Background and arrival at IATA
A change of heart
This is a book about change, about its challenges and the talents necessary to drive it through. Specifically, it is about changing the world’s most important and event-shaping industry—aviation. Some of these changes will have been noticed by the passenger while others concentrated on back-end industry processes. For every change, flying has become safer, easier and a lot more enjoyable.
It’s as well to start with perhaps the greatest change of all, the one that starts the ball rolling. Although I had never given a categorical “no” when asked if I was interested in the role of Director General and CEO of the International Air Transport Association (IATA), I had not jumped at the chance either. It was 2001 and I was in a good place, literally and figuratively. Besides, I wasn’t convinced I would be given the tools needed to do the IATA job properly, nor was I sure the association was ready to accept a radical change in the way it was run.
IATA was old-school and proud to be so. The bigger, established carriers dominated proceedings. Change was not in IATA’s vocabulary and rather than help shape world and industry events, it seemed paralyzed by them. After 9/11, the best it could offer was a “no unnecessary flights” instruction to its own staff.
But that was also what made it a great challenge, one that would require every skill I had acquired in my career to date. And I love challenges. Leo Mullin, IATA Chairman and CEO of Delta Air Lines, called me again just before Christmas 2001 to insist that the IATA Board would empower me to make the changes required. Jürgen Weber, the Lufthansa CEO and an IATA Board member, echoed the sentiment. “Push,” he said, “and others will follow.”
I was persuaded by these kind words of encouragement. So I changed my mind, went to meet Leo in New York, and accepted the job.
Walking into a collapsing structure
IATA is the industry association for most of the world’s airlines. In plain figures, it represents approximately 240 carriers and 84% of the world’s scheduled air traffic. Some 80 IATA offices around the world help to administer processes integral to the running of the industry—from a $billion-plus per year financial clearing house to an audit on safety practices.
Overall, aviation supports more than 56 million jobs and generates around $2.2 trillion in global revenues. These figures don’t include tourism or other jobs made possible by air travel. Nor do they include domestic trade and tourism. In short, there isn’t a person on the planet that isn’t affected in some way, shape or form by aviation. If you want to visit family living overseas or simply need a vacation to soak up the sun or the peculiarities of a different culture—even if you want strawberries out of season—airlines make it all possible.
Such facts suggest running an airline is a good business to be in. Well, it is a great business to be in—unless you want to make money. Airlines have never come close to returning the cost of capital, averaging less than 1% profit over the last 60 years. Not coincidentally, it was about 60 years ago that the rules of the modern industry were framed. Despite globalization, the jet engine, the Internet, low-cost carriers and a million and one other developments, these antiquated rules are still in place. Airlines may fly like a bird but they are certainly not as free as one. Too many governments have yet to recognize that a national flag on the tail has lost its significance. Having a national airline is a hobby many of them can no longer afford. Meanwhile, the politicians in developed nations view aviation as a convenient cash cow. They are diligent in imposing taxes, negligent in dealing with monopolies. It has led to the most extraordinary value chain where the principal component—the airline—is the only part that doesn’t rejoice in double-digit returns.
When a world-shattering event like 9/11 gets dumped on top of this wobbly framework, it should come as no surprise that the industry was on the verge of collapse by early 2002. The 1990s had been relatively good years, culminating in a 1999 profit of around $8 billion. But that proved to be the peak of airline performance. From 2001–05, the industry lost around $40 billion. Over half of that total disappeared in 2001 and 2002. Stalwarts of the industry such as Swissair, Air Afrique, Ansett, Sabena and TWA were no more. By 2003, with Severe Acute Respiratory Syndrome (SARS), the war in Iraq and a global economic downturn further eroding industry foundations, the top six US airlines were $100 billion in debt with a market capitalization of just $4 billion. A third of Latin America carriers were technically bankrupt.
My time at IATA brought me up against each of these harsh truths and many more besides. But it was also an opportunity, a chance for IATA to blow away the cobwebs and lead the industry toward sustainability. I knew that if air transport was to continue its role as a catalyst for world development, it needed to change—quickly and dramatically.
Leading a revolution
Initially I was cool on the IATA position because I really was very happy in my existing role and location. I was heading up the online travel company OPODO from offices in Covent Garden in London.
OPODO was the first time in my career I had the opportunity to start something from scratch. My task was to make the company the number one online travel agent in Europe. It was a well-backed operation, established by three giants of European aviation: Lufthansa, Air France and British Airways. CEOs Jürgen Weber, Jean-Cyril Spinetta and Rod Eddington—the most visionary European leaders at that time—had invested some $300 million in the project.
Distribution—how and where an airline sells its tickets to the customer—was undergoing a revolution thanks to the Internet and I was delighted to be given the opportunity to develop this new sales channel. I wasn’t a complete novice in the dark art of distribution even if the Internet was then, and remains still, a minefield. In the 1990s, I was the Chairman of Galileo, a Global Distribution System (GDS), which basically allows travel agents to sell airline tickets, and I was the driver of the very successful Galileo/COVIA merger. Successful for the companies concerned that is. Successful from an airline point of view? Not exactly.
Galileo and COVIA were typical examples of the air transport industry developing cutting-edge ideas but lacking sufficient resources to progress them into a real-world business situation. They end up selling these new tools to developers and then scratching around for enough crumbs to pay the exorbitant fees being demanded of them to use the very ideas they created.
Galileo and COVIA mirrored each other, one operating in Europe, one in the United States. For me, with a Harvard business background and a fresh point of view, it made no sense to exist in parallel dimensions. A merger was frowned upon initially, especially as COVIA looked to be the dominant partner. My good friend, Otto Loepfe, then CEO of Swissair, was quite upset that an Italian was pushing for the tie-up. “Why would you want to kill a company that bears the name of such a famous countryman?” he asked. Fortunately, there was an easy solution that prevented me from supposedly betraying my country. We kept the Galileo name but moved its operations into the COVIA structure so the company accrued maximum benefit from the merger.
I had moved on to OPODO by the time 9/11 hit. We watched speechless in our offices as the second plane hit the South Tower. I knew this event was industry-changing, world-changing even, but I had no idea that it would also alter the course of my career. In the immediate aftermath of the tragedy we moved rapidly to reconfigure OPODO, although I insisted on staying true to the planned November launch. We laid off some staff and reduced costs but the project remained a priority for the airline owners.
