Cinder

 

Back to Vol 58.1

Article Information

Managing Turbulence: Business Model Development in a Family-Owned Airline

EXECUTIVE SUMMARY

 

Introduction

In the spring of 2015, more than sixty years after its founding and having persisted through generations of competition within the industry, family-owned airline Cimber was acquired by its larger alliance partner SAS. Avoiding oil crises, ash clouds, and bankruptcy, the airline prevailed by changing the way it created and captured value. Cimber was founded in 1950, when Ingolf Lorenz Nielsen established the airline in a small town in southern Denmark. Like other airlines, it faced challenges throughout its history: in the last decade alone, it suffered from the 2008 financial crisis, the Icelandic ash cloud, and the steady rise of oil prices. All of these factors put an immense financial strain on the company. Because the operations of the airline were heavily affected by externalities, Cimber had to change its business model several times. As a result, studying the company provides an excellent opportunity to examine the role of family owners in conceiving and implementing new business models at critical transitional stages.

Business Model Development in Family Businesses

A business model describes the logic of how a company does business -- that is, how it creates and captures value through its activities. The key determinants of a business model can be dynamic, changing during the different stages of the business’s life cycle. As explored in other research, family businesses tend to innovate less due to risk aversion. But in the capital-intensive airline industry, family businesses seldom survive.

Studying Cimber provides an excellent opportunity to examine the role of family owners in conceiving and implementing new business models at critical transitional stages.

It is important to understand how family business models can be created to adapt to externalities. Resource dependence theory presents several options to minimize environmental dependencies, mostly revolving around the development of effective partnerships and implementation of strong succession rules. After years of modest growth in both B2B and (following the acquisition of Sterling Airlines) B2C segments, Cimber began to face financial problems in 2009. While the intention of the merger was positive, Cimber Sterling lacked focus and direction, filing for bankruptcy in 2012.

Cinder
Former Cimber CEO Jørgen Nielsen in Denmark. Source: politiken.dk

The Role of Family

The overall influence of the family in the development of Cimber had diminished since its founding in 1950. Initially, the company targeted a small segment of business customers. After the year 2000, changes in family influence led to related changes to the scope of the business model. While all possible changes to the business model are linked to internal capabilities (including financial resources), Cimber’s acquisition of Sterling Airlines in 2008 and the move into the consumer market was ultimately damaging in that the resources relied upon in the business model were not interchangeable. The added operational complexity resulted in the company’s bankruptcy in 2012. In the wake of the crisis, finding a new business model with lower complexity became an imperative. At this moment, greater family involvement was critical in enabling high level permission for financing. Ultimately, family owners retracted the scope of the business, concentrating on re-tooling Cimber to become a sub-supplier to SAS, which had been a cooperative partner since the beginning of the 1970s.

Implications

There are important similarities between the challenges faced by Cimber and those faced by other family businesses. Based on the general principles of resource dependence theory, family businesses can benefit from establishing early interorganizational relationships with key stakeholders in the industry. But because such cooperative relationships are not sufficient to ensure adaptation to high velocity environments, family businesses should seek to incorporate interchangeable external resources by acquiring competing companies. There are many lessons that family business owners can derive from the case of Cimber. To learn more, read the full article.