Gabriel’s scarcity rent - it’s management stupid!

I often travel the route Barcelona Madrid (and backwards) for the day. By plane it’s rather tiresome and expensive: with an open fare you end up paying around 400€ for a 630 km flight (+ 630 km back).

Barcelona - Madrid is the world’s busiest route with 971 operations per week. The second one is Sao Paulo - Rio (894 per week) then Jeju/Seoul Gimpo (858 per week) and fourth is Melbourne/Sydney (851 per week).

In fact you have to go very low in the ranking to find another crowded European route. That would be Rome - Milan with less than 600 operations per week, which, by the way, is more than the most crowded North American continental route: Las Vegas - Los Angeles (553 per week)

Source: www.oag.com, data from September 2007

But things change. And this milk cow for the airlines faces its first serious menace ever: the high speed Spanish train service, also called AVE.

These brand new trains travel the distance of 630km (410 miles) in two hours and 35 minutes. Not too bad when it’s compared with the plane that takes roughly two and a half hours (not just flying but also spent in the check in and departure processes), and possibly more.

But, from an economic point of view, there are many hidden costs that must be taken into account. After all, what is it that you do in a plane? Well, you sit in a narrow seat, trying not to disjoint your legs, and pray that the person that will be sitting beside you is not extra overweight. In the train you have plenty of space. Being uncomfortable has a cost.

How much? Well, it depends on what you’re willing to pay to be more comfortable, of course, and how much your time costs.

How much are you willing to pay for that extra nap? Well, in a 45-minute-long flight, you’re going to have maximum thirty minutes of uninterrupted sleep. You won’t be able to sleep while you queue, while you’re being inspected at the burdensome security checks, while you wait your turn. But on a continuous 2 hours 35 minutes journey you’ll be able to.

As for opportunity costs, you won’t be able to do anything in the plane, apart from opening your laptop for half an hour. It’s completely wasted time. In the train you can use your computer as much as you want, use your phone, combine them and access the internet. Work, eat, talk, whatever you wish.

But externalities must also be taken into account. Environmental footprints can be four times higher for planes than for trains. That means that the train will always be more sustainable and, if we ever are to reflect the true external costs, energy efficiency will give the train an important lead over the plane.

Add those costs up: discomfort costs, opportunity costs, externalities and you will have a very competitive mean of transport. Which only means that competition has been increased, with a comparable service at a better price. In the end, consumers will be benefited from the additional choices, lower prices and the increased service levels that competition will bring.

That was what I was thinking when I decided to open the textbook I was carrying with me. The Managing Financial Resources module awaited me. Fortunately it was half way to Barcelona, 300 km per hour (186.41 mph), still an hour to go.

There’s one date that I always long to: the end of summer. Leaving behind that excessive warmth and and welcoming a cooler weather. The beach is empty again, no more noisy crowds. Yet it’s still warm enough to sit between the trees and wander around so many thoughts that I’ve been gathering lately. Quiet enough to think, to reflect, to digest, or to simply relax, procrastinate or do nothing.

Barcelona’s beach in Autumn

This time it was a three-day weekend, long enough to escape from the big city to what once was a small village before the arrival of hordes of tourists. Around this time of the year, the fishermen used to await the “bootcleaner”, a big storm that signalled the end of the warmest days. Autumn was finally coming. They laid their nets and boats close to the beach so they would be rained clean. Then they inspected everything, made due reparations and got everything ready for the forthcoming year.

This year there has been more than one storm, but the weather is still fairly good. A nice September. Actually, the perfect moment to have a bath in the sea, is when you least expect it. After a cloudy day, then the sun suddenly shines, the air is perfectly clean and the waters are crystal clear again, a bit cooler I might say. And it’s all for you, your family, your friends.

With the distance that a fresh bath can provide, but still being in your MBA mind frame, you can see and feel how we have diverted from the way that people should be treated, respected or enabled. Close to nature and far from stress, it’s easy to envision the good nature in people, McGregor’s Theory Y that Rousseau would surely have endorsed, the Harvard approach to HRM, and forget for a while Hobbes view, name it Theory X, Taylorism or the Michigan approach to HR.

If we don’t believe in the inherently good human nature, how are we going to trust anyone? and then, who are we going to rely on? Will we have to do everything ourselves? how it will be possible to delegate? to enable? to empower? We won’t be able to grow.

