Flight Plan

Friday, June 1, 2012 - 12:28

As traditional travel agents struggle, Flight Centre CEO Graham "Skroo" Turner has helped ensure his company continues to soar. By Tom Skotnicki

There is nothing obvious that distinguishes Flight Centre CEO and co-founder Graham "Skroo" Turner from any number of middle-ranking executives nearing retirement age. His uniform of short-sleeved shirt and a tie lacks the style one normally associates with a CEO - particularly one worth well over $360 million.

A few minutes in his company and it is obvious he cares little for the accoutrements of wealth or position.

In his Brisbane head office when holding a private meeting he goes into one of several conference rooms near his cubicle. There is an informality about the company structure which reflects an egalitarian philosophy to which many companies pay lip service but few adhere.

As the CEO and co-founder of Flight Centre, Turner grew his business in the good times after international leisure travel had boomed with the emergence of cheap flights from the mid 1970s.

However, it has always been a business with tight margins.

Turner actually gave up the reins from 2002 until 2005, but then decided to move back into the CEO role. In recent years he has managed to keep Flight Centre buoyant despite rising oil prices and the global financial crisis. He has a strategy to combat the popularity of online booking of flights and accommodation.

Turner has stuck to his established model of retail outlets and employed consultants.

"We don't do huge amounts of online but we have the capability in hotels and flights," Turner says.

"Our main USP (unique selling proposition) is to have an online and offline capability so when you book online there will be a consultant who will look after you and that is where we are headed in that interplay."

In Australia, which is still the company's largest market, the total number of retail travel agents has declined by 20 per cent over the past 15 years. In the United States over a similar period, the number of travel agents has fallen from 43,000 to about 17,000.

It is typical of Turner that, whereas others may have felt it necessary to dramatically alter their business model, he saw the opportunity to gain market share as others fell by the wayside. It is a sign of his determination and confidence in his own leadership and management skills.

Turner has no formal business or management training. A voracious reader, he says he picked up some good tips from books such as Michael Gerber's The E-Myth and Jim Collins' Good to Great. However, he recalls, he always had an interest in business while growing up on the family orchard near Stanthorpe in Queensland.

"It is a small business and, like most family businesses, everyone is expected to take an interest and contribute from a very young age," he says.

At University he completed a degree in veterinary science. After graduating he quickly made his way to the UK.

"I was working as a vet in Yorkshire in 1973 and was treating a horse when I saw a yard full of double-decker buses.

"So on my break I went and had a look and saw one had been fitted out. Originally I planned to go to South Africa but another vet friend and I got the bus and we did a Spain, Portugal, Morocco trip and that started Topdeck Travel in November 1973."

Turner chose to skate over some of the difficulties of the trip. The partners had no background in travel other than having done a European bus trip themselves. On the first trip they got lost five times leaving London. One incident that has become legendary was when Turner and his partners failed to obtain a booking for a ferry to Morocco. Not to be deterred, Turner apparently hid the bus behind a building around the corner from the dock and waited until the ferry was virtually ready to sail and simply drove aboard.

Once in Morocco they found some of the roads in the high passes were iced over. At one point they found themselves, without chains, slipping back down on an icy incline. Despite emptying the bus and getting the passengers to try to fight the weight of the bus and gravity, it continued to slide down and stopped only centimetres short of a chasm of several hundred metres.

It may not be altogether fair but Flight Centre seems like a mix of a hippy enclave and a version of TV's Survivor.

Former employees describe how to succeed at the company and rise up the sales ranks. It requires a combination of performance and commitment to the corporate culture. One of the unusual aspects of Flight Centre is a commitment on the part of management to evolutionary anthropology and psychology (see Tribal wisdom opposite).

"One of the more interesting things we did was a team-based structure we started early on. We have a very strict team size with seven people in a team and then we have five, six or seven
teams in what we call a village, which is a co-operative," Turner says.

