The recent decision to walk away from a merger with Air Transat should be seen as an ‘Aha’ moment for investors, much like the Indian Bird experienced when it got the message indirectly from his captor, and was able to free itself (Jailbreak!, see link below).
The leadership of most airlines is locked in captive thinking, a
trance, a mindset in which they are ‘competing to be the best.’ In my January 8
th post, A matter of design, and design within a design (see link below), I compared this mindset with another way of thinking about competition, one that Michael Porter came to realize later in his career, as
the leading ‘guru’ on competitive strategy. Also pointed out is how Air Canada is demonstrating this new way of thinking about competition in its decades long turnaround.
Over time, Porter realized that a strategy of being low cost or differentiated or focused was not good enough to earn sustainable profits. These strategies were are generic. His thinking on competitive positioning evolved since he wrote Competitive Strategy and Competitive Advantage in the 1980s. Today, Porter says the path to a sustainable competitive advantage is to offer a product or service that is both unique and valuable to the consumer. Importantly, he came to understand that a company’s competitive advantage is actually rooted in the value chain, in
how activities are performed. One could say it’s a matter of
both design, and design within a design.
Air Canada’s decision to extract itself from the arrangement, announced last Friday, was likely made earlier this year by the Board of Directors and the out-going
and incoming CEO. In doing so, it is a re-affirmation that, unlike other airlines, Air Canada leadership is continuing on a road less travelled – that is, continuing with a mindset of ‘competing to be unique.’
“Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.”
Much has changed since late 2018 when original discussions for a merger began. I concluded my January 8th post with the following comment:
“Meanwhile, Leaders of airlines who have demonstrated a creative mindset over time will be able to stay ahead of the airplane and sustain high rates of return for their companies and investors, as McKinsey observed, by anticipating and responding to changes in the environment better than competitors.”
Free of captive thinking, one could say Air Canada’s leadership knows ‘how’ to fly. As investors, we should be pleased with Friday’s announcement.