Around this time I met up with Jeff Katz, founder of Orbitz, the precursor of OPODO in the United States. He gave me some good advice and it only cost me a couple of dinners. I’ll say more about the value of personal relationships in business but for now let’s just say that two expensive meals can sometimes work out to be a cheap deal. In contrast, management consultants McKinsey, hired by the shareholders to build a business plan, put in a rather more flamboyant multi-million dollar bill. I didn’t even get dinner out of it.
McKinsey’s final report did make some interesting points in its marketing analysis though. OPODO should not use the logos of the airline founders in their home markets as the brands were associated with high cost there. The suggestion was to use only the IATA logo, since OPODO was an accredited agent and consumers equated IATA with reliability—even if it was somewhat dusty and outdated and very few knew what the association actually represented. It was a bit embarrassing explaining this to the airline shareholders who were so used to promoting their brands. I knew I was asking the airlines to make a big concession. But I agreed with McKinsey and successfully fought our corner.
Because OPODO was a trailblazing project, I had to face intense media scrutiny. Richard Quest of CNN, previously with the BBC, was the first one to put me on the spot. Just a week before launch he faced me squarely, live on CNN Prime Time, and told me that OPODO would never get approval from the Competition Commission. It was airlines colluding with OPODO, he said, and giving away preferential fares to the Internet company they owned. Something simple to start the media campaign then! I was delighted to fend off Richard fairly and squarely—OPODO was competing on a level playing field and had the best fares because we had the best website and the most efficient distribution model. I was even able to show that airlines other than the three owners were giving us their best fares. They saw OPODO as a very innovative and effective portal and this was driving the business. The story died a death and shortly after I met Mario Monti, the European Commission’s Vice President in Brussels, who was happy to give OPODO competition clearance.
OPODO launched on time and within a couple of months it had grown to be the most visited travel site in both the United Kingdom and Germany. I felt like we had reached the summit of a mountain. In reality, although I didn’t know it, I was already standing at the bottom of another one.
In November 2001, as we were launching OPODO in the German market, I got a call out of the blue to go to New York and meet with Leo Mullin. I didn’t know Leo personally but knew he was CEO of Delta Air Lines so automatically assumed he wanted to talk about a possible tie-up with Orbitz, Delta being a stakeholder in the US company. The idea had already been mooted with Jeff Katz but it was on the back-burner until OPODO matured.
Aviation recruitment specialist Michael Bell, of Spencer Stuart, soon put me straight. The meeting was about IATA. As a former CEO of Alitalia and an IATA Board member I was well-versed in the lore of the association. Pierre Jeanniot, then IATA Director General, was an old acquaintance and I had attended the 2000 IATA AGM in Madrid at his invitation. But I couldn’t imagine why they would want to headhunt me. I’m not a neutral man, a fence-sitter. In my business experience, I was always fighting for or against something. IATA by contrast had found the fence very comfortable. Michael revealed that the search for Pierre’s successor had been going on for a while but had stepped up a gear after 9/11. It had become the Board’s urgent priority.
I accepted the invitation to meet Leo mainly out of curiosity. We met in Spencer Stuart’s Park Avenue offices and immediately built up a good rapport. Leo was stressing urgency in the new DG appointment as a proposal had to be presented to the IATA Board the following month.
We reviewed my work experience, not just as head of OPODO but also my time leading Alitalia and my international experience with Italian conglomerate IRI—one of the largest corporations in the world with 500,000 employees and $50 billion in revenues. As Head of the International Division, I was personally responsible for a significant percentage of that. My IRI role brought me into contact with different cultures and government decision-makers, including many Presidents and Prime Ministers. This obviously struck a chord with Leo who understood that high-level political support and negotiation experience was essential if IATA’s traditional approach was to change.
Taking Leo through my personal history it was becoming increasingly obvious that my background did indeed match IATA’s needs. But I was a long way from being convinced that the job was right for me. At the 2000 AGM I was struck by how little IATA had changed since my Board member days during the early 1990s. Ten years and a huge change in market dynamics, including 9/11, had failed to budge IATA from its comfortable perch. I couldn’t imagine having to oversee another ten years of solid indifference while the world wobbled in geopolitical and economic turbulence.
Advice doesn’t come any better than from Jack Welch, my mentor, business hero and, I am happy to say, a personal friend. I’ve known the legendary businessman since the 1980s and we often spend time together socially with our wives. I recall in particular a wonderful week in Palm Beach when Jack introduced my wife and me to golf. Traditionally, we spent a week in Capri and followed this by watching the French Open tennis at Roland Garros, Paris.
I told Jack about my meeting with Leo and, since we were both in New York, we arranged to have lunch at a trendy, well-known restaurant. Talking with Jack wasn’t easy. It’s not that he isn’t a great conversationalist but he had just released his latest book, Straight from the Gut, and was signing autographs like a rock star. We had to slot in our conversation between adoring visits from business groupies. I told Jack about my impression of IATA—a dusty cave, dark and full of creatures afraid of the light of day. Jack shrugged and said without hesitation to jump on board. The situation was critical and in his opinion that made it a great time to join.
More meetings followed. First, Xavier de Irala, head of Iberia, in Madrid and then Isao Kaneko, CEO of Japan Airlines, in London. Kaneko was very persuasive about the need for change. Although I didn’t know it at the time, he was about to get very busy with the merger with Japan Air Systems. Unfortunately, Kaneko hit a very real problem with consolidation, which is how to keep pilots happy. The issue is seniority and pay levels, underlined by some very strong unions. But more often than not, pilots will claim any disagreement is about safety. It is rarely the truth. The Japanese Minister responsible listened to the unions, however, and although Kaneko was able to chair the IATA AGM in Tokyo in 2005, he left JAL the day after the AGM finished.
