Review your recent flights on our tool at www.flightmaestro.net

Airlines are under siege by low cost carriers (LCCs). Or so the story goes.

The past decade has seen the mainstream adoption of low-cost business models in the aviation industry – these are brand new airlines without the baggage of old employee agreements and with a significant advantage in tailoring their entire organisation around efficiency.

Not surprisingly, load factors on full-service stalwarts have been under pressure, whilst yields per seat have decreased as discounting is used to prop up demand. Cost-cutting has been a predictable response by these airlines (not necessarily a bad thing if done correctly), however I find this is likely to do more damage in the long run.

Measures to reduce costs per traveller have generally targeted the most accessible parts of the organisation: food, beverage, ground services, and densification of Economy cabins. Major cost centres (and those that LCCs are not burdened with) such as old enterprise agreements, flagship routes and aging infrastructure are less easily addressed, and means despite all efforts, full-service carriers will not be able to replicate the operating models of their LCC brethren.

These cost-cutting efforts target the most visible parts of the flying experience, and the factors that make or break an airline’s brand are being enthusiastically degraded to woo LCC-type passengers.

What we are seeing is an abandoning of the most lucrative segments of Economy Class travellers – an erosion of the creature comforts ostensibly to cater to the wants of the lowest margin customers.

Economy Class is a unique proposition in that it caters to the widest segment of customers wishing to fly, from bargain hunters, students, young professionals, through to families, business travellers and the very affluent. Each have their own expectations, each have their own price elasticity and, importantly, each of them have different factors in their purchase decision – think along the lines of price, food, schedule and comfort.

Economy LCC

The “Economy Class” covers a large segment of the socioeconomic demographic spectrum.

In every other industry brands, whether they be shavers or cars, are innovating through various methods to increase stickiness. Expanded loyalty programmes, rewards clubs, subscription models; everything designed to reduce the elasticity of the customer to price and to increase their affinity with a brand. Airlines (not all) are the only example of brands doing everything to reduce brand loyalty, discarding decades of brand equity and rusted-on loyal customers in preference for price competition. This is where brands like British Airways, whose intra-European Economy Class is now LCC (and there are rumours the same will be done with its international division) have made catastrophic errors.

In dealing with the LCC threat, airlines should look to Singapore Airlines and, for now, Qantas as examples of how to best approach it.

singapore_airlines_a350_xwb_delivery

Singapore Airline’s has so far avoided cutting parts of its on-board product. Credit: Singapore Airlines

Like every industry, the key to serving the maximum number of customers with the same “core” offering (in air travel, getting from A to B) is through stratified branding: creation of brands within the parent company designed primarily to service a specific sector of the market. The same can be seen to work in aviation.

Singapore Airlines’ use of low cost brands such as Scoot and Tigerair allows them to tame and capture a segment of the market that could otherwise maul the success of their central, core business (the Singapore Airlines brand), without resorting to punitive cost-cutting on-board.

Scoot and Tiger

Scoot and Tigerair are Singapore Airline’s long-haul and short-haul LCC brands, respectively. Credit: Scoot and Airbus

What this has resulted in is a continuously profitable Singapore Airlines Group, and two very successful short- and long-haul airlines thriving in what is fast becoming the most competitive airspace globally. Put another way, Singapore Airlines manages to service both the new, price conscious passengers and their traditional more affluent target market, without imperilling their enviable brand and status or their commercial health.

They have turned an existential threat into their bread and butter.

The “so what”…

LCCs are here to stay. They are not, however, a premonition of where the entire industry is headed, and it is this misapprehension that I believe will lead cost-cutting airlines astray, ultimately to the weakening of their brands. Economy Class passengers do not operate as a block, and the breadth of customer-types this class appeals or applies to means a multitude of factors other than price factor into the purchase decision. The socio-economic demographic served by Economy Class is not solely defined by this price-elastic behaviour – far from it.

Full-service airlines tailoring, therefore, the entire Economy Class experience and strategy around the value-driven customer, degrading their on-board experience accordingly, are taking the wrong approach. Decreasing the stickiness and attractiveness of your brand, as has been pursued most prominently by British Airways, is a non-sustainable business strategy.

Adopting a stratified branding approach, with the full-service brand remaining full-service, and the LCC brand acting as a buffer against LCC competitors, ring-fences the brand equity of the carrier whilst capturing the growing value-driven passenger.

Don’t scorn the lucrative Economy Class passenger.

Review your recent flights on our tool at www.flightmaestro.net

Advertisements

Posted by Tom

Tom is a consultant and founder of FlightMaestro.net, the online travel tool that rates, ranks and dissects every facet of in-flight passenger experience. All views expressed are his own.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s