If we believe that all humans just seek the greater economic gain, shouldn’t we stop using the collaborative words and concepts? We’d have to keep our information private and secret, stop writing learning journals or blogs, stop thinking aloud… always scared to become or be seen like sheep, we’d end up being wolves.

The end of summer is a good moment to reflect, to start anew, to free yourself from long held assumptions and misconceptions. To believe. For sometimes it’s necessary to forget in order to be able to learn.

Yesterday I went to listen to Brent Barrett singing the music of Leonard Bernstein. Brent Barrett is one of the greatests tenors from Broadway.

He was performing at Barcelona’s opera house, also known as the “Liceu“. It was an impressive performance. This artist knows how to sing, how to express and how win the audience.

But, let’s go to the point. I already knew that Leonard Bernstein (1918-1990) was Jewish, from a liberal family in Massachusetts and a strong defendant of human rights. I was surprised to know, tho, that Alan Jay Learner and Leonard Bernstein had written a musical in 1976 in the context of the Watergate scandal, disenchanted by politicians and especially of Richard Nixon. The musical was about the story of the White House and called 1600 Pennsylvania Avenue (that’s the White House address).

Leonard Bernstein with sister Shirley in the Green Room at Carnegie Hall after a performance with the Israel Philarmonic, March 1951

The show was a flop and lasted only for seven days. But it contained more than one century of American History, from George Washington to Roosevelt. How the country had strived for freedom and the struggle for black freedom. It’s a story about the difficulties of maintaining a democratic society.

This work has been largely overlooked and unappreciated. It wasn’t recorded until 1997. But there’s a song that Brett sang yesterday that inspired me a lot. It’s called “Take care of this house”.

Take care of this house
keep it from harm
if bandits break in
sound the alarm.

Care for this house,
shine it by hand
keep it agleam
so it can be seen
all over the land

Be careful at night
check all the doors
if someone makes a break in
the dream will be lost

Take care of this house
be always on call
for this house
is the home of us all

It is sung by the First Lady to Lud, a young black boy that is a slave to the White House. He is the future. She is presenting him with the challenge to attempt a democratic society that will be able to overcome social injustice. The house represents the whole nation and the whole of the democratic world; it’s the hope for us all.

As I usually, capitalism has won, but don’t take democracy for granted.

Sometimes it’s hard to move on.

There’s a psychological trait that makes us cling to our investments. Even the clever investor can hold on to an equity that is going down further than expected and loose a lot of money. Bu, when you’re inside, when you don’t have perspective, It’s hard to know when to quit.

But then there are stop-losses, and dynamic stop-losses, that will let you make that decision ex-ante. (Ex-post is even easier).

The same happens with project management. There are certain moments where the project is not feasible anymore. And the best option is to just close it. But it’s not easy. And sometimes, inability to recognise a failure can lead to heavier losses.

There are two forces that you need to master:

• The need to adapt. You need to be able to adapt to a new project, a new investment, a new job. The more, the better. To be able to enthusiastically think as a member of a project.
• The need to change. You need to be able to quit, to introduce change in an organisation you’re already in, to know when to drop a solution, to see when a project has failed.

But both collide in a certain point. And that can drive you insane.

• Excessive identification can lead to Stockholm syndrome: the hijacked that ends up caring about her hijackers, and that keeps her away from reality, and from much needed chances for change.
• There’s a need to forget sometimes, but there’s also the need to remember what we have learned.
• And excessive change can lead to disaffection, to being a mercenary, to not caring what you really do, to your work having no meaning for you.

As always is a matter of balance, but don’t forget the need to move on. That’s the hardest part: knowing when, or how, even why.

Why did I come up with this? Well, yesterday I went to hear british actress Maria Friedman singing Stephen Sondheim, Palau de la Música an incredible modernist theatre in Barcelona built by Lluís Domènech i Montaner in 1908, proclaimed heritage of humanity by UNESCO. It was so great. The public was so enthusiast that didn’t want to let her go. She even had to do repeats.

Stephen Sondheim makes you think with his lyrics. Let me share some with you. This song is about a brave young lady that is going nowhere and decides to leave everything, her country, France, the man she loves, the painter Seurat (she is pregnant with his baby), to start a new life in America.

“Move On” from Sunday in the Park with George by Stephen Sondheim

Stop worrying where you’re going, move on
If you can know where you’re going, you’ve gone
Just keep moving on.

I chose, and my world was shaken–so what?
The choice may have been mistaken
but choosing was not.
You have to move on.

