Spirit Airlines has announced new fees for carry-on luggage. Yes, carry-on luggage. If you want to know who the *real* Ryanair Airlines is in the US, it is Spirit. If you’re a member of their $9 Fare Club and pay for your carry on online, you’ll pay $20 for a carry-on bag. If you don’t book your bag online but pay for it up to the ticket counter, you’ll pay $30. If you don’t belong to the Fare Club and have to pay at the gate, it’s $45.
Mind you, Spirit also charges $19.00 for 1st bag *checked* too.
In general, I disapprove of baggage fees for any 1st bag but in Sprit’s case, I’m OK with it. Why? Look at their air fares. If you play their game, you still save an incredible amount of money on their flights. Only fools pay additional fees on their airfares that make the total cost approach other airlines.
In a twisted way, Spirit’s fees kind of make more sense to me. They’re unabashedly charging for the right conveniences and with scaled levels. It is hard to argue against that approach.
Will other US airlines adopt this approach? Maybe. Frankly, it may well be the more sensible approach to fees but if you do see an airline adopt this, you’ll see them lower or eliminate their 1st checked bag fee I suspect. Airtran could be a good candidate for this approach perhaps. I suspect the legacy airlines may avoid it as it targets their favorite customers: the business traveler. I definitely see Ryanair taking this challenge on in the near future. It fits perfectly within their strategy.
Sun Country Airlines has announced plans to fly weekly service from Minneapolis / St. Paul to London (Stansted) this summer from mid-June to mid-August. You can read their press release HERE. This service will include both first class and coach seating on a 737-800 aircraft. Yes, that’s right. A 737-800 aircraft is being used.
No, it isn’t a Boeing Business Jet in disguise. Sun Country is planning to have an intermediate stop in Gander, New Foundland in each direction. That’s right, we’re back to offering service comparable to 1959. Actually, that’s wrong. The original 707s used on such services were considerably faster than the 737-800.
Believe it or not, this service is being sold for $798 not including taxes and fees. Taxes and fees could add well over $200 to $300 more to the price. No real bargain there. Did someone at Sun Country have a dream that Delta wasn’t offering enough service to London and a Beefeater comes along and suggests London Stansted as an ideal airport to use? London Stansted is 45 miles to the city center of London and lacks a tourist friendly connection between the airport and city center as well. Believe it or not, the CEO of Sun Country justifies this choice by mentioning potential connection opportunities with Ryanair.
Come to think of it, is this Sun Country’s way of announcing they are for sale?
There have been a few attempts to create long haul, low cost carriers over the past several decades. Laker Airways and People Express were two examples of that from years past. Neither succeeded in the long run due to competition but also because long haul flights are a different creature.
Now I’m beginning to think someone could do it. It would require a few very special adjustments to make it successful and those adjustments would be a real challenge to accomodate but, yes, I think someone could do it.
Michael O’Leary of Ryanair has talked of doing this but his concept, at least how he has laid it out, is fraught with peril since it is based on a Ryanair strategy.
Long haul flights really only work between two large population centers because they do depend a lot on airport infrastructure and originating traffic in those areas. They are international and that requires airports that can accomodate customs and immigration facilities and airports that have runways that are long enough for long haul aircraft.
They also can’t depart and arrive at just any time. Not to be attractive anyway. So schedules are much more important and frequency isn’t necessarily the key as much as finding routes that offer high aircraft utilization.
Until recently, they also required really large aircraft such as the 747 or DC-10/MD-11 to lower the costs per available seat. Filling those aircraft day in and day out is difficult on a point to point basis if you don’t have really large population centers to feed those aircraft.
Things have kind of changed though. For one, there are aircraft that might be suited to such operations which offer very low CASM (cost available seat mile) but which aren’t so big that they become difficult to fill. I’m thinking of the Boeing 787 and 777 and the Airbus A330 and A350.
These aircraft are capable of long haul flight, offer enough capacity and the kind of operating costs that might just make such a venture possible. In particular, the 787-8 and A330 make this look real attractive.
The one twist that I think you would need is partnerships to feed these flights at major cities that would serve as the departure points for such flights. In the past, I would be skeptical of this being possible. Now, not so much. Southwest Airlines is forging partnerships with LCC carriers in Canada and Mexico (WestJet and Volaris) and its just the kind of partnership that a long haul LCC venture could use.