"There are then generally 15 or 20 teams in an area which [can be several villages], which is a tribe.

"It is based on evolutionary psychology and we have found it quite effective in growing individual teams. It is the hunter-gatherer equivalent of the family, working together in groups of six or seven, which is the equivalent of a village or a camp."

He says the approach was applied at all levels of the company, including the executive ranks.

In retrospect the growth in the business was relatively rapid. After the first trip a third partner joined the business. "They were old buses - not always the most reliable. I had another friend from Australia, Bill James, who came with us. When we got back he said this is a great idea, so he bought another bus and we fitted it out and the following July we bought another bus so we had three," Turner recalls.

"We just kept filling them up and buying more buses. In 1975 we did our first overland trip to Kathmandu and then sent buses into Russia."

Six years later, there were almost 80 buses operating throughout Europe, Africa and Asia out of London under the Topdeck brand. It was not the first party tour operator; Contiki was already well established as were Exodus, Encounter and Overland, to name a few. But with the hunger for travel and touring there was no shortage of customers.

Turner says 1975 to 1981 was the absolute heyday of international bus tours as most countries and regions were accessible. This changed with the revolution in Iran, the Iran/Iraq War and the invasion of Afghanistan, which soon limited the potential for overland trips.

It was in 1980 Turner and his wife Jude, who was pregnant with their first child, decided to return to Australia. They had met at university but only became involved after she began working with Topdeck in London several years later. By age 31, Turner had received a practical business education. He understood the importance of cashflow as well as profitability. It is ironic he and his wife had intended to buy a house in Sydney but decided on Brisbane after being knocked back for a home loan.

He opened the first Flight Centre in Sydney in 1981 at a time when discounted airfares were first introduced in Australia. Topdeck was sold to its management in 1986 (although Flight Centre bought it back in 2004) when Turner's partners also wanted to return to Australia.

Flight Centre's retail stores began as partnerships with local owners and managers. It took five years to build the operation to 30 stores but after the sale of Topdeck it was decided the company should acquire 100 per cent ownership and offer existing managers generous commissions based on performance.

"Over the next nine years we grew organically and by 1995 we had 300 stores and turnover of close to $1 billion," Turner says.

A decision was taken to float the company.

Turner, who along with his family retains 18 per cent of the company, says one of the major reasons for the float was to provide the opportunity for employees to share in the success of the company.

Naturally, it also provided the company with the capital and impetus to further increase its market share in Australia and increase its overseas operations.

It now operates in 10 countries under 34 brands, including Flight Centre, Campus Travel, Student Flights, Escape Travel and Cruiseabout. Outside of Australia, which still represents about 50 per cent of the company's turnover of $14 billion, it has large operations in the United States, UK, New Zealand, Canada, South Africa, Hong Kong, India and China.

"We needed other brands for niche travel markets," Turner says.

The expertise gained is then fed through the network.

"This is one of the reasons we have competed so well against online providers and direct suppliers."

Turner clearly encourages clients to use the company's retail outlets. "But if they choose to go online there is a person they can speak to about any extras they need. In the long term, online is becoming more prevalent, but as with anything with a lot of complexity, the systems are hard to work."

Turner says for large and complex overseas bookings and for corporate clients it is often easier and cheaper to have a specialist design their travel plans.

"They may be doing it once a year whereas our guys are doing it every day."

The sheer complexity of the operation is impressive. Apart from leisure travel, it also operates in the corporate market, wholesale travel, student travel, money exchange and even wholesale bikes (a business started by his son).

The company also has a large internal sales and leadership training operation that provides diplomas and certificates through a combination of on-the-job, classroom and online education.

Turner obviously expects the international operations will eventually exceed the local business. He also anticipates that in next few years the corporate side of the business will grow from 35 per cent of turnover to about 45 per cent.

One of the advantages Flight Centre has is many of its original baby boomer customer base have grown up with the company and continue to be among its most lucrative customers.

