I recently facilitated a workshop with several CEOs where we worked on the dramatic business growth model components. One of the questions that I had asked them beforehand was, "What is Your Profit/X?" The results showed that there this concept is not clear to many....
The 2019 awards for the best airlines are out. As there are a number of different award rankings, I will compare those of AirlineRatings.com, an aviation safety- and product-rating site based in Australia, and Skytrax, a consumer-aviation website based in the UK. The top ten for each are set out below:
- Qatar Airways
- Singapore Airlines
- ANA All Nippon Airways
- Cathay Pacific Airways
- EVA Air
- Hainan Airlines
- Qantas Airways
- Thai Airways
- Singapore Airlines
- Air New Zealand
- Qatar Airways
- Virgin Australia
- All Nippon Airways
- EVA Air
- Cathay Pacific
- Japan Airlines
No American carriers again struggled to break into the top-ten rankings this year for either ranking. No US-based airlines made it into the top 35 spots year for Skytrax, for whom JetBlue was the top-ranked US carrier No. 40.
Following the US carriers’ failed attempts at launching budget carriers, remember Song and TED, they are now following a two-prong strategy – mediocre or better in the front and budget carrier in the back. The problem with a two-prong strategy as was discussed above is that you cannot go down two different paths, you are either A or B. The high-end strategy for the front of the aircraft requires different service levels on call centers, lounges, check-in desks, flight attendants, crew, and different investments in IT, fleet types, etc. than for budget carriers. Thus as the company drives down two different paths, the employees and investment decisions fail as it tries to satisfy two different masters and end up satisfying none.
I find it amusing to see Delta’s advertising “Delta, voted the best Business Class Airline,” as often I wonder, by who, obviously someone who does not travel internationally? Although Delta did recently introduce a new all-suite business class last year, albeit long after the advertising started, that didn’t help it move into the top rankings. The reason is that equipment alone is not the deciding factor; it is service levels across the entire client experience. But if the majority of your client service experience is providing a budget carrier experience, it is hard for your employee base to suddenly pivot to offer the superior experience needed for the business class passenger, reinforcing the prior point. Choose your strategic decision and stick with it. For a reminder, look at Joel Spolsky old blog post, “Ben and Jerry’s vs. Amazon.” Joel, who has seen several companies succeed and fail, suggests the worst thing you can do is fail to decide what strategy you will choose.
Another airline that has been following a variation of the two-prong strategy is British Airways (BA). BA, long known as the “World’s Favourite Airline,” has relied on their control at London Heathrow to drive their higher value to their long haul traffic – especially business and first-class, while treating short-haul traffic as a budget airline. While British Airways is very profitable at present, it has failed to invest in IT over the last few years. As a result, this summer, there was the second massive IT outage in two years. While the latest one is expected to cost Brtish Airways about £10 million the first one cost the company about £100 million. Also, BA’s failure to secure customers’ credit card data on its website, is resulting in £183 million fine for data theft. Final, BA”s pilots are upset with the level of profitability compared to their pay offer and are now striking for better pay. The strikes started in September with the cancellation of thousands of flights and cost the company over £200 million. If the strikes last over the Christmas holidays, the price will rise dramatically! Two-prong strategies that conflict are hard to make work successfully in the long term!
Since the majority of US flyers are flying coach, the consensus will undoubtedly become that the US carriers are really just budget carries masquerading as real carriers. How long will it be before they are all charging for carry-on luggage like Spirit?
While milage points and hub control still make a difference in attracting passengers, it is the budget carrier mentality, cause, vision and focus that allows carriers like JetBlue and Southwest to continue to make inroads into the legacy carriers market and make more money.
In 2018, Southwest was the second most profitable airline in the US behind Delta.
While the US legacy carriers continue to make money, it is only through the consolidation and lack of competition. If competition were allowed to enter the market, then all bets would be off.
For the most part, flying in the US is like Greyhound without the view, and until the government is willing to ignore the lobbyists and allow more competition, and local governments allow more competition at the hubs, not much is likely to change, forcing more pain on the flying public.
© 2019 Marc Borrelli All Rights Reserved
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