Under Vitaly Saveliev's leadership Aeroflot managed the impossible, becoming the leader of the European market in service and profit.
Aeroflot is one of the oldest carriers in the world. Founded in Soviet Russia in 1923 under the name Dobrolet, it was given a new name and organization in1932. In 1990 Aeroflot carried 139 million passengers – more than all American airlines combined – and flew to 102 countries.
After the break-up of the Soviet Union, having lost more than 90% of its fleet, Aeroflot was just one airline in the crowded Russian market.
When Vitaly Saveliev became CEO in April 2009, the company had enough money for two weeks of business.
Taking Charge: Saveliev and His Team
At 55, the dynamic new CEO had held many managerial jobs, yet none in the airline industry. “But I flew millions of miles with all major airlines as a customer,” he joked, from Aeroflot’s modern but modest headquarters in down-town Moscow:
It was not about aviation at that time. It was about business survival and I knew a thing or two about crisis management. We created a crisis management group, centralized and froze all payments, sorted out priorities and managed the company manually for some time. Our initial actions allowed the company to stay afloat and saved around $1 billion for the business. Then we started to learn what civil aviation was all about.
Before Aeroflot, Saveliev, a graduate of the elite St.Petersburg Polytechnic Institute, had had a bright but somewhat erratic managerial career. Before turning 30, he was appointed Deputy CEO of one of the largest construction companies in the USSR. In the 1990s he had been an entrepreneur, a senior executive in the energy and banking industries, and on the board of a number of prominent Russian companies. Between 2004 and 2007 he was Deputy Minister of Economic Development and Trade, where he met German Gref, Minister at that time, and CEO of Russia's largest bank – Sberbank – from 2008, and Kirill Androsov, who would later become chairman of the Aeroflot board. In 2007, Saveliev joined AFK Sistema, one of the largest financial industrial groups in Russia, to head its telecom assets, from where he moved to Aeroflot.
In a country renowned for young executives, Saveliev expected “to be the oldest guy on the block” at Aeroflot, but discovered that he had “29 deputies aged from 60 to 67 years.” Aeroflot’s senior executives mostly moved up through the ranks, many of them had been pilots, navigators or technicians in the past. They loved and understood the technical side of the business, but their financial knowledge and managerial skills did not match Saveliev’s expectations:
They have done some great things in safety, pilot training and technical support, but most of them didn’t know financial terms like EBITDA or cash flow. At that time, Aeroflot management didn’t even use email.
But the new CEO did not rush to fire the old guard. He complemented the existing executive group with five managers who had worked for him at Sistema and began to assess the potential of the old-timers. Some, such as Vladimir Antonov, who had joined Aeroflot 20 years earlier after a military career (now Saveliev’s First Deputy) and Igor Chalik, one of the first Russians to fly the Airbus (now in charge of Aeroflot flight operations), became key members of his team. The team met once a week as a group, and each member had a weekly tete-a-tete with the CEO. Saveliev described his management style as “democratic-authoritative”:
I always listen to people, I encourage them to speak their mind, but I make them learn that the final decision is mine and it’s not up for discussion. I make it and I assume the risks that come with it.
Saveliev made quite a few unorthodox decisions at Aeroflot and stood firmly by them. He fired 12 staff members who refused airplane access to passengers with home-printed boarding passes when that service was first introduced. He replaced traditional Moldavian brandy with Chivas whisky, and, on his daughter advice, introduced Russian ice-cream in business class. He lobbied the Russian government hard and fought the pilots’ union to allow foreign nationals to fly in Russia. One of his most controversial decisions was to keep the Aeroflot name and logo (contrary to experts inside and outside the company who suggested that they had negative associations with the Soviet Union, communism and even the gulag), insisting that the company should respect its roots. Today the Aeroflot brand is valued at $ 1.55 billion.