Imagine an LCC carrier using the A330 or 787-8 flying routes such as DFW-London or Chicago-London or NYC-London. Or even Portland, OR to Amsterdam or Denver to Germany. Maybe even Salt Lake City to Japan.
The best aircraft would be the 787-8. It would accomodate medium to long haul flights perfectly with low enough CASMs for virtually any city pair. Its expected to be more low maintenance than any other aircraft of its kind. It could become the 737 of long haul quite easily.
If you had partnerships with LCC carriers on both sides to feed connecting traffic (something else that Southwest has done a time or two with its relationships with ATA and Icelandair (which was actually an interline agreement), you might be able to do it.
Imagine Southwest Airlines feeding such an LCC in places such as Denver, Baltimore, Pittsburgh, Portland or Seattle and Ryanair feeding such a venture at airports such as Dublin, London-Standsted or Frankfurt-Hahn. Or, perhaps, Airtran feeding such an airline from Atlanta to Rio de Janeiro with Azul providing the feed in Brazil.
This new LCC would have to be the “codeshare” on the domestic/regional flights and its own entity on the long haul international portion. Domestic/regional partners would benefit from the additional regional traffic but really should not be selling tickets from Kansas City to Rio de Janeiro via Atlanta. It goes against their models. These partnerships should be about each sticking to their models but providing some interlining between the two.
Oddly enough, I see airlines in two parts of the world being able to do this. The United States would be ideal because a US based long haul LCC carrier can reach around the world from the US borders. The other area would be one based in the Middle East such as Dubai which could also reach around the world.
With Open Skies agreements falling into place left and right, the right aircraft being available now and LCC IT infrastructures becoming flexible enough to enter into this kind of partnership, it might just be possible in the near future.
Today, part 2 in my views on whether or not we’ll see a real “Ryanair” style airline here in the United States.
Watch what you fly here. The most recent LCC entrants here have bought Airbus. No real surprise as Airbus likes to make a heck of a deal on an aircraft for new airlines in the hopes they’ll have the “in” for future orders if that airline succeeds.
Boeing isn’t too interested in that. They want to see a solid business plan and a real possibility of success. What’s more, big orders aren’t the enticement they once were for Boeing. Boeing got burned on a few of those deals with Ryanair being the most notable since it allowed Ryanair to buy aircraft, fly them for a couple of years and sell them at a profit. Boeing isn’t going to let that happen again any time soon.
Is Airbus the right aircraft? Yes. No. Maybe. I kind of think not. I think it is well suited to the jetBlue and Virgin America airlines of this country because they can support that upgraded service product nicely. That said, those airlines would have done just as well with Boeing aircraft. In fact, jetBlue went with Airbus because Boeing refused to offer a decent price for a decent order.
But Airbus doesn’t strike me as quite the right choice for an LCC. They’re a bit higher off the ground, have a little worse operational dispatch rate and don’t always have the best range vs weight ration for certain routes. Yes, they’re a family of aircraft that offers a range of size that captain can fly across the type range.
Boeing seems better. Supported here in the United States, you have better access to mechanics, parts and plenty of maintenance contractors to keep you going. They’re a little bit closer to the ground, a little easier to turn around and have a little bit better dispatch rate. In addition, their range of capacities is a little bit better for routes and virtually every model has trans-continental capability now without being weight restricted.
The model I would look long and hard at isn’t either of those. I think a new LCC carrier trying to emulate Ryanair ought to take a serious look at the Embraer 170/190 aircraft. They’re cheaper to operate and can carry a full load of passengers and baggage although little cargo (which isn’t an LCC’s concern anyway.) They offer a family of sizes, have a good dispatch rate, offer quick turn arounds, great range, good comfort and great potential for routes requiring frequency and low costs. It is no wonder that David Neeleman chose them for his new airline, Azul, in Brazil.
But you can go used in the US and do pretty well too. Allegiant Airlines buys used MD-82/83/87 aircraft, for instance. They MD-80’s are overbuilt, cheap to buy and still pretty cheap to operate. They have range, good dispatch rates, ease of maintenance and they’re abundant on the used market. The same is true of older Boeing 737 models (pre Next Generation models) and those are becoming to cheap to purchase as well.