Both Irala and Kaneko were members of the IATA Board of Governors and both insisted that the Board was pushing for real and tangible change. It was Leo Mullin and Jürgen Weber who finally persuaded me to join IATA, although to be honest the real decision-maker was my wife Elena. She wasn’t keen at first, wary of what she thought would be constant trips between IATA’s main offices in Geneva and Montreal. We also worried that I wouldn’t have much time to spend with our daughter, Claudia, who lives and works in Rome. But both Elena and Claudia eventually saw the challenge as too big to refuse. It was a good job Elena didn’t know I would be away for 20 days a month otherwise we would never have got past the first phone call. In return for her support, I promised her that I would stop working at 65 and we would return to live in London. As a gesture of intent we bought an apartment a couple of blocks away from where we were living during my OPODO days.
Decision made, I asked Leo exactly what he wanted from me. “IATA is a reliable association,” he said, “but it is no longer relevant to the industry.”
The word relevant started to buzz in my mind. Understanding what that meant in the context of IATA wasn’t easy. IATA is an association, not a straightforward commercial business. It started life in 1945 when just about every airline was state-owned. IATA doesn’t have competitors in the typical sense, it isn’t listed on the stock market and it is a Canadian not-for-profit corporation.
This was my first clue. Somehow, IATA had come to translate its brief as a “not-for-making-money” organization, a “not-for-change” organization or a “not-to-be-run-like-a-business” organization. But if we were to serve our members properly we needed to be efficient, anticipate their requirements and realize enough money from commercial operations to assist any members in need. Most of all, we needed to provide leadership by building a consensus among all our members and not just a happy few. I knew that IATA was a big boys club, ruled by the major airlines. I also knew that suggesting consensus—seeking the support and understanding the needs of smaller carriers from emerging regions—would raise a few eyebrows.
But 9/11 had changed the rules of the game. The industry was collapsing and airlines were going out of business left, right and centre. Through IATA I had a once-in-a-lifetime opportunity to reshape the industry.
Assessing the situation
Any leader has to make an honest assessment of the challenges ahead and the ones being left behind. I found leaving OPODO very difficult. It was my baby, a start-up company that introduced an innovative distribution model to the industry. After months of 12-hour-plus days we were beginning to enjoy a lot of deserved success. I was baling out just as the good times were beginning to roll.
And yes, the challenge at IATA was immense and very tempting but the crisis was unprecedented and the major airlines held all the cards. What was good for the big guys was good for the industry, or so they thought.
On top of this, IATA was in an acute financial situation. There was a couple of months’ worth of cash, no assets and there was a $30-million mortgage on our headquarters. Most of IATA’s money came from members’ dues and fees for service. Agreeing the funding for a new project was a long and painful process because it inevitably meant asking members for more cash. That lost the association its flexibility. New projects were old and obsolete by the time they got approval, let alone delivered.
My friend and former IATA DG, Pierre Jeanniot, had done well to bring the industry settlement systems—the back-end process that ensured airlines got their money from travel agents and other stakeholders—into the IATA fold in the 1990s. That was no easy task. But apart from that, there was not even a whisper of change. Would I really get Board support for a revolution?
Maybe. More of a certainty was that getting any kind of support from the majority of the IATA management team would be a pipedream. Many of them had ended up at the association having failed to gain a promotion at an airline. IATA was the pre-retirement destination of choice, a sort of winding down halfway house between business and leisure. Others had a government background, which gave them the same sense of urgency as a United Nations study group. They wouldn’t cut it in the real world of competitive business.
To my knowledge, nobody at IATA had ever been fired. And the most ferocious yearly target was “how many meetings have you had with a member airline in the last 12 months?” This was a clear indication of the malaise in IATA management. I bet whomever looked after Air Seychelles was a star performer.
In short, IATA knew little about getting results as measured by exacting business targets. It was an institution doing what it had always done.
The right man
Understanding the challenges is only one part of the equation. Another is understanding yourself. What would I bring to the job? Looking back over my life and career, it was apparent that managing change had been a constant factor.
My schooling began in Milan in the 1950s but the family soon moved to Buenos Aires as my father had become CEO of Pirelli Argentina. We stayed there for nine important, formative years. I have retained a great love of the Spanish language and Latin American culture, and clearly my time there invested me with a spirit of multiculturalism. Returning to Italy I graduated from La Sapienza, the University of Rome, and became Assistant Professor at the Economics and Commerce School there. The sudden death of my father in 1970 prompted me to move on, this time to New York where I got a job with the First National City Bank. Coincidentally, the office was on Park Avenue, a couple of blocks away from where I met Leo, and every day I walked past the then famous Pan Am building. Pan Am is no more and their headquarters is now called the MetLife building, which provides a quick snapshot of how well airlines have fared over the years.
Moving to the United States was not just about experiencing another culture. I also added some important skills. I was working with the bank’s International Division and was part of a small team that invented and launched the first Eurodollar loans, which focus on US deposits in foreign banks. I got used to handling large sums of money and a different way of working. The American and European work environments were poles apart at the time. The US experience taught me to handle pressure, respond to tough targets and deliver with speed.
I moved on to study at Harvard Business School with Professor Roland Christensen. My work there gave me a great foundation in understanding how to change a business. The book my research project was based on, Arthur Chandler’s Strategy and Structure, became a business bible for me and I’ve often referred back to it throughout my career.
After finishing at Harvard, I went back to Italy and in 1976 started work for ENI, a major oil company. I was the Chief of Staff for the CEO, Pietro Sette. Previously, Sette had been the lawyer and advisor for the founder of ENI, Enrico Mattei. As such, Sette was instrumental in devising the famous 50/50 profit sharing deal with Middle East oil producers. It was a deal that revolutionized the oil business. Tragically, Enrico Mattei was killed when the company aircraft crashed in mysterious circumstances; most probably because of a bomb. Sette eventually became CEO of ENI and I became his closest aid.
I had a significant role in top-level meetings and discussions, particularly in Africa, the Middle East and the Far East, because Sette didn’t speak English particularly well. Every meeting was planned thoroughly. Our policy was to first build up a personal relationship so we knew exactly who we were talking to, their likes and dislikes. The business proposition was only mentioned once a level of trust and communication had been established. Sette was a sophisticated negotiator and a great mentor. He understood that even in business, having the right arguments was only half the battle. You also have to elicit the right feelings. You must be somebody with whom your counterpart wants to do business—not just somebody with whom they should do business.