But in April 2009 the operating mode was different. Saveliev and his “young wolves” (as Chairman Androsov called the managers brought in from Sistema) immersed themselves in the Aeroflot reality. They worked day and night fixing problems, learning the specifics of the business and understanding longer term risks. Part of their anticrisis strategy was generic – freezing all payments except salaries, taxes and interest rates – then moving on to reducing headcount and other costs. In all, 2,500 people were let go, sparking a media frenzy. Journalists, union activists and politicians accused the company (whose major shareholder was the state) of everything from neglecting passenger safety to destroying a national symbol. Saveliev continued with his reforms.
The second part of the anti-crisis programme was industry-specific. When two of the wolves – Shamil Kurmashov, Aeroflot’s CFO, and Andrey Kalmykov – applied advanced analytical tools to different aspects of the company’ operations, they uncovered a disastrous picture. Kurmashov recalled: “When we looked at the company fleet from an economic point of view, the conclusion was straight forward – it should be kept on the ground”. They decided to take 26 TU-154 airplanes out of service due to fuel inefficiency. And they re-thought the whole routing map, since 40% of routes turned out NPV-negative. The newcomers introduced centralized treasury function and an SAP-based IT system.
Busy cutting costs and optimizing Aeroflot’s operations, Saveliev and his team made learning the new industry a part of their work routine. Every Saturday they spent four hours listening to strategy consultants from Bain & Co and McKinsey, and applying their acquired knowledge to Aeroflot. According to Saveliev a number of initiatives came out of these “classes”:
We learned that newspapers and magazines have significant flight weight and cost us extra fuel, so we limited the choice and saved $17 million a year.
Turnaround
The Saturday workshops confirmed what Saveliev knew from his own passenger experience – airline is a service business. After stabilizing Aeroflot’s financial situation, the management team focused on what they believed was critical for retaining existing and attracting new passengers – service quality. Three aspects, according to Saveliev, had a tremendous impact on changing traditional perceptions of Aeroflot as a poor service airline – stewards’ school, stewards’ uniforms, and in-flight food.
Trusting his own passenger experience, Saveliev turned to Asian airlines in search of best practice in preparing flight attendants. With the help of German Gref, Vitaly sent 60 carefully selected flight attendants to Singapore Airlines Training Centre in charge of flight crew training among other activities. Twelve of them became first coaches at Aeroflot Staff Training Centre in Moscow. Today Aeroflot’s Training Centre is among the largest in Europe.
Together with upgrading training, Aeroflot improved its hiring process. The company required all its future flight attendants to have a college degree, to speak English, to have good communication skills and emotional stability.
Saveliev’s second project was to dress up Aeroflot:
When I looked at the issue, I had a headache – there were dozens of uniforms and people wore what they wanted. On the same flight with five stewards, each of them could wear a different uniform.
In 2009, Aeroflot announced a tender for new uniform design. All interested designers were invited to a meeting with Saveliev, who showed them a Virgin Atlantic video clip with the slogan “25 years. Still red hot,” and said, “I want better than that” and left the room. He later acknowledged that his son had sent him the video in the first place, and it had inspired him. Two Russian designers won the competition and produced a collection in “red mandarin” (summer) and “navy” (winter). In early 2013, the Aeroflot uniform was voted the most stylish in Europe in a passenger survey.
Another important issue was food. Saveliev took the management team by surprise when he invited them to taste Aeroflot’s food offerings. The effect was overwhelming – everyone admitted that the food was not acceptable:
We had what I call “a shot in the stomach”” – overcooked beef with cheese and mayonnaise on top. It turned out that the senior steward decides what the menus is going to be and where to buy the food from. We centralized it and attracted top talent – chefs and sommeliers – to develop menus for Aeroflot.
Today there are 16 set menus at Aeroflot (vegetarian, kosher, halal, etc) which change every three months in business class and twice a year in economy class. The tradition of tasting airline food by senior management remained, but Saveliev turned it into a show by inviting celebrities to participate. In 2013, Aeroflot took second place in the Skyscanner Annual study of the quality of on-board menu in the long-haul dining category.