In the end, an LCC needs an aircraft type that is relatively easy to expand into a fleet, keep one class of pilots flying it and which has a ready source of aircraft to augment and/or replace the fleet with.
One type, many sizes should be the rule. Ryanair uses one size, the Boeing 737-800 and Southwest basically uses one size, the Boeing 737-700 but they can afford to do so. A new LCC needs operational flexibility and being prepared to use the three basic sizes of either type would be a good thing.
But you can split your types too. Airtran did this successfully by entering the world with DC-9s, transitioning to Boeing 717s and then growing in capacity by bringing on the Boeing 737. That worked because while they needed two different pilot groups, the pilot groups could be kept “rational” with the same pay rates. jetBlue split their types between the Airbus and the Embraer(190) and split their pilot groups pay rates too. There was risk involved in that but jetBlue avoided that by offering pay rates on the Embraer that were as generous as that being offered other pilots flying mainline aircraft at other airlines.
Find airports that welcome you and that have demand to locations you can serve. Sounds easy but it isn’t. In the US, airports tend to be wedded to airlines that have served them for decades. When DFW opened, it was served by a number of major airlines and each terminal served one or more airline. Now, DFW has been taken over by American Airlines (nearly 4 of 5 terminals) and does little to serve the needs of airlines who aren’t AA.
Airports need to figure out that putting all their eggs in one basket with a major, hubbed airline isn’t a good strategy in the long run. Once those airlines have that dominance, they use it to beat airports down on fees and coerce airports into paying for infrastructure the airlines then get to own. It doesn’t benefit the local economy to have one dominant airline as prices rise and service falls. This isn’t just true for DFW either. When airports begin to aggressively pursue new entrants, everyone will win.
New and existing LCC entrants need to make a better argument too. All too often, LCC’s tend to fear competing in those markets dominated by a major legacy carrier and that’s a mistake. Airtran wasn’t afraid to go up against Delta and it paid off. jetBlue wasn’t afraid to compete in one the most competitive markets in the world (NYC) and against some of the biggest airlines. In the past, there weren’t good examples of what an LCC can do for both an airport and a metropolitan area. Now there is and new LCCs in particular need to use that to their advantage.
Treat your staff well. Airlines sell a service product and while you may get customers on price, you’ll keep them with service. Offering strategies to your crews that permit you high productivity and your crew a living wage along with a good working conditions can only lead to your success. Treat them like commodities and you’ll fail. Southwest, Ryanair, jetBlue and Airtran get this. Skybus and Mesa Airlines don’t. Look at who is making money.
Quality of life is just as important to airline crew and staff as wages. Airlines that offer good quality life tend to have happy crew flying their flights and treating their customers right. At the end of the day, it is a lot cheaper to keep a customer than it is to find new ones every week.
Will we ever see a close replica of Ryanair’s model here on a national basis? Yes, I think so. Right now, no. The market is too crowded but that will change again and new airlines will be started again. US attitudes towards fees and advertising are changing, although slowly.
First we need to see a major airline liquidate or merge with another to reduce capacity some more. Then we need to see an uptick in the economy that induces people to spend some money on travel again (both leisure and business travel.) There needs to be a glut of aircraft useable for such a venture (and that’s happening already) and airports need to figure out that it is in their best interest to find space for these new entrants. That really hasn’t started to happen yet but it may yet still happen.
Ryanair is certainly the darling of LCC carriers and, to a certain degree, they even kind of outshine Southwest Airlines. Lots of people look at the US market and wonder about having a Ryanair-style carrier here. Skybus Airlines (read more about them HERE) was supposed to be the one but tanked miserably and by every appearance, the only people who didn’t expect them to fail miserably was their executive staff.
Could such a carrier exist here? Sure they could. In fact, I think it already does in the form of Allegiant Airlines (find out more about them HERE.) Allegiant is all about flying routes point to point using secondary or even tertiary airports and providing extreme low cost prices which are augmented by fees galore. And they make a considerable profit doing so.
What does it really take to be a Low Cost Carrier in the United States? First, let’s really define what that is. Interestingly enough, US Airways uses LCC as its trading identifier on the stock markets. Is it a LCC carrier? Not by any definition. jetBlue and Virgin America both style themselves as LCC carriers but, let’s face it, while they offer great value, neither are a Ryanair style LCC.
