The United Airlines bankruptcy filing has added further fuel to the doomsayers' predictions of the impending failure of the full-service network model. But the root causes of the current malaise may have more to do with a lack of market focus than too much hubbing.
From the slogans painted on their flanks, airliners say a lot about how their owners would like to be perceived. At American Airlines it was always luxury. Northwest and KLM proclaim reliability. EasyJet is the web's favourite airline, with the sales site emblazoned on the aircraft in garish orange just for good measure. Virgin Atlantic had its latest aircraft signed by an international supermodel. United Airlines just has the words "worldwide service". So, while others may be luxurious, dependable, sexy or brashly commercial, United is simply saying that it flies everywhere. To which a tempting answer is: "So what?"
As United now struggles to reinvent itself, it is a question worth asking. The airline has indeed offered worldwide service: at first through coast-to-coast flying at home; then by buying up swathes of intercontinental access from the crumbling Pan Am empire; and later through the pioneering Star Alliance. For much of the last decade United was a poster child for network majors everywhere, flying more passenger miles than any other carrier on earth. Those such as Pan Am that had failed to grasp the power of network connectivity did not survive to tell the tale.
Now it is United's turn to file for bankruptcy protection, making it easy for onlookers to pronounce on the death of the full-service network model. That may be to mistake present symptoms for underlying causes. In the right hands, and where it is run to bring true economies of scale, the hub-and-spoke concept can be an invaluable tool, allowing a world presence that not even the lowest of low-cost carriers could hope to create flying direct. The problem is not that ubiquity is a misguided goal, but that on its own it is no longer enough.
In the past, size really did matter. In the days of tight regulation and limited competition, the champions were those that could dominate their home markets and take a powerful hold of the distribution chain. Sub-scale competitors were simply killed or acquired. And there was plenty of growth to conceal the worst of any structural flaws in the cost base.
Today the game has changed and so have the criteria for success. Growth is no longer assured, at least in the maturing markets of North America and Europe. Markets are globalising, consumers are getting smarter and the web has put the distribution chain beyond anyone's control. And in the world of retail choice, businesses need to be acutely focused on just what they are selling.
In the days when major carriers were effectively producers of seats, often selling at arm's length through a host of agencies and corporate buyers, a retail strategy mattered less. Now, as the low-cost sector has shown with frightening success, it is essential equipment. Ask any of the successful budget airlines why their product is different or their company special and they have an instant answer. Even within the sector, cool high-tech JetBlue and web-wise easyJet can distinguish themselves from folksy Southwest or rock-bottom Ryanair. For the network majors the answer has too often come down to no more than a fleeting product innovation or two. The fundamental difference still remains rooted in geography. And geography has not been kind to United.
What should have been its fortress hub at Chicago O'Hare is now shared with a dogged competitor in the shape of American. Denver, which it won in a costly war of attrition with Continental Airlines, has been badly hit by the bursting of the high-tech bubble, which has also hurt hubs San Francisco and Washington Dulles. Then there is the collapse of the transpacific market, including depression in Japan.
At the same time, the carrier admits that it was investing more time in internal battles than in its relationship with the customer. For all its size, United found itself stuck in the middle as a second-choice carrier almost everywhere it flew, with little pricing power and a deteriorating cost base. History has not been kind to such ailing giants.
Take a few pages from the history of US retail stores, which has more wrecks and rusting hulks than most other industries, air transport included. There, the once-mighty Kmart too is deep in trouble. Like United, the chain had planted its big red K across the nation. But in most towns, not far away, sat the big blue W of the thriving and oft- admired Wal-Mart. While keeping a famously focused grip on costs in the back office, Wal-Mart also managed to project out front a customer-friendly small-town feel, reinforced by a warm greeting at the door. In other words, Wal-Mart had a personality that gave people a reason to choose it and Kmart did not. United too needs to re-emerge with a new personality and a new sense of purpose that its staff, customers and shareholders can sign up to.
Source: Airline Business
