An increasing number of low-fare carriers are using innovative service features to bring something more to their brand than simply cheap tickets
As the very name suggests, the low-fares carriers live or die by the price of their tickets. It is a philosophy where almost everything is sacrificed to offer the lowest possible fares. And as Southwest Airlines, Ryanair, EasyJet and others have shown, it is a profitable strategy.
But competition is heating up between low-cost operators, and lower fares have now become the norm for many travellers. Mainline carriers are also responding with cheaper prices or low-fare offshoots that approach or even match their upstart rivals. In this world it may be that rock bottom prices alone are not enough. "Personally I am convinced that besides price, we need to give more," says Andreas Bierwirth, deputy managing director of Germanwings, a low-cost subsidiary of German regional Eurowings in which Lufthansa has a major stake.
Like many others from both network and start-up carriers, Germanwings has gained inspiration from New York-based JetBlue Airways, whose stylish approach to the market has won many fans and proved highly profitable. Although low fares underpin its strategy, according to Tim Clayton, vice-president sales and business development: "JetBlue would not have been as successful if it were just about low fares."
"To begin with, low-cost travel was a paradigm-breaking thought - its novelty was its cheapness," says Peter Knapp, executive creative director at the London office of branding consultancy Landor Associates, who helped bmi british midland develop the low-fare brand bmibaby. "Now, as more players come to the market, price itself is not a differentiator," he notes. The challenge low-fare carriers face is how to create something individual. "These airlines run at such an ultimate economy that it is hard to build in the difference - there is not a lot of room for other forms of expression," says Knapp.
Hitting the right note
Germanwings is trying to incorporate style and quality into its product. The airline started operations from Cologne-Bonn airport in October 2002. "Germany is one of the markets in Europe with the most low-cost competition," says Bierwirth. Germanwings is flying head-to-head on some routes with identical fares against the likes of another low-cost start-up Hapag-Lloyd Express. "The question then is where does the customer make their decision - it is around the brand. We wanted to create a very good Germanwings brand right from the beginning," he says. At a functional level this has included selecting leather seats for its Airbus A319/A320 fleet, as well as using the aircraft's on-board entertainment system to show films about the destinations people are flying to.
Both JetBlue and Southwest are the inspiration in different ways for the new generation of low-fare start-ups. Richard Ford, executive creative director of Landor's New York office, studied each carrier closely in his work with Delta Air Lines on creating the Song low-fare brand. "Southwest is committed to the idea that they are totally price-driven, they focus on secondary airports while making their flights a fun environment," he says. "Price-wise, there is a step up between Southwest and JetBlue of around 10%, based on JetBlue generally operating from more principal airports and having an offer that is not 100% focused on price - there is a definite focus on entertainment as being a big plus."
JetBlue has created a stir with its pioneering in-flight product that beams live television to each seat at no charge, but Clayton believes the airline offers more than just the latest technology. "The fact that our customers are pleased has nothing to do with new aircraft or LiveTV, and has everything to do with good old- fashioned customer service," he says.
Although not as tangible as a television monitor or leather seats, both JetBlue and Southwest make an enormous effort to instill staff - or "crew members" as JetBlue calls them - with service values at every level of the airline. "The Southwest 'spirit' is one of the intangibles we look for when we hire new employees," says president Colleen Barrett in her column in the airline's magazine.
Germanwings is taking some of these lessons to heart with its aspiration to be seen in brand terms as the Lufthansa of the low-cost market, says Bierwirth. It is following the Southwest model of a "strong corporate culture and emotional buy-in from staff," he explains.
For carriers that follow this path, the aim is to make employees feel good about their job and their company, to take this feeling into their interactions with travellers, and in turn create a service style that people like. "Obviously a successful low-fares airline management has to run a really tight ship, but it has also got to sprinkle it with some personality," believes David Hedley-Noble of Miami-based consultancy Aerobrand, which was responsible for the re-branding of Spirit Airlines. "You may not attract everybody with that personality, but those that like you will stay with you," he says.
For Southwest and JetBlue, their traffic growth and profitability are proof that developing such a personality through staff motivation and training works. European carriers may have tended not to go as far in this direction, but believe their fresh, young approach - at Ryanair, for instance, the average employee age is just 27 - along with portraying themselves as low-fare champions against the high-fare traditional carriers, has pioneered a European travel revolution.
Customer focus
But, sensitive to accusations that they may have neglected customer service in the past, Europe's low-fare airlines have renewed their commitment to punctuality and to dealing quickly with complaints. "We don't treat people like crap; people vote with their feet," says Paul Fitzsimmons, Ryanair's head of communications. The carrier expects to carry 24 million passengers this year. He cites its passenger service charter - published last September in response to bad publicity in the UK media - as proof of the airline's commitment to treat customers fairly.
For now, the brand message that most European low-fare carriers relay sticks to the basics. "We are a one-trick pony," says Fitzsimmons. "Ryanair will get you from A to B for the cheapest price, on time," he says. This is the primary requirement. The secondary one, he adds, is that if it goes wrong, you know you will be looked after.
According to Brussels-based Virgin Express, passenger surveys show that for 60% of travellers, low prices are the main reason for choosing its service. Add punctuality, the timing of flights and high frequencies into the equation and 90% of all purchase decisions are covered.