We operated at the highest level. For example, I had the dubious pleasure of meeting Colonel Gadaffi when ENI was drilling in international waters between Tunisia and Libya. He was arrogant and unpleasant and there was a very tense atmosphere because he wanted to unilaterally extend Libyan waters to gain control of an important oil platform. I remember this well because I met him again when I became IATA Director General and he was a completely different man, very softly spoken and genuinely interested in the discussion. Gaddafi believed a new Libyan airline would be a useful tool to help his country extend its influence abroad. He needed IATA support in building the right infrastructure. Afriqiyah Airways was born and stepped into the gap left by Air Afrique and the French airline, UTA. The only awkward point came when Gaddafi asked me what I liked most about Libya. I said I had only had the opportunity to stay for a night at a time so couldn’t really comment. When he pressed, I mentioned that I really liked the dates that were available from the local markets. On my way to the airport, complete with police escort, the driver suddenly stopped at the local market. Clearly the intention was to buy some dates for me but the noise and confusion caused by the police suddenly stopping scared off the stallholders and I had to leave the country empty handed. A week or so later, I received a big box of fresh dates complete with a very polite note from Gaddafi.
I was also involved in negotiations with an Algerian company, Sonatrach, that set up the first trans-Mediterranean gas pipe from Algeria to Northern Italy. Their Chairman, Sid Ahmed Ghozali, later became President of his country and I enjoyed a good relationship with him for many years. We used to go jogging together at 6am when he was in Rome, enjoying the peace and quiet of the Villa Borghese park but tracked all the way by a very conspicuous police force.
After a few years at ENI, I made another change. Sette had moved to IRI, a holding company for some 500 firms and $50 billion in revenues. It included many famous Italian brands under its umbrella, such as Alfa Romeo, Aeritalia, Alitalia and most of the Italian banks. The company was set up by Mussolini after the 1929 Wall Street crisis to bolster Italian industry and it also played a leading role in rebuilding Italy after the Second World War. I followed my boss, initially in the same Chief of Staff position. I later became Senior Vice President of International Affairs, responsible for IRI’s international strategy and around $10 billion in revenues. The role gave me the opportunity to further my contacts at the highest level.
In India, after I had negotiated the sale of petrochemical refineries and power generation plants, Sette and I explained the benefits of the deal to Indira Gandhi. We had tea together on many occasions in the most beautiful gardens imaginable, part of her official residence in New Delhi. It was in these gardens that she was later assassinated by two of her bodyguards, who shot her 31 times. She was a strong lady and talked passionately about India and its role in the world. Her two sons were on very different paths at that time. The younger son, Sanjay, had been the chosen heir but died in a flying accident in 1980. The elder son, Rajiv, was a pilot at Air India but was persuaded by his mother to be her political successor. Rajiv was a kind, friendly man, and it amazed me he could be so personable and yet slip seamlessly into the role of leader of the largest democracy in the world. I carried on meeting with him even after he became Prime Minister and established a good personal relationship. Rajiv loved Alfa Romeo cars. He knew all the latest developments, the nuances of each model. Fortunately, I did my homework and we always had a lively exchange on the car manufacturer’s future as well as aviation issues.
While at IRI, I also got to meet someone who has since become a close friend. Singapore’s Prime Minister Lee Kuan Yew became involved with IRI when we were trying to find a good location to expand SGS Microelectronica into the semiconductor wafer fabrication process. Meeting him was a truly enriching experience. He had an unbelievable vision for Singapore even though seemingly insurmountable obstacles lay ahead. He proved that a clear strategy and determined leadership can see you through any challenge. Even now, over 80 years old, he still looks to the future. His vision and leadership have always been an inspiration to me and what he has achieved should always be held up as an example for aviation to follow.
In 2003, after I had become the IATA DG, I went to see him in Singapore and presented him with an old map of Singapore Changi Airport. He had been personally involved in Changi’s development and the map depicted a design he had approved. I asked him whether the airport or the airline—in which he had also played a crucial role—was more important to Singapore. He plumped for the airport but resisted dwelling on the past and instead started talking about what to do about low-cost carriers, a particular problem at the time.
While I was at IRI during the 1980s, betting on China’s development seemed a reasonable wager. Plenty of the top management at IRI favoured Russia but my instinct for change told me it was going to happen fastest in this most traditional of societies. We were trying to sell China a factory for the production of seamless steel pipes for the gas industry. Together with Romano Prodi, Pietro Sette’s successor as CEO, I met with Prime Minister Li Peng several times, in Rome and in Beijing. It took about three years— China wasn’t yet developing at the speed for which it is currently famous— but eventually we secured a $3-billion deal. That contract was about team work. Prodi kept in contact with the Prime Minister while I worked with the Mayor of Tianjin, Li Ruihuan, on details. Li Ruihuan was on his way to becoming a very influential figure in Chinese politics and persuading them both pushed the contract through. We built a plant in Tianjin, in the Northeast of the country. In those days driving from Beijing to Tianjin was a difficult, tiring journey taking several hours. But as evidence we made the right decision in investing in China, the journey can now be made in around 30 minutes on the Jingjintang Highway. Relations with the Chinese leadership remained strong throughout my time with IRI and I developed further deals in other sectors, such as telecoms.
I think the main reason I developed so many good relationships with world leaders while I was at IRI—apart from thorough homework—was that I never bored them with politics. Thankfully, that meant they never bored me with politics either. We simply talked about business cooperation and I think that was a great relief for them. It certainly was for me.
What all this really taught me was that there is always common ground. Prepare well, find that common ground and build up the relationship. And once that link is formed, work hard to maintain it, no matter how the business deal develops. Personal contacts are the lifeblood of business.
My good work at IRI got me my first CEO-level job at Alitalia in 1989. I was instantly grateful for the negotiation skills I had acquired because the airline was on the verge of imploding. It was plagued with strikes, there were constant confrontations both internal and external, and the route structure ensured profitability was a distant prospect.
Alitalia had 86% of the Italian market at the time and controlled all the airports with the exception of Malpensa in Milan, which was owned by the City. My appointment got strong support from the shareholders and trade unions. I had a mandate to change everything. This was just as well because everything needed changing.