As a baby boomer himself, Turner, or Skroo as he prefers to be known (it comes from a well-known brand of tools), said he would remain CEO as long as the board would have him. Now 63, he told Mt he believed he had at least another decade of work in him.

‘Skroo' driven to succeed

Those who know Graham "Skroo" Turner attribute his success to his determination and business savvy. He is clearly driven. For example, when he and his wife Jude developed a country retreat at Spicers Peak in the Sunshine Coast hinterland in 2004, he felt compelled to turn it into a chain of six exclusive hotel and lodge destinations.

There is something slightly Bohemian about Turner. But at the same time he is also a lad, having spent a decade or so playing rugby at Queensland University in what remains one of his great passions.

The success of Flight Centre was certainly helped by the growth of international travel in the 1980s and 1990s. But Turner's determination over the past decade to stick to a strategy of bricks-and-mortar growth raised eyebrows for bucking the internet trend. Some of his peers and industry analysts disparaged him as a dinosaur. However, according to Athena Aviation consultant and former senior airline executive Stephen Pearse, it does not pay to underestimate him. "He is somewhat like [Richard] Branson - he knows how to build and control a business."

Despite the fact Turner refused to become an early internet adopter he has always been extremely customer-focused and behind the scenes he was building FlightCentre.com and developing a highly effective blended model. "Don't forget Flight Centre as a brand is powerful and trusted, which is important when people are seeking travel solutions not just booking airfares or accommodation," Pearse says.

The combination of customer service, travel expertise, internet accessibility and tight margins proved crucial to Flight Centre increasing revenue and market share despite the internet trend.

A large part of his success is a dedicated staff that recognise their future is partially based on their willingness to buy into the Flight Centre culture and philosophy including its unusual structures and ideology.

Flight Centre has also benefited from the fact that a slowdown in inbound tourism over the past six years has been more than matched by outbound growth spurred by the high Australian dollar. Given 50 per cent of the Flight Centre business is still in Australia it bodes well for further growth.

Tribal wisdom

When they get together at conferences Flight Centre employees must appear like a series of war parties made up of families, villages and tribes.

The company has borrowed from evolutionary psychology to create units or families of up to seven people that work closely together on sales and management tasks. Up to seven of these families then come together to form a village with direct common interests that work together as required. Finally, up to 15 or 20 families will be assigned to a tribe. This means at any one time the number of direct interactions between an employee and other members of staff is limited to no more than about 150. Turner regards this as a reflection of the hunter-gatherer formations of Neolithic times.

He even operates the system in his office, with a group of six people forming his executive team. The state managers have a similar structure, as do the chief executives in each country.

As a reflection of their primary strategic role they are referred to as SWOT teams. A SWOT team is responsible for the US where Flight Centre has about 2000 employees and for the UK where it has 1600.

Turner said there was reasonable flexibility but senior management get together on a regular basis several times a year at which various approaches and developments are analysed.

Turner said one of the company's mantras is "One Best Way".

The approach adopted by Flight Centre appears to be loosely based on work done in the 1980s by Oxford Professor of Evolutionary Anthropology Robin Dunbar, who postulated 150 as an ideal average number of ties between humans (a figure that later studies have suggested could be doubled). It has also been picked up by Professor of Public Policy at Harvard Robert Putnam, who has warned against the fall in social-connectedness (or if you prefer, the tribe) in America in his book Bowling Alone.

Others who have also picked up on the importance of the tribe in the workplace include John King, who has argued successful companies are those that best manage and leverage their naturally occurring tribes, and Seth Godin, who has extended the use of the "tribe" to customers.

However, the reality is that although its antecedents are relatively respectable it remains a highly controversial theory as the evidence the social structures required to survive in a hunter-gatherer society are ideally suited to modern business is largely non-existent. One only needs to examine the number of broken and dysfunctional families, and by extension "extinct tribes", to recognise this may not be the best method of organising workplace teams.