Southwest Airlines and Airtran Airlines are probably both the best examples of true low cost carriers operating nationally here in the United States. Allegiant certainly is but they’re still focused much more on the leisure markets and many of the routes they serve compete with quite literally no one.
Skybus failed for a few reasons. First, they picked a hub that defied rational thought in Columbus, Ohio. As you can imagine, there isn’t a whole lot of traffic trying to leave or get there. Hubs don’t work well for LCC carriers. Focus cities do but not hubs. If you want to make money as any kind of airline, you had best be offering flights between two places people want to go.
Second, you have to pick between offering frequency and relative value or absolute lowest cost and infrequent service. You can’t be all things to all people. Skybus kind of offered high frequency and absolute lowest cost and hoped it would stimulate new traffic. The problem is, there is only so many people who want to fly between Columbus, Ohio and Greensboro, NC. You really can’t do that route once or twice a day every day of the week. Not at any price. Not with large, mainline aircraft anyway.
Third, just because you can fly to a secondary or tertiary airport doesn’t mean people will go to that airport to use your airline at any price. Case in point, Bellingham, WA and Skybus again. Bellingham, Washington is a long way away from most anyone in the Seattle-Tacoma area. It’s 90 miles from downtown Seattle, 122 miles from Tacoma and it is a tortuous drive in traffic for anyone in that metro area. Bellingham is convenient to, say, Vancouver, British Columbia but that means crossing a border. In the case of the SEA-TAC area, you need to be flying from their main airport. And the lesson is that you have to look long and hard at each area you’re serving.
LCC carriers have succeeded in flying from secondary, smaller airports such as Love Field (Dallas) and Midway Airport (Chicago) and even Long Beach (LA area) because those airports remain highly accessible to a large number of people. And as both Southwest and Airtran will tell you, sometimes if you want to enter a market, you have to bite the bullet and fly where people want to go. I take note that since Airtran has decided to defend itself against Allegiant, even Allegiant figured out it needed to change airports in the Orlando area to remain competitive.
Choose your fees and advertising carefully. The United States is a different place than Europe. Advertising that is racy or in bad taste doesn’t go well here under the best of circumstances. It doesn’t matter if you think it should or not. It just happens to be that way and a new airline is going to change the moral outlook of this country. Oh, yes, Spirit Airlines has gotten away with it now and then but they remain a minor player and it has possibly turned off as many people as its turned on.
An a la carte fee system (a la Ryanair) is something that this country is completely unfamiliar with when it comes to airlines. Now, that is changing and it will likely change more but it is an evolutionary thing, not revolutionary and some fees are going to make customers feel burned no matter what. Skybus’ Ryanair-like approach to charging a fee for even looking in their direction was offensive to customers here in the US particularly when, at that time, no one else had even really dabbled in it.
While I do think more a la carte offerings will and should be instituted among airlines, it will be done differently here. Luggage fees have generated a massive amount of resentment with customers and while they have generated significant additional revenue for major airlines, it has also caused many customers to more carefully consider their options. Southwest has bucked that luggage fee trend and the results are showing.
There is place for an airline that charges for checked luggage, beverages, meals, blankets and airport check-in. But the amounts of those fees still have to have some value. Particularly when legacy airlines already have those fees as well. Charge more for checked baggage than American Airlines and you run the real risk of turning people off. We’re really not a true a la carte culture here.
Be careful of your publicity. Ryanair’s CEO, Michael O’Leary, gets away with outrageous statements and even expressing a certain outright hostility to his own customers. That works in Europe and, in particular, within the UK and Ireland. Those are cultures who know how to take such statements with a bit more of a wink and a smile. Here in the United States, it’s a flat turn off. Our culture is based more on politeness and friendliness. Bark at your customers or even insult them and they will walk elsewhere.
That isn’t a big surprise to most readers of this blog and one very good reason why I’ve said little about the event. Despite the long program delays and disappointing news of certain developments about this aircraft, I remain extremely excited about this aircraft. Perhaps for different reasons than most, though.
