also marked the end of the company’s heydays such that by the year 2000 news that the company was facing enormous financial difficulty were rampant.
In this article I do not claim to give solutions to the ailing company nevertheless, it is my intention to endeavour to remind those responsible, of some important principles that govern efficiency in the hope that someone, somewhere, sometime will find these useful in their bid to breathe life back into Air Malawi. Perhaps the fact that having a national airline is pivotal for national prestige as well as economic growth cannot be overemphasized. A nation without an airline misses out on important opportunities that could foster development.
Since 2000, it appears that Air Malawi has vainly attempted to partner with South African airways, Zambezi air ways and has only managed to get a less than better deal with Comair. It appears that the attempts taken by relevant authorities to bring back life to Air Malawi have not been that successful, and at present, pundits seem to predict only one possible outcome-air Malawi will extinct! This is not only disturbing to potential customers, is defeating to nationalists, and it is certainly not a plus from the perspective of development in general. What might cause such inefficiency at Air Malawi when other regional airlines such as the SA airlines, Ethiopian airlines, Kenyan airlines etc seem to be thriving well?
As is often the case with any organisation where there is separation between ownership and control issues of ownership are potentially very important. The fact that Air Malawi is owned by the state may imply a number of important issues namely that a) managers at Air Malawi have to be answerable to authorities that are poorly defined compared to what would be the case if Air Malawi was privately owned and shareholders acted as bosses to the managers, b) The company may implicitly have a multiplicity of objectives some of which may be antagonistic, such as profit maximisation and employment, c) Air Malawi can basically not go bust as it enjoys soft budgets from tax-payers money, and d) separation of ownership and control itself implies principal-agency problems where the tax-payer is the principal and the Air Malawi managers are the agent.
Based on ownership structure alone, it should be trivial to make some predictions as follows: Air Malawi managers have little incentive to be efficient because the company cannot go bust, and it is difficult to take them to task not only due to the antagonistic and sometimes fuzzy company objectives, but also because the principal (the tax-payer) really does not have much leverage in matters of performance monitoring among other things. These factors may stifle managerial incentives for innovation leading to mediocre performance.
In a world where markets for managers and corporate control exist, separation of ownership and control of Air Malawi may not necessarily pose much of a problem because it would be common knowledge among managers that poor performance could be read by the market as a sign of X-inefficiency, which could attract bids for hostile company takeovers at the expense of their very jobs. In those cases managers would work harder to be efficient to avoid potential hostile bids for takeover. Nevertheless, it appears that within the spheres where Air Malawi operates there are no active markets for managers and corporate control. No other parties apart from the government or its agents can fire Air Malawi management or take the company over. It may be the case that this factor works together with the ownership issue to increase the likelihood of slack at Air Malawi’s managerial level.
The managerial slack that is generated and perhaps reinforced as a result of the ownership structure and absence of markets issues, leads to dismal strategies across the board. Some of the areas that could be affected as a result are marketing planning, airline scheduling, aircraft and aircraft equipment maintenance, pricing strategies, staffing and research and development. A quick look at the air Malawi website or a quick stop at an Air Malawi tickets office clearly reveals that little consideration has been given to investment in infrastructure that could ease marketing. More often than not, purchasing an air ticket online is next to impossible, buying tickets at air Malawi offices using a credit or debit card is unthinkable while most air Malawi ticket offices have no functioning phone numbers. Marketing in this digital age should involve all possibilities or an efficient combination of strategies and should make good use of the internet, credit cards, debit cards, not just cash!
Of course the infrastructure in mention requires money to acquire, and an argument may be levelled that the company never gets enough money for such ventures to be feasible. However, research has shown that non-state owned companies do tend to have a higher tendency to invest in such important technologies than state owned ones, given the same level of resources.
Anecdotal evidence suggests that while Air Malawi may only have few functional aircraft at times, the company continues to overstaff perhaps to honour the employment objective that is characteristic of state-owned companies. For sure airline business is labour as well as capital intensive, but there should be an allowable threshold below which the business is not doable. Air Malawi’s labour force in these troubling times need not significantly deviate from such a threshold.
The airline needs to embrace innovation by adding programs to attract more customers, gain market share and boost revenues. This is not easy to do and this is why the organisational ownership structure must provide incentives and/or mechanisms to ensure that management works towards this goal. These programs, if not already in place may be, those for earning travel miles, attractive price discrimination where those who travel as a group receive a lower fare, or ask travellers to buy a certain number of tickets and they can get one for free, giving fares that include accommodation in Malawi lodges/hotels etc.
Anyway, the bottom line is that as aviation fuels show no sign of becoming cheaper anytime soon, profitability of Air Malawi possibly depends much on, not only pay and job cuts, but also on managerial innovation and search for new paradigms of marketing that place the customer first. Air Malawi needs to take advantage of this digital age to reduce its long run costs of marketing and operation in general by fully embracing technology at least in the area of advertising and selling. Various programs aimed at attracting customers may need to be introduced, a new positioning strategy should be thought about while it is also pertinent that the company properly defines its target segment. In these infantile stages, it will not pay to fly everywhere.
On the dimension of ownership and control, it appears that the effectiveness of all the recommendations implicit in this article depends so much on the incentives for managers and owners of the company to work towards the goal of profit maximisation. It seems that some form of public private partnership is required. Regulation could be important as well, but as long as regulatory bodies are state structures, the system may still be clogged by the same agency problems. Schemes that would see the government and the people of Malawi and outsiders owning some portion of the company, or participating in management would probably reduce the agency and incentive problems that exist in purely state owned companies. Management should again endeavour to explore the applicability of profit sharing schemes to Air Malawi, and must further critically study at least some of the world’s small but successful budget airlines such as Ryanair, Jet2, flybe and many others. Certainly, the future of Air Malawi is in the hands of all of us, and while it is obvious that we may be centuries behind our competitors within Africa and beyond, with a little bit of critical thinking and a desire to do good it should be possible to revive the airline in less than half a decade.
Feedback to matchayag@yahoo.co.uk
Comments
Post a Comment