At Virgin Express, which operates to major airports fighting head-to-head with mainline carriers, the fact that 55% of its passengers are travelling for professional reasons also shows why it has had such a drive on punctuality. EasyJet is one of the few low-fare carriers that deliberately targets business travellers, regularly advertising in appropriate media. Around 40% of its passengers are flying on business, with some routes, such as from London to Scotland, predominantly carrying business traffic.
Few low-fare carriers offer special incentives to these travellers over and above their core service. However, several have brought in more flexible fare conditions allowing even the cheapest tickets to be changed close to departure for a fee. This is regarded as an important shift in their philosophy.
Loyalty schemes
Another question for low-fare brands as they become established is whether to introduce loyalty schemes - the bastion of most full service carriers.
In the US market, Frontier Airlines and AirTran Airways have frequent flyer programmes, while fewer European low-fare carriers have taken the plunge. EasyJet has considered one, but believes it will add complication - and therefore cost - to the business.
JetBlue's Clayton cannot recall any issue that has caused so much internal debate among company executives as a loyalty scheme. It has, however, made the move and launched TrueBlue, which he describes as neither a loyalty nor a frequent flyer programme. "This is not our attempt to develop loyalty amongst our customers; it is our attempt to recognise those customers who fly regularly and say thank you," he says. Travellers earn points for each flight taken and redeem them for free flights .
TrueBlue is totally on-line with no card, statements, mailings, partners or the ability to earn 'rewards' any other way, says Clayton. "We wanted to take a very low-key approach to TrueBlue to satisfy a relatively small number of passengers who ask for it." From a cost perspective, JetBlue is not looking to operate TrueBlue as a profit centre, and neither is it expensive to run. "I do not have one full-time employee managing the programme," he notes.
Spirit is another carrier nervous of the costs of a loyalty scheme, and does not want to add to its balance sheet the liability of frequent flyer miles as the legacy carriers have with theirs, explains Tom Anderson, chief marketing officer. However, in the autumn it will most likely launch a web-based scheme, with a working name of Spirit Pass, that is simple to understand and manage, he says. In parallel it is planning to launch Spirit Business Advantage, a programme aimed at getting small to medium businesses to use Spirit more.
Although Air Canada has one of the most aggressive strategies to spin off low-fare carriers away from the core brand, it felt it is was important to retain the ability of passengers to earn frequent flyer benefits when flying on Tango and Zip via the Air Canada Aeroplan frequent flyer programme, explains Montie Brewer, executive vice-president commercial, who is responsible for Tango and new businesses.
Tango by Air Canada, to use its full name, was the airline's first low-fares launch, and uses its brand association with the mainline carrier in a "quiet" way to support its product, says Brewer. For Tango, being Air Canada-approved becomes less important as time goes by and the brand itself becomes established, Brewer adds.
Tango operates in a complementary way to Air Canada, and is operated by Air Canada staff, whereas Zip is a 100% replacement for the mother carrier on various routes, says Brewer. Zip is different in that it has its own operating certificate and labour force.
Zip is also different, and breaks the conventional wisdom of low-fares operators, because it interlines with the mainline carrier. "We still want to have a network feed for our long-haul operations and to make that as simple as possible but do it more efficiently," explains Brewer. Song will also offer connections to Delta's international services and interline with SkyTeam Alliance carriers, as well as be part of Delta's SkyMiles frequent flyer programme.
Low-fare carriers do not interline as a rule because it adds cost and can affect punctuality. Anderson says Spirit will not interline with any US majors, but will with some of its low-fare peers such as AirTran, and is talking to Aces of Colombia and Virgin Atlantic about the possibility of interlining on some of their international services.
Spirit's departure into atypical low-fare territory is not restricted to interlining. It has followed the lead of AirTran by launching a two-class product. All of its 30-strong fleet of McDonnell Douglas MD-80s and DC-9s have been reconfigured with a 12-seat Spirit Plus business class. The leather seats are in a 2+2 layout with 36in (914mm) seat pitch and wider seats, compared to the 32in pitch in the 144 standard seats in the aircraft, explains Anderson. In addition, customers receive a snack box with around six branded items, a dedicated check-in and priority boarding.
Value for money
"Everyone else has been taking product away from the customer - we want to put some back," says Anderson. Spirit Plus is partly inspired by customer focus groups. "From these it became clear that people want more than just low fares - they want value for money," he says.
A Spirit Plus seat costs $40 per flight segment extra over the ticket price, and so far the load factor for the class is running at 70-80%. "This is a nice revenue premium," he adds, and Spirit is even considering charging a little bit more.
The product is aimed at cost-conscious business travellers who are prepared to pay a premium. However, Anderson is acutely aware of achieving a balance between attracting more business travellers and not abandoning its traditional leisure customer base. "Spirit has to make sure it continues to add value without over-costing itself to the point where it cannot make money," he says.
All low-fare carriers adopt a cautious approach to spending money on service features. But there may be markets where some innovation and a greater product variety catch on. In the USA, Landor's Ford identifies an emerging "savvy" customer base that is willing to spend its dollars on flight tickets to obtain either an element of design uniqueness or higher entertainment value. Gone are the days, he believes, when carriers could just focus on two main customer groups - the stereotypical business traveller and the cliched back-packer.
The need to address a wider and more sophisticated audience, argues Ford, means that "in five years' time, there will be several shades of low-fare carrier, each one with a slightly different brand combination".
Carriers like AirTran, JetBlue and Spirit are already providing this variety. A low price is by definition the key brand attribute, but increasingly carriers are coming up with smart ideas to take their brands just that little bit further.
Source: Airline Business