New Strategy
By the end of 2010 Aeroflot had caught a new growth wave, regained market leadership in Russia from S7 airline, improved its financial position, and was starting to get positive press. The initial executive actions had paid off, but the management team knew that most low-hanging fruit had been harvested and the company needed to define its longer term strategy.
Trusting his own passenger experience, Saveliev turned to Asian airlines in search of best practice in preparing flight attendants. With the help of German Gref, Vitaly sent 60 carefully selected flight attendants to Singapore Airlines Training Centre in charge of flight crew training among other activities
The work began in early 2011, with the participation of Bain & Co as strategic consultants. It was at that time that the first non-Russian executive, Giorgio Callegari, joined the Aeroflot management board as a head of strategy. An industry veteran with abroad experience in sales, marketing, strategy and operations, he had worked for Alitalia. His arrival brought new dynamics to the functioning of the management team – all meetings with his direct involvement were henceforth conducted in English. Six months later, Callegari requested that Russian be reinstated – he felt it was a Russian company and his Russian was operational. In developing the new strategy, the Aeroflot management did a great deal of industry analysis and benchmarking. Saveliev insisted: “I am not inventing a bicycle – I look for the best practice and adopt it”. His core benchmarks were Turkish Airlines, Air France, British Airways and Lufthansa, but he also looked at the industry as a whole and beyond, as Kirill Androsov, Aeroflot chairman, confirmed:
We took a hard look at the industry and we realized that traditional airlines – British Airways or Air France – will not survive. Low-cost airlines will kill them. In the future you can be either a low-cost or a premium airline.
Aeroflot decided to be a premium carrier
The new strategy was approved by the board in September 2011. To become a premium airline, first and foremost it had to provide premium service. For that, it had to assure safety, great planes, friendly on-board service, and seamless support on the ground. Providing a great safety experience meant Aeroflot had to focus on upgrading its fleet and customer service, and doing it in a profitable way. Russia’s geographic position provided a unique market opportunity – to link Europe with the emerging economies of East Asia, which also became a part of the new strategy.
Aeroflot made a significant investment in its fleet, acquiring new Airbuses, Boeings and Sukhoi Superjets, and becoming one of the youngest fleets in the world – 3.8 years (for comparison, KLM-Air France – 10.8 years). Management did a great job optimizing these acquisitions through diversification of suppliers and leasing, although by late 2014 some of these looked excessive.
Innovation was another element of the Aeroflot strategy. Management believed that a premium airline should surprise and delight its customers. Saveliev set an example by his constant search for innovation, scanning the world for ideas. He talked to friends, customers, experts, and read passenger’s complaints on Twitter. One of his favourite books was “A Complaint Is a Gift.”.
A lover of data, Saveliev turned Aeroflot into a datadriven company, creating dozens of indicators of where the company stands in customer service, customer loyalty, fleet efficiency, food quality, etc. Vadim Zingman, VP for Customer Service, who had followed Saveliev from Sistema, explained the sophisticated system of collecting and analysing critical data – customers’ satisfaction, customers’ complaints, operational statistics, and competitors’ intelligence:
In every department we have people responsible for innovation. Today innovative ideas mostly come from these people and systemic solutions. The days of low-hanging fruit when Saveliev or other senior executives could come up with a brilliant idea based on common sense are gone.
In 2010, Aeroflot learned that its business class customers considered quality of food, entertainment and attractiveness of flight attendants as the three most important differentiators (an industry-wide assumption was that business passengers cared more about timing, ease of access and availability of lounges). Following these findings, the company rethought its customer service priorities for business class passengers.
According to Saveliev, Aeroflot had become a 'strategy-driven company’ and it had paid off. In the last five years passenger turnover had risen from 8 million a year to 21 million, while headcount went up from 17,000 to 18,000 employees. Revenues rose from $2.8 billion to $7 billion and net income from $122 million to $281 million. Saveliev believed that Aeroflot had become one of the most efficient European airlines.
It consistently won international awards for service quality and positive international press reviews. Among all European airlines, it had the highest customer loyalty index NPS (Net Promoter Score) – 67%.