I began by studying the balance sheet and meeting with all the management. Renegotiating the union contracts was a must. I managed to win the unions over by ceding some salary increases but gaining an awful lot more in efficiency. It was a win−win deal because it boosted morale as well as services and we were soon in a positive recovery phase. That helped convince my shareholder, IRI, to make a massive investment in the airline and we ordered 40 Airbus A320s with CFM engines. We also got ten MD11s with GE engines and this boost to capacity further increased the upward swing of the company.
But then, having been promised the money for these purchases by my shareholders, I was told that no further capital was available. Alitalia had made a massive investment and we had to take the hit directly on our balance sheet.
New beginnings in Latin America
My time as CEO of Alitalia was very exciting. There was always a deal in the offing, a challenge to overcome. I never had a quiet day at the office. At one point, the opportunity to become involved in the privatization process of Aerolíneas Argentinas presented itself. Having spent a large part of my early years in Argentina, I have always been interested in the airline. I flew on the airline many times as a young passenger, travelling between Italy and Argentina with my parents.
So I was immediately drawn to the project. To help structure any deal, Alitalia became involved with Citibank (the new name for my former employers, the First National City Bank) and in particular with John Reed, the legendary CEO who had led the bank through a major reorganization and who later became Chairman of the New York City Stock Exchange. John was interested in the deal as he had also been raised in Argentina for a time and aviation was a sector that always captured his attention.
Alitalia was one of the leading European airlines and I felt I was in a good position at the negotiations. I knew the country well and spoke the language. I also knew the President, Carlos Menem. Years earlier, when I was working with IRI, I had invited him to lunch in Rome. At the time, he was Governor of La Rioja, a northern province in Argentina, and clearly had a bright future in front of him. His parents were from modern-day Syria but he had embraced the culture of the day and sported long hair and bushy sideburns. My Chairman, Romano Prodi, was shocked by Menem’s appearance and even more shocked when I told him afterwards that he was someone to watch, a potential future President of Argentina.
I maintained good relations with Carlos Menem and in 1989 I was not at all surprised that he made my prediction come true, campaigning as a real maverick and defeating Raul Alfonsin to become President of Argentina.
Despite this personal touch, the meetings on the Aerolíneas Argentinas deal didn’t go as planned. I was explaining that we had to build for the future and not just organize a rescue package for the current troubles that the airline was experiencing. But it was hard to make headway, mainly because the Argentinean government was insisting that it kept a significant portion of the shares in national hands. We couldn’t see any value in the deal under those circumstances and I told my colleagues that I would try to find the right moment to explain to President Menem that we would withdraw from the deal.
I wasn’t looking forward to doing that. The President believed we would find a solution and had expressed his appreciation that Alitalia and Citibank would soon be driving the Argentinean airline forward.
When you have to deliver bad news, it is best to do it face-to-face. But prepare well, including getting the timing and location of the meeting correct. It was now 1990 and the soccer World Cup was about to start. The opening match was between Argentina, the holders of the trophy, and Cameroon. The match was taking place in Milan and President Menem was in the country. I suggested a meeting in Milan as I knew he would go the game and it was better if we met away from his office. President Menem accepted my proposal and invited me to a private dinner after the match. Though my colleagues were pleased, I was concerned. I thought it best to meet for breakfast before the match. It proved to be a good decision because there was a major shock and Argentina lost to Cameroon. Having to tell President Menem that the deal was off after his team had lost a soccer match (a very serious business in Argentina) would surely have made the meeting more difficult.
At the breakfast meeting in his suite at the Principe di Savoia hotel, President Menem was in a good mood. He had had a very pleasant time the day before visiting the Ferrari headquarters. He told me that he really wanted Alitalia to win the bid for the privatization process but that other airlines were also interested. I knew this and told him that as a “porteño” (raised in Buenos Aires), I felt obliged to point him in the right direction. I knew American Airlines and SAS would not go through with the deal and said that Alitalia would regretfully also have to step out of the negotiations. Iberia was now the only possible option.
I knew the deal had no economic value because we had been exploring the options for months but, with the support of the Spanish government, Iberia went ahead and bought Aerolíneas Argentinas. Unfortunately, the CEO, Narciso Andreu—a friend of mine since my New York days—only lasted six months after the completion of the deal and the airline went back into deep red.
A very special passenger
My role as CEO also brought me into regular contact with Pope John Paul II. Although a Catholic, I don’t always attend church. But the Pope was an inspiring man. Of course, his background was in heavy industry in Poland but whenever he took an Alitalia flight he never failed to have a short conversation with the Direttore before boarding the plane. He called me Direttore because a head of a company in a communist regime always has this title, and his roots in a Poland dominated by the old USSR were never far from the surface.
Planes were specially prepared for him. If it was a transatlantic flight the upper deck of a Boeing 747 would have a bed fitted. On European flights, the first five rows were cleared for the Pope and his close assistants. A section behind was reserved for Cardinals and other officials while the back of the plane held the journalists.
I often travelled with him on an Alitalia flight. On a journey from Rome to Malta I was telling the Pope about the troubles facing the airline industry and the important role Alitalia played in stimulating the national and global economy. “We are trying everything to turn the company around,” I continued, “but a special blessing for the industry from the Pope would be very much appreciated at this difficult time.” After a couple of weeks his personal Assistant, Monsignor Stanislaw, gave me the great news that he had decided to accept the request. We organized a big event at the Alitalia hangar at Rome’s Fiumicino Airport and invited all the previous CEOs and Chairmen of all the airlines that had flown the Pope, together with any crew. Some 70 airlines were represented. The Mass and the industry Blessing were arranged for 10 December, a feast day for one of the saints that watches over aviation and by chance my birthday. It was a touching ceremony and we all felt a lot more optimistic as a result of the blessing.
The Pope always travelled with Alitalia flying out of Italy and usually returned with the national carrier of the country he was visiting. Alitalia assisted the other carriers by detailing the Pope’s requirements. There was a degree of economic sense to the Pope’s travel arrangements from Alitalia’s point of view. Although the Pope travelled free of charge in a specially-arranged first class, the Vatican staff and journalists paid a discounted fare. Once you added up all the costs, we could just about break even.
