‘Many performance ratios lie about a company’s health’, says Geoff Colvin in his Fortune article (18Jan), revealing the consequences of manipulative figures published in financial reports. Companies use these measures to make important strategic decisions (and pay their executives). It is easy, says Colvin, to make any performance ratio look better, while damaging the business - this practice has recently killed number of companies. It has, however, been a part of business life for centuries. About a hundred years ago, Sir Josiah Stamp, British civil servant, industrialist, economist, statistician, and banker made his famous statement: "Public agencies are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root, and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the village watchman, who just puts down what he pleases."
This kind of reporting is not alien to airline industry. The most fertile ground for data manipulation is in big organisations with inherited complexities, where much of important corporate information is hidden, distorted, or not available at all. Censorship of information and practice of data ‘adjustment’ get especial impetus in bad times when not only financial, but also operational and delay figures may become ‘massaged’. There were the cases when airlines even restrained from reporting on unfavourable on-time performance. This makes benchmarking useless, and pushes planning and decision making into a more risky area at both airline and industry level.
Current economic crises has helped reveal many malpractices in reporting. An example is IATA (association of 230 carriers from around the world operating 93% of scheduled international air traffic), who grossly failed to predict the magnitude of airline losses in 2009. The originally planned accumulated loss of US$2.5 billion published in December 2008 has been revised three times within the following 9 months, when the magnitude of economic crises was quite obvious, reaching the figure of US$11billion by September 2009. One can rightly question the quality of airline reports through which they can report what they 'please'. If this proves to be the case, what is the point of spending so much time (and money) to gather the data that only create confusion and distrust?
Fortunately, there are ways of spotting the false data hidden in operational and financial reports. There are companies who are offering these kind of services. I’ve spent some time testing a method through which it was possible to get a pretty good understanding of why some airlines prove to be resilient and grow, adapt, and change, while others fail within or outside the period of global economic crises. Getting to know the true state of airline’s health and predicting its chances to succeed is not an impossible task. The only question is, how much of it are airline leaders ready to digest and disclose?