Mainstream press continues to speak about the 787’s increased comfort potential for the passenger and sometimes mentions the efficiency the aircraft will offer airlines. All that is true but it excites me for different and more specific reasons.
First and foremost, it is the first truly new aircraft to come from Boeing since the 777 made it’s first flight in 1994. Since then, there have been improved variants of the 737, 767 and 777 introduced but this is the first “from scratch” aircraft to show up in 15 years from Boeing. That is exciting to me.
One of the most disappointing results from the Boeing / McDonnell Douglas merger is that, in many respects, Boeing was taken over by McDonnell Douglas managers rather than the other way around despite the fact that, for all intents and purposes, it was really a Boeing takeover of McDonnell Douglas. Since that merger, Boeing has been much more intently focused on developing its defense businesses almost at the expense of investing in Boeing Commercial Aircraft. That has been disappointing and a bit perplexing to me given Boeing’s ability to build fantastic aircraft for the commercial world.
So I hope that this aircraft, the 787, represents a return to innovation and development for Boeing Commercial Aircraft. I hope that a new, younger group of managers is being born from this program that will lead Boeing’s development of new aircraft such as a 737 replacement, a 757/767 replacement and, yes, a new 777/747 replacement too. But I remain concerned if for no other reason than Boeing seems to be ignoring new competition from Bombardier and EMBRAER who are now challenging the 100 to 130 seat domestic segment in the US and elsewhere. If Bombardier can build its new C-Series aircraft with union labor in Canada, Boeing should be more than capable of developing a new family of aircraft to compete against those two companies.
While the first flight is truly on track to happen in the next two weeks, the burning anticipation of that first flight has, if anything, died down in many respects. Those who have followed it tortuous path to first flight recognize that it isn’t the first flight that means anything now. The aircraft is so mature in its development that we know it will not only fly but fly very successfully. We know that the major teething problems are almost certainly over now. There isn’t any need to speculate on its performance on a first flight and really nothing to wonder about for its testing over the next 12 months.
The real anticipation comes from seeing it perform with an airline. We want to see it enter an airline’s fleet and see how it performs during real world use. We want to see if airline CEOs proclaim it the game changer we all ferverently hope it is. We even just want to see what the airlines’ liveries will really look like on it. The real next “moment of truth” for the 787 is when it enters a fleet in its new livery. The launch customer is All Nippon Airways (ANA) and we should see ANA put the 787 into service sometime in late 2010.
The 787 should see service with a US airline in late 2010 or early 2011 and it will be Delta Airlines who has the honor by virtue of inheriting Northwest Airlines’ orders. I suspect we’ll see Delta order more shortly after the 787 begins operating in its fleet. Continental Airlines will put the 787 into service a short while later.
This is the most anticipated large volume aircraft to be designed and built since the 1960’s. That’s exciting.
What’s also exciting is what this aircraft means to Boeing and its future development projects. Will these same technologies be used on a 737/757 replacement? Is it conceivable that they’ll be used for a Very Large Aircraft to replace the 777? Both are possibilities. Detractors say there isn’t as much “gain” to be had in using carbon fibre based fuselages for a 737 replacement with respect to efficiency and that is probably true.
However, these new techologies may mean that Boeing can produce the 737 replacement even faster. The composite carbon fibre fuselages may mean less maintenance and longer maintenance intervals for airlines like Southwest and Ryanair. The new engines coming into development will demand some changes too. Larger by-pass ratio engines or, if developed, open rotor engines means more clearance will be needed between the wing and the ground. The next aircraft will have to stand taller and that might mean a little more time spent on ground handling.
The next generation engines and Boeing decision to produce an “electric” airliner may see those approaches used in the 737 replacement. Have we reached a point in reliability that we can expect these new systems to survive the punishing schedules of a domestic airline? I think so but the 787 is the aircraft that must support that supposition.
The 787 won’t be exciting because of what it potentially offers the customer in comforts. Yes, no matter what we’ll have larger windows and a little bit more fresh air and pressurization in the cabin but if you think you’ll be getting more spacious seat pitch, you’ll be disappointed. This new aircraft will be as packed as any in service now. Overhead bins will still be crowded.
My birthday is December 12th. There is speculation that the 787 may fly as early as December 14th. That’s close enough that I find myself kind of hoping that Boeing might pull a fast one and send it up into the sky 2 days early. It would be exciting to have an airliner born on my birthdate.
