Arnie Weissmann
We all have business challenges. But how many involve direct interference by Vladimir Putin?
In the mid-1980s, Yuri Miroshnikov graduated from Kiev International University of Civil Aviation with a degree in engineering. He went to work for Aeroflot when that agency oversaw every nonmilitary aspect of aviation in the Soviet Union, not only operating the national airline of the same name but airports, air-traffic control, civil administration and training.
With the dissolution of the USSR in 1992, he witnessed his birthplace, the Ukrainian Soviet Socialist Republic, become independent Ukraine, and in short order he found himself working for a newborn national carrier, Ukraine International Airlines (UIA).
"We purchased fresh, new, Western equipment from Boeing," he told me last week during an interview at the Ukraine mission to the United Nations in New York. "We were extremely enthusiastic and optimistic about the future."
Ukraine's current difficulties, resulting from Russia's 2014 annexation of Crimea and ongoing fighting in the Donetsk region, are clearly impacting UIA's ability to operate, but the airline seems to have made resilience a core competency over the years.
It faced its first challenges in its infancy, as independent Ukraine immediately found itself in a deep economic crisis, surrounded by other newly independent states -- its natural markets -- also in deep economic crises.
It took almost eight years for the regional situation to stabilize. During this period, Miroshnikov worked his way up through the ranks of UIA and was involved in establishing an expanding network of international routes. He became president and CEO of the airline in 2004, and it prospered even amid the global economic crisis, posting profits in 2008 and 2009.
But it turned out the impact of the financial meltdown had not been rebuffed but merely delayed, with 2010 and 2011 proving to be exceedingly difficult years. The company went private in 2011, and that helped to turn things around relatively quickly, with the airline returning to profitability in 2012 and 2013.
Circumstances changed abruptly again between December 2013 and February 2014, after public protests erupted in Kiev, Ukraine's leader resigned and Russia invaded and annexed Crimea. Fighting broke out in areas bordering the two countries, battles that continue to this day.
"We had to apply the emergency brake," Miroshnikov said. Not only did Russia, the airline's largest market, stop UIA from flying into the country, but it was banned from flying over Russian territory, meaning that all eastbound flights had to veer north or south of its large next-door neighbor. Miroshnikov estimates the annual additional fuel cost of these diversions runs between $10 million and $12 million.
What's more, eastern Ukraine, where contested Donetsk is located, and Crimea were UIA's most profitable domestic routes, but they are now off-limits.
The airline's ability to "adapt and compensate" for these significant hindrances and return to profitability in 2015 is not only a case study in resilience but a dramatic example of why even businesses feeling fat and happy must be constantly evaluating their directions and exploring modifications to improve performance.
In a marketplace populated by large global network carriers; no-frills, low-cost carriers; and small national carriers serving regional needs, UIA saw an opening for a hybrid model: a low-cost, global-network carrier.
But to follow this course required substantial investment to expand into new world capitals to fill out the network, and there was one glaringly obvious, and expensive, missing link: the U.S.
"The risk was justified," Miroshnikov can now say, two years into daily service between Kiev and New York. In fact, UIA is now looking into increasing the number of daily flights to New York as well as opening routes into Chicago and Toronto.
The conflict with Russia also led to expansion of its domestic network, including cities that had not previously been considered but that have proven to contribute significantly to the carrier's profitability.
"I can't say I'm happy with shifting our focus to one in which we compete on price," Miroshnikov said. "But I will say we provide very good value for the money, and I'm very pleased with our overall performance."
The CEO acknowledged that he has benefitted from lower oil prices but also said the airline was focusing on nonfuel cost reduction. As a result, he has seen the cost per available seat mile, a measurement of efficiency, consistently go lower, even with fuel costs taken out of the equation.
Projections for the next six years assume there will be no resolution of the conflict with Russia, which keeps the company focused on exploring new areas of growth.
I found the UIA story inspiring on many levels. Miroshnikov said that "the need to compensate for the crisis definitely pushed us to new developments," but the primary takeaway for me was not about turning lemons into lemonade or that necessity is the mother of invention.
His narrative on one hand uplifts because it represents a small victory in the face of dark aggression. But all the opportunities Miroshnikov exploited to increase UIA profitability existed before the conflict with Russia arose. So in addition to the encouragement that results from a dramatic story where the good guys won, the subtext of UIA's story illustrates the potential cost of complacency in the absence of crisis.