Look at what you want,
Not at where you are,
Not at what you’ll be.
Look at all the things you’ve done for me:
Opened up my eyes
Taught me how to see
Notice every tree!
Understand the light!
Concentrate on now!
I want to move on . . .
I want to explore the light.
I want to know how to get through
through to something new–
Something of my own!

Move on!
Move on!

Stop worrying if your vision is new.
Let others make that decision . . .
they usually do!
You keep moving on.
Look at what you want,
Not at what you are
Not at what you’ll be
Look at all the things you gave to me.

See what’s in my eyes, And the color of my hair,
and the way it catches light.
And the care, and the feeling
And the light, moving on!

We’ve always belonged together.
We will always belong together!
Just keep moving on.

Anything you do, let it come from you–
then it will be new.
Give us more to see.

Right now there is an ongoing discussion in Barcelona. A new airport terminal is being built that will be able to handle around 30 million extra passengers. But there’s something to be decided: which companies will be located there.

Barcelona’s airport is the eight in Europe considering the passengers that use the installation. That means it’s close to medium cities like Munich or Milan. But, being similar in size, there’s a big difference between Milan, Munich and Barcelona: the number of intercontinental flights.

Of course, in order for the airport to grow it will need more infraestructure. The third runway is already built and the new terminal will give it the capacity it needs to grow and expand.

But the proximity to the recently expanded Madrid Airport is a problem for Barcelona’s aspirations to be a hub. One of the main aviation alliances, One World, has already a hub there, and being at 700km (45 minutes by plane) makes it unlikely for this alliance to have more intercontinental flights in Barcelona. From an economic point of view they’d rather have them in Madrid. To complete the picture, this alliance includes Iberia, the old Spanish flagship company, and has the highest market share in Barcelona: around 40%, and steady, not decreasing but not growing either. In fact this alliance has no plans to have any international flights in Barcelona anytime soon and it’s moving towards a low cost profile.

There is a second alliance: Star Alliance. They are growing at a high pace, and they already have a market share of aproximately 20%. The spanish flagship of this alliance is Spanair, that is also an important Spanish carrier, growing quickly and aiming to overtake Iberia in a not too distant future.

This alliance looks like the only chance for Barcelona’s airport to position itself as an international hub. On the other hand this alliance also has a hub in Frankfurt, which won’t be substituted but complemented by Barcelona’s growth. So there’s an upper limit to Barcelona’s possible expansion with this alliance.

So, should the new terminal be allocated exclusively to Star Alliance?

Many people do believe so. It looks like the only alliance that has the possibility and will to bet for Barcelona. So I can agree partially on that: it’s important to have the best parts of the new terminal allocated to the alliance that has the most interesting prospects.

But why not share the terminal between the two alliances Star Alliance and One World? Many people refuse that thinking that One World just wants to be there to disturb Star Alliance plans for expansion. Or many people just want that based on an irrational approach to the rejection to expand Barcelona’s international connection from One World.

But, from an economic point of view, and beginning of a situation of a new terminal with only one alliance: Star Alliance and with excess capacity. Does a second alliance positioned there leave us better off or worse off?

Maybe the right concept to grasp would be “Pareto efficiency”: we reach the most efficient situation when we are not able to improve any participant’s situation without leaving another worse off.

And without worsening the behavior of Star Alliance, we can improve easily the situation of One World just allocating them the spare capacity of the new terminal (discounting of course future growth), as long as it doesn’t worsen the operation of Star. And we can do that defining the correct precedences and procedures.

Of course Star Alliance would be benefited if we threw out the other alliance to the existing -and worse- installations. That would give them some extra market power… but what for? To have an advantage over competition.

And to give one player advantage over another instead of fair competition always leaves the consumer worse off. And that’s not the objective. Free competition is good for Barcelona’s airport on the long run. That’s the point we should go to.

Why? Because even not having interconental flights, even his leaning to the low cost profile, One World is the market leader in Barcelona, providing the airport with most of its connections. And that gives high value to the airport. And it will drive even more value with the combination of another alliance’s hub in the same location. The two hubs will even be able to interchange passengers, helping build the critical mass of passenger an airport needs to have intercontinental connections.

Because it’s not the politicians who make the intercontinental flights. They can obstruct or help them, but it’s the market, and the consumer’s demand, that will establish new long range connections. And the market works best when all the players are given the most opportunities with a clear set of rules and without discriminations of any kind.

That’s, in my humble opinion, the best way to ensure a healthy growth for Barcelona’s airport.