One day, the Vatican informed Alitalia that another airline had offered to fly the Pope and all passengers free of charge. Fortunately, it was an issue easily resolved. I got Alitalia PR to mock up a TV ad, which we told Vatican staff would make up for losing the Pope’s business. We had some footage of the Pope praising Alitalia, which was used internally for our staff. But we made this into a commercial and added the tagline: “Just ask a frequent flyer”. The Vatican staff were surprised at first but then burst out laughing. They knew I would never have used this ad in public. We shook hands and were later honoured to learn Alitalia would continue to be the Vatican State flag carrier.
A future saint in my office
John Paul II was beatified in 2011. He is not the only one who has earned the title “Blessed” that I had to deal with during my Alitalia days. It is one of the great perks of a CEO job that you get to meet people you would never have expected to meet.
One morning, I had arrived at the office early to prepare for a budget meeting when a phone call came though from the Italian Prime Minister, Giulio Andreotti. I think he was calling from a car phone, which in those days weren’t very clear, because I could hardly hear him. I gathered he was talking about an afternoon meeting with a “Ms Teresa” and so I shouted my acceptance. I didn’t think much of it and passed the morning in the budget meeting. At some point in the afternoon I noticed my PA being called to reception to welcome some guests. I was expecting a business woman but instead Mother Teresa walks into my office with her young assistant. She was about 80 years old at the time but she didn’t lack energy. And she was very direct with it, almost intimidating. I was busy welcoming her and paying my respects when she stopped me with a very firm gesture. “I need two worldwide passes from Alitalia,” she said. “One for me, one for my assistant.”
I was stunned but managed to reply that airlines usually only extend these passes to CEOs of other airlines, a courtesy and a tradition in the industry. The look in her eyes told me that was not what she wanted to hear so I quickly added that while I couldn’t offer worldwide passes I could perhaps solve her problem by providing tickets any time she was flying to an Alitalia destination. She accepted this and used our services to India on a regular basis. She sent me a kind card of appreciation and I thought that was the end of the matter.
Several months later, I was interrupted during a Board meeting by my PA. This very rarely happens and I was annoyed at first. But then I discovered why the intrusion was necessary. Mother Teresa was downstairs and demanding to see me. I apologized to the Board and asked for a ten-minute recess. In the lobby, Mother Teresa was surrounded by employees paying their respects but she marched over to me as soon as I appeared. She then instructed me—it was that firm, she didn’t really ask—that all wasted food on Alitalia flights to India be given to the Missionaries of Charity. I happily agreed and said that as the Chairman of the Association of European Airlines (AEA) for 1991 I would ask all my colleagues to join me in this initiative.
She left pleased but unfortunately we were prevented from complying with her wishes as the Indian authorities couldn’t allow it due to the local health regulations.
Early on at Alitalia, I also got some free fashion lessons from one of the world’s great designers, Giorgio Armani. He had won a competition to design our new uniforms and advise on the cabin interiors of new aircraft. I was not very happy with his first efforts, however. All I saw was grey. There was barely a hint of the red, white and green that I was expecting as head of the national carrier of Italy. I wanted customers to recognize our crew at an airport. But then I looked again, closely. Only one word immediately came to mind: elegance. Grey wasn’t the fashion at the time but it soon took hold. Giorgio was absolutely right in his instinct that a top-class uniform was more important than flashing some company colours. Seeing the crew walking together through the airport wearing the new uniforms blended elegance and Alitalia in the customer’s mind—a real boost to the brand. To underline the point, about 24 months later my CFO came to me with a sizeable bill for some new coats. I couldn’t believe it. Why were we having to spend out again so soon? “The female crew really love the coats,” I was told. “They’re being worn when they go out socially.” I was happy to sign the check knowing that. You can’t beat that sort of publicity.
It was hard won though. My friend and very competent Director General, Ferruccio Pavolini, told me at the end of the process, “Giovanni, this job involving a famous designer, our cabin crew, and the CFO has been harder than opening a new route!”
We also had grey carpets on the new MD11 planes. It was a series of different tones, starting with a very light grey near the forward doors. The trouble was this got dirty very quickly. “No problem,” I said. “Just alter the sequence of the tones so we start with a darker grey.” When Giorgio found out he was not at all pleased. Unwittingly, I had changed a very carefully crafted design.
The new aircraft were a success despite my fashion faux pas. At the time, aircraft were available at favorable rates and Alitalia became a launch customer for the Airbus A320 and MD-11 in Europe. This allowed us to improve our route network and we began nonstop services from Rome to Buenos Aires, Miami and Los Angeles. In the meantime, we restructured the management. It was painful but we did it fast—like taking a band-aid off.
As mentioned, we were already having trouble because IRI had refused to invest the requisite capital for the new planes. We then got hit by the 1990 Iraq invasion of Kuwait. We were heavily exposed in the Middle East and were among the few airlines without any government assistance to rely on. Legislation meant we couldn’t reduce the workforce or the network. Every morning the management team met in my office at 10am and it’s fair to say I’ve been at livelier funerals. We did manage to reduce costs to a degree but it was really just a drop in the ocean. The tipping point came when we flew two people from New York to Rome and one of them was the Director General of the Italian Treasury. He had no choice about when to fly or on which airline.
I worked out we had four months’ worth of cash in the bank. If the war hadn’t ended by then we would go bust. It was that stark. But if the war did end in time, we needed to hit the ground running. So that’s where I focused my attention. Apart from keeping down costs, I couldn’t do anything while the war was going on, so it was best to direct my energies positively and look at what we could do once it ended. Starting immediately, I told the team I would run the airline on a day-to-day basis with a small team. Everybody else was instructed to work on the “day after” plan.
Initially the strategy didn’t get a warm welcome. “Giovanni is crazy, we should be working hard on day-to-day operations to limit the damage as much as possible” was the gist. The mood wasn’t helped by the fact that the “day after” management were told to work outside headquarters. Still, after a couple of weeks, they submitted their proposals. These, of course, necessitated some investment on the airline’s part. I’m sure they all expected me to say we couldn’t afford it. We couldn’t afford it—but I doubled the amounts they were asking for anyway. The ideas were good and deserved my full backing. We quickly identified teams for each Middle East country and it would be their job to get that market back up to speed in an instant. Significant market share gains were at stake as we also looked at potential new destinations. The mood brightened considerably and ideas began to flow.