Michael O’Leary, CEO of Ryanair in Europe has been demanding a new deal for up to 200 Boeing 737 aircraft between 2013 and 2016 according to Reuters. Keep in mind that up to 200 aircraft likely means a firm order for between 50 and 100 aircraft with options for more. Boeing, on the other hand, has so far refused to negotiate what is by all accounts a rock bottom deal on their 737. More amusing is that Airbus has so far refused to offer a better deal on their aircraft since they’re already familiar with Mr. O’Leary’s tactics when it comes to negotiating. He likes to play one manufacturer off another.
There are likely several things at play here. First, Ryanair has often made a profit by “turning” their aircraft rapidly and selling them for a profit to other, smaller players. A situation that has no doubt irritated Boeing as they are looking to sell to users, not distributors. The original pricing for Ryanair was negotiated at a time when commercial aircraft sales for the industry and Boeing in particular were pretty flat and there is no doubt that Ryanair offered a serious opportunity for cash flow at a time when Boeing was in need of filling slots in its delivery schedule.
Not so much anymore. Boeing has a health backlog of orders and many of them for airlines who will pay more per aircraft and be happy to receive their 737s early. American Airlines has continued to up its orders for the 737 in light of the fact that no new next generation 737 replacement is due anytime soon from either Airbus or Boeing. Other airlines are likely to do the same over the next year or two. There is no incentive for Boeing to make an even better price to Ryanair.
And I think Mr. O’Leary knows it. But by making his threats and going public with them, he has begun to set an argument for why Ryanair will likely do a couple of things in the next few years. One will be slowing their growth. The truth is, growth opportunities for them in their market(s) are becoming few and far between. Second, they really can’t continue to “flip” aircraft in the next few years as there are plenty of other sources developing for second hand NG 737 aircraft. Slowing their purchases will give them a public rationale for slowing growth and reduced profits from sales of the 737.
I also doubt that Mr. O’Leary will distribute money to either his executives (in the form of bonuses) or to his shareholders. If there is one thing he knows, it is that an airline lives and dies by its cash holdings. It’s a weapon that I don’t believe he would give up. Instead, they may choose to invest it.
Mr. O’Leary has publicly spoken about creating a new trans-Atlantic airline in the future. Whether or not it is just talk, we’ll never know unless he does it. However, he does need the right kind of aircraft for developing his self-described premium/economy airline for the markets he thinks he can access. Part of his plan includes flying to secondary airports again in the US to save money. A plan that, I think, he’ll learn isn’t nearly as feasible as it might be on the European continent. There are no secondary airports with good transportation to their major market centers. You can take passengers to Hartford, Connecticut, for instance, but there isn’t a cost effective way to get from there to Boston or NYC.
However, that doesn’t mean Mr. O’Leary can’t access a number of markets and do so profitably. He is a master negotiator and there are plenty of US airports that would potentially welcome such an airline. With lots of cash, reduced capital requirements for the Ryanair fleet and good timing, they can establish such an airline if they can find the right equipment to use.
And that leads us back to Boeing. I think Mr. O’Leary recognizes that the 787 might be just the right equipment for such an airline. Both the 787-8 and 787-9 offer the right kind of efficiency, size and economics for make such a venture a success. There is no way that he’ll buy second hand aircraft such as the 767 or the A330 for such routes. Its difficult to find new(ish) aircraft on the used market that are worth purchasing and the A-330 probably is just too big for the routes. But the 787 potentially offers the right package. And I wonder if the current bluster about a deal isn’t about getting Boeing “prepped” to do a deal on the 787 with earlier delivery slots at great prices.
Time will tell. One thing I’m entirely certain of is that Michael O’Leary doesn’t have nearly as much contempt for Boeing as his bluster indicates. Both companies have done very well with each other and both understand that its in their interests to find a way to continue to do business.
In the late 1990’s, I worked in a general contractor partnership with two other men. We reached a particularly bad period where despite all our efforts, our clients weren’t giving us business. After almost 2 months of giving ourselves $200 paychecks every other week, it was clear that it was time to do something else.