In five years, Saveliev and his team had put the ailing giant firmly back on a global track. Twice a year the Aeroflot management updated its strategy to take into account new global trends and stay ahead of the game. The board of directors ensured they did.
Saveliev’s Leadership, Culture and Legacy
Saveliev believed in reflective leadership:
I manage by variances. If I don’t see negative variances, I sit still. If something goes wrong, I dive in. A General Manager should create a team, allocate roles and let people work. I learned it both from books and my own experience. When at the age of 30 I spent a week in a hospital with work-related stress, I began to reflect on my management style and read management books.
His deputies admired their CEO but acknowledged that working for Saveliev is not easy. The word they use most often to describe their boss is ‘tough’. As Dmitry Saprykin, VP for Sales and Assets Management, explained: “He is a tough manager. Initially it was not easy to communicate, but I learned a lot from him.” Shamil Kurmashov added: “Saveliev likes to say ‘I am a composer – you are performers’, but he is always concentrated, never late, loves structure and he delivers.” The experienced Callegari was more philosophical: “He is tough. But it’s natural for an airline CEO.”
Dmitry Saprykin explained how he was a role model and an effective mentor for his managers.:
Saveliev is very effective and efficient and we learn it from him. For example, he always says that we should not spend more than one hour discussing a question, if we don’t have a solution – let’s take a pause and meet again and I do the same. Being very performance oriented Saveliev taught me not to be afraid of making mistakes. It sounds simple, but it is not trivial in our culture.
Vitaly Saveliev’s role at Aeroflot had evolved over the last five years, as Saprykin acknowledged:
At the very beginning he centralized almost everything; I think that was also the way for him to understand the organization and to calibrate people. Since then we (VPs) have learned to solve operational problems and Saveliev can concentrate on higher levels.
Cultural change rather than stunning financial results was what Saveliev and his team were most proud of:
When I joined Aeroflot, I could not attend social functions – people would jump on me with their criticism of the company. Five years later, I proudly listen to compliments from people of very different backgrounds and tastes.
Vadim Zingman pointed to two major changes:
Internally we made people realize that they need to work to earn their salary; work for the customer not for themselves; we created a business culture. Externally – we built a prestigious airline with which people want to associate themselves.
The Future
Saveliev believed in ambitious goals as effective management tools, but compared Aeroflot to other industry players, and to the targets set rather than its past: “I am not interested in celebrating old victories; I want to win new ones.” He aimed to make Aeroflot one of the top five European airlines in market share, and to be the most profitable, in line with its stated goals by 2020:
• 67 million passengers
• $1 billion operating profit
• 383 liners
• 45% market share in Russia
When asked “Is that possible given the current crisis?” he replied “Let’s meet in 2020!”
His strategy chief explained that Aeroflot is wellpositionedto withstand the crisis and even benefitfrom it, because it has “five types of planes for bothlong and medium haul flights; very competitive coststructure and no exposure to Latin America andAfrica”.
Speaking about the future, Saveliev mentioned theissue most CEOs try to avoid – succession:
I have two potential successors, both within thecompany, and I will work on developing them. ButI know that it’s not enough. I listened to a Boeingexecutive who said that they had a rule – to have twosuccessors for today, another two for three yearsfrom now, and another two for six years from now.That is solid.
Did he think about his retirement? – “No time forthat.” He plays tennis every morning, travels theworld, and reads many books:
A business leader needs to know what is writtenabout business, but should not limit himself toreading business books. I learn a lot from classic andcontemporary literature.
Saveliev is an amateur photographer with morethan 40,000 followers on Instagram. True to hisinnovative spirit, he is using an original methodof combining different photographic modes intoone image, winning approval from a number ofprofessional photographers.
In response to a final question about his legacy, hehas no hesitation:
I work to make sure the innovation spirit is preservedwhen I am gone and I find myself proudly flyingAeroflot».
This introduction was published in the ninth edition of the Talent Equity Newsletter, "Effective CEO".
To see all newsletter editions, see TE Newsletters.