Fortunately, the war ended soon after and Alitalia doubled its Middle East market share, with high yields replenishing our coffers in record time to boot. Our competitors had cut back massively and it took them time to scale-up their operations. Even Lufthansa was struggling near bankruptcy at the time and this was when Jürgen Weber was called in to save the ship.
Alitalia was regaining its strength rapidly. We took over Hungarian carrier Malev to operate as a low-cost alternative on new intercontinental routes. I was also becoming active in the Association of European Airlines, particularly in regard to deregulation debates. This would enable airlines to choose their European routes on a commercial basis rather than be dictated to by nonsense government rules. Basically, northern airlines, lead by Colin Marshall at British Airways, were keen for a quick process while Southern European airlines were more reserved. The stand-off was at its height when I was elected Chairman of the AEA. I worked with the European Commissioner, Karel van Miert, on a staged approach that soothed furrowed Southern European brows and mollified Northern European expectations by providing clear targets and a clear timeframe. I had managed to build a consensus among airlines in a transparent manner, gaining the full support of the European Commission in the process. I told our members: “Today, airlines are politically strong and together we can influence our governments on the best solutions for the industry. If we wait, governments will decide for us and we cannot accept pre-cooked decisions.” A couple of decades later and we have indeed been mismanaged by governments. Pre-cooked decisions have been as commonplace as pre-cooked meals in a supermarket.
With Alitalia performing well and my stint as head of the AEA showing progress, I started to do some keynote speeches at industry conferences, presenting a powerful image of the new-look Alitalia. Other airlines were keen to rub shoulders. KLM invited me to Amsterdam to evaluate areas of cooperation. In between presentations, two slides got stuck in the projector. The screen showed Alitalia’s network superimposed over the KLM network. Jan de Soet, CEO of KLM, and I held our breath for a moment. There was very little overlap; the networks were complementary. With Power Points on personal computers I suppose such serendipity is a thing of the past. Anyway, we didn’t make a song and dance of it but I began working with Jan and his successor, Peter Bouw, to see if we could join our operations. Soon enough, I informed the Alitalia Board of our intentions and the two airlines began a study in earnest, identifying the opportunities ahead.
After a few months of intensive work, I received a phone call from Carlo Bernini, my Minister of Transport and by far the most effective I worked with during my Alitalia days. He told me that the Minister of Transport for Sweden had called him suggesting that Alitalia should join SAS, Swissair and Austrian. The three carriers had been trying to build marketing mass through the European Quality Alliance. This gave rise to talks of a full merger, known as the Alcazar Project. But I explained to my Minister that the Alcazar Project would never get off the ground with so many different interests involved. Alitalia refused the Swedish Minister’s offer but KLM accepted to join the talks, ending the discussion with Alitalia. Not long after Alcazar collapsed because, as anticipated, the airlines couldn’t agree on a common strategy. Nor could they agree on a US partner, which they felt was necessary to get true economies of scale. Unfortunately, this led to the resignation of the SAS CEO, Jan Carlzon. He was a real visionary and had a very positive influence on the industry. Jan’s emphasis on the passenger was exactly right but the market just wasn’t ready for his progressive ideas. And believe me, thinking about the passenger was progressive at this point in time. Airlines had so much else on their plate to worry about.
There was great potential in airline cooperation, however, and, following KLM’s withdrawal, I turned to Bernard Attali, CEO of Air France. Several meetings took place and we often spent weekends together working through a potential deal. The Saratoga Plan, as it was called, was hot enough to get plenty of unexpected media attention, which held back negotiations. In the end, Bernard left Air France before the deal could be done and I left Alitalia soon after that. I was touting a new business plan, which made a fresh confrontation with the unions inevitable. The Board understood and supported the strategy. It was the only way to ensure our competitiveness. But an Italian general election was looming and a union wrangle wasn’t exactly the sexy, vote-winning strategy the politicians had in mind. My enthusiasm fizzled out with this political sidestep. I told IRI that my plan was the only way forward and so had no choice but to resign. The entire Alitalia Board left with me in support.
Call of the seas
I was still an IRI employee and the powers that be decided I was needed at Tirrenia di Navigazione, a large shipping company. Again, I had been awarded a job where change was paramount. Tirrenia mainly operated ferries between Italy and islands in the Mediterranean. It served over 20 million passengers every year but its fleet of ships was very old. So I put forward a business plan to the Board that focused on revolutionary, faster ships.
We began by fitting some new jet aircraft GE engines to improve the speed of our ferries. The connection time to Sardinia from the Italian mainland was reduced from an overnight crossing to just three hours. It meant we needed only 30 crew rather than 100 and we could run five times a day. The move was well received—by passengers and unions alike. It was understood this was the only acceptable way forward and saved a company that had a history dating back to the 19th century. I asked a union leader why a massive restructuring, like the one at Tirrenia, could happen with little, if any, industrial action, while a similar situation at an airline would always result in disruption, whether in Europe, the United States or Japan.
He had a simple answer. “Pilots and flight crew stay in high-class hotels, and have a lot of free time in which to discuss salary and working conditions with colleagues from other parts of the world,” he said. “They don’t have a direct relationship with the company, just communicating by faxes to confirm a flight plan. It’s a disconnected life. In a shipping company, the Captain and crew consider the ship their second family. They sometimes live aboard for months and they become very connected with the vessel and the company.”
I’ve often mentioned this conversation to airline CEOs because a pilot’s attitude is common throughout the world, from Japan to Latin America. It continues to be a key issue. The airline relationship with its pilots must be improved.
