What is the difference between an expensive airline ticket and a cheap one? If the answer is only the price, or at least the customer's perception is price, then you clearly need to start worrying. And that, it seems, is what some of the major carriers in the maturer markets of North America and Europe are starting to do.
American Airlines plans to tear seats out of its aircraft to give economy customers more space. British Airways will do the same to make way for plusher business and premium economy products. Others too are brushing up their product offering and raising service levels. The US majors en masse have signed up to a new passenger charter, promising among other things to be more responsive to complaints and address some of those perennial passenger irritants such as missing bags and overbooking.
It would be overstating the case to argue that these actions all have a single cause. BA found itself filling too many seats too cheaply in an overcrowded market and has acted accordingly. US airlines, no doubt, hope that their voluntary code of conduct will defer the threat of legislation.
But you do not have to be an airline pricing manager to realise that the industry is struggling with a lack of product differentiation. Nor to recognise that travellers and their companies are becoming shrewder in questioning what they actually get for their money, and, aided by the Internet, smarter at comparing prices.
The necessity for a passenger code is itself a partial admission that customers are not exactly enamoured with the value that they get for their fare. In Europe, too, Brussels has just sent out a similar passenger rights paper for consultation. Even the European Commission, not known for its soft heart, sympathised with the airlines that they appeared to have become one of the industries that people love to hate. Airlines may have themselves to blame.
The drive of the past few years has been heavily skewed towards cost and revenue management. That is no bad thing, as industry profits have shown. But it is not the whole answer. If cost alone was the key then all airlines would have to be low-cost carriers, matching the ó7.5 per seat mile (ó4.7 per km) of a Southwest Airlines.
The first responses of the US majors to the emerging low-cost threat was exactly that - remember Delta's infamous 7.5 cost-cutting programme? The experiment was quietly abandoned. Continental's Gordon Bethune later summed up the essential blunder in characteristic style. It is not hard to make the world's cheapest pizza, he reckoned, it just doesn't come with any tomatoes or cheese.
In fact, the US majors have indeed begun to add a little more garnish to their in-flight service, recognising that low-cost peanuts taste very much like their own. It is an important recognition. If you cannot match the low-cost competition on costs (and therefore fares) then you are obliged to offer something more by way of perceived value.
The risks of not doing so are already apparent in the US domestic market, where premium passengers have not only made their way to the back of the cabin but then started shopping around for discounts too. In short, US airline seats are rapidly becoming a commodity and there are fears that European short-haul markets may face a similar fate. The need is for a touch of product and brand differentiation.
World-weary revenue managers may well doubt whether that is faintly realistic in today's market. Airlines, they will argue, now look too much alike and so do their products. Really? The low-cost sector itself would seem to be proof in action that they do not. The no-frills pioneers, led by Southwest, have admittedly traded heavily on price, but also created a new style and culture of customer service. Above all, the low-cost carriers have stuck aggressively to their niche and have not been afraid of killing a few sacred cows if that is what their particular brand of customers demands.
While it may make little sense for the network majors to imitate the product, they could learn from the philosophy and seek to define which segment they plan to make their own. A start is to ask hard questions about what it is that differentiates their product from the herd? Which customers do they aim to attract and which to leave for others? The guess is that most would struggle to frame precise answers, beyond the usual mantras about frequencies, fares and frequent flier programmes. The trouble is that everyone else has those too.
It is often said that there are too many airlines in the world. The truth is that there are too many all doing the same thing. The initiatives by American, BA and others may be a first step towards acting differently. The alternative is for the majors to see their product drift further towards commodity. And for the airlines themselves to remain unloved.
Source: Airline Business