In the 1990s, the desire for privatization took hold. We weren’t even immune from this irresistible force at IRI. Although Tirrenia was a long way down the privatization list, I knew I wasn’t the type of person who could sit around waiting for an industrial empire to be dismantled. So I accepted an offer from GE and Group Serra to form SM Logistics, which was essentially a merger between two older, well-respected entities, Merzario and Serra. These two companies had operated in the shipping, trucking and freight forwarding sectors since the turn of the century and covered a vast geographic area. It had to be completed quickly to ensure the benefits were realized. This was done but it was a difficult task because the companies had decades of history as fierce rivals.
Call of the skies
I was living between Milan and Genoa while trying to achieve this convoluted merger. I was still keeping close ties with the airline industry and some old colleagues, particularly Jürgen Weber at Lufthansa. He had managed to turn around an airline on the verge of collapse. And Lufthansa has gone from strength to strength.
During a long weekend in the United States, Jürgen and the then Air France CEO, Jean-Cyril Spinetta, mentioned that they were teaming up with British Airways to take advantage of new opportunities in distribution via the Internet. They felt I could make a contribution to the project. I was intrigued and we talked about the idea endlessly, lost in the relaxing atmosphere of the Wyoming mountains that had graced many a Western film. Another challenge was looming, another big gamble.
Starting a fresh project in a completely new arena, which the Internet was at the time, held plenty of appeal. My previous roles had all been about big companies, big staff and big revenues. Every company I had worked for was rich in history and tradition. But this was a relatively modest affair operating in a novel environment. Still, Jean-Cyril’s and Jürgen’s involvement in a pioneering Internet company was a sure sign that this was a serious project. I knew Jean-Cyril well from my days at Alitalia. He had been CEO of Air Inter and our paths had crossed many times. Perhaps because Jean-Cyril’s parents were Corsican we became good friends and I had learned to trust his judgment. Later, when he became CEO of Air France, he served as Chairman of the IATA Board and provided fantastic support for me. He also had the vision to be the first airline CEO to push through a major merger. The Air France−KLM deal wasn’t easy but Jean-Cyril had the courage to make it happen. Jürgen took over Lufthansa in 1991. The airline wasn’t in the best shape and had been too interested in gaining market share in emerging destinations, such as China. The balance sheet was suffering as a result. Jürgen turned the company around but his judgment is best summed up by the two people he immediately called on to help him. Wolfgang Mayrhuber and Christoph Franz went on to become CEOs of the airline and under their leadership Lufthansa has continued to impress.
Rod Eddington at British Airways was also convinced that a new distribution channel was necessary and during a lunch at BA’s headquarters effectively sold the project to me.
I arrived in London in 2000 to take up the new position. OPODO had taken on a wonderful building in Covent Garden and I had the team of McKinsey consultants waiting for me with their business plan. It wasn’t my normal method of working to say the least but their involvement was helping to loose airline fingers off of the purse strings.
The first bit of news wasn’t the best though. McKinsey said they had two weeks with me and then after that it was up to me to deliver the most advanced European travel portal in only ten months together with some impressive start-up figures on market penetration and revenue. I knew the Internet was a fast-moving world but this was speed of light. And for that added bit of spice there were only two OPODO employees when I started: me and a security guy on the door. I got some comfort from the business plan though and the fact that the airlines had decided to put $300 million into the project. These were better times for the industry, remember.
There were other positives. London was a great venue for an Internet start-up as it had a great pool of talent. My first choice was a Human Resources Director, Peter Carroll. He had great knowledge of the Internet world and proved very effective. Other key positions were quickly filled. Nicolas de Santis became my Marketing Director and cleverly avoided expensive TV deals and concentrated instead on a massive campaign on the London Underground and buses. The strategy clearly worked because we had a record number of hits on the day we went live.
Despite these successes, I started to have some concerns when it came to recruiting the software experts. This was a long, long way from my traditional background. These people dressed very differently and had some outlandish attitudes. It was really difficult to make a proper assessment of their skills. Were OPODO’s technical challenges too much for them—or too boring?
We were paying well and we had attracted the best people from all over the world. There was little doubt that all the candidates were extremely bright but I worried that their interest was purely technical. Once that challenge had been met I feared they would be off to find the next cutting-edge project. We were only going to be a small team so I was wary of high staff turnover in the future.
In the end, the hiring process turned out perfectly and we had an amazing team that created a real buzz in the office. We never had more than 150 people at OPODO and yet the nature of the company meant each personality was distinct and a world away from traditional business norms. Creativity was encouraged but staff had to be constructive too. A tight-knit team ethic was essential. T-shirts, jeans and sandals were de riguer. I was the one out of place in a suit. Looking after some 30,000 employees in my earlier role at Alitalia was a breeze in comparison. Yet, there was never any cause to complain. We built a great team and they outperformed every target that was set.
If a problem got their attention they would work day and night to solve it. Jill Brady, who moved on to Virgin Atlantic, was General Counsel at OPODO at the time and spent many long nights reviewing the software contracts with Sapient, each of which was the size of an encyclopedia.
The technical platform on the original business plan was good but it was too expensive. The numbers didn’t stack up. I spoke about it to the shareholders. “If I want to run an inexpensive taxi service in London and be competitive, I can’t go out and buy a fleet of Rolls Royces,” I stormed. This seemed to catch their attention but the matter was taken out of my hands somewhat by 9/11. Cost reduction became inevitable. Despite that disruption we launched the most innovative, powerful travel website in Europe on time. And we surpassed every target. In Germany, only the Deutsche Bahn website had more hits.
OPODO has now been sold and companies like Google are entering the airline distribution sector. As I mentioned before, airlines often have great ideas but never the finances to see them through to completion. How an airline ticket gets sold is still a great challenge.
Time to start work
OPODO and all my previous jobs had given me some great insights. So when the IATA position was offered I knew I had something to offer. I had international experience, airline experience and inside knowledge of a powerful new business tool. I also brought with me personal links with many of the movers and shakers of this world.
It was this last attribute that finally brought home the meaning of Leo Mullin’s call for relevance. IATA shouldn’t be speaking with Civil Aviation Authorities. We needed to be speaking with Prime Ministers, Presidents and the Secretary General of the United Nations.
If IATA was to build the necessary consensus to achieve change at breakneck speed then leadership and interaction at the highest level would have to be the magic wand.
I accepted the job as IATA Director General and CEO in February and received unanimous approval from the IATA Board a month later.