Our particular situation seemed to be based on our costs. Things like sheetrock and doors had been rising in costs to the point where it became necessary to raise our prices to support the work we did. There were other competitors, one man shops with a pickup for an office, who were undercutting our bids just enough to win the business. We faced a choice of lowering our prices to win the business and not have any money or to stand firm and not win the business. Or so we thought.
One of my partners and I were motorcyclists and decided to take a ride during this period that lasted 18 hours. At one point, we were taking a breather alongside a very quiet road and began talking about our business troubles. We realized a couple of things that changed our game. First, the people that were undercutting our business were formerly from larger construction companies setting out on their own. They were winning on price, not quality and dependability. Second, we had an operation that had grown some and no longer fit well with some of our clients.
The next business day, we renewed our effort to check in with clients on a regular basis and continued to bid every job available. By doing this, we began to underline our ability to a project better and for a reasonable price. We also began to go out and seek new clients who better fit into our business. This meant asking for the business and delivering exactly what we promised on each job. The result was that old customers that continued to fit our model came back and we gained new customers who were looking for a company that performed.
This should sound remarkably familiar to those who follow the airline industry. There has been a cycle of attempts to enter the industry by people thought they had a game changing business plan and some were successful while others haven’t been. Jet Blue brought a new LCC model based on the Southwest turnaround and fleet efficiency but that was also focused on a higher level of comfort and service. They introduced two types of fleets to right size their routes but stuck with only two in order to benefit from economies of scale.
Skybus came about based on the single fleet, pay for everything model that Ryanair of Ireland built. They promised rock bottom fares and engineered a plan to accomodate that by flying to secondary cities and airports that offered lower operational costs. Skybus failed partly because of rising fuel costs but also from a failure to recognize that distances in the US make it much more inconvenient to fly into those secondary cities.
Airlines who identify their niche and develop a plan for it are more likely to survive. You cannot be all things to all people in this business because that means you have to compete against every other airline at the lowest common denominator. Why would American Airlines wish to compete against Allegiant Airlines when doing so puts them at a competitive disadvantage? Allegiant is based on a business model that addresses low frequency, leisure travel combined with ancillary revenue derived from charging for every convenience. Their labor costs are low and their fleet capital costs are low. American Airlines isn’t built to compete for that business.
Continental Airlines is an excellent example of a company serving the people that fit their niche. It doesn’t operate a low cost airline, it operates a high frequency, high service system that serves business travelers. They understand that maintaining a modern fleet with modern conveniences is important to that customer. They fly where their customers want to go and worry a lot less about being all things to all people when it comes to destinations.
Southwest Airlines has found itself evolving over these past several years. Often identified with the first time flier in the past, business travelers have realized that Southwest Airlines offers something that many don’t: dependability. When they fly Southwest, they know that there is a very high degree of probability that they’ll be able to get to their destination on time and, often, closer to their needs in a particular city. While Southwest still offers a very low fare compared to its customers and still attracts those first time fliers, they’ve also begun to serve the needs of the business traveler by remodeling their gate areas to offers business conveniences such as laptop power ports. They are in the process of testing in flight internet connections for the business traveler as well.
In contrast, you have United Airlines who has pursued the “be all to everyone” philosophy and it shows. With a huge network to leisure destinations, they get soundly beat by other airlines who compete on price. Their national and international business traveler destinations are served by older, unrefurbished equipment and their service model denies the conveniences a business traveler expects such as meals, beverages and even charging for checking the first bag. Notice that Continental hasn’t ignored the incremental revenue from such fees in general (they charge $25 for the 2nd bag checked) but they haven’t offended the business traveler with 1st bag checked fees either.
American Airlines and United Airlines have pursued a strategy that offends or, at the least, disappoints their core customers. Continental, on the other hand, recognizes that the opportunity cost of forgoing that 1st bag fee is paid back in customer loyalty when it comes to choosing Continental.
The last thing the business or frequent flyer wants to hear is that the airline resents them and wants more. Indeed, many have said publicly that if an airline wants more money, charge a higher fare but don’t insult them by charging for a bottle of Ozarka water on a flight. It strikes such people as petty and money grubbing. At the same time, these travelers don’t need to be singled out as the ones to carry the burden of paying for a flight. Don’t charge exorbitant business fares simply because the company is paying for it rather than traveler. These business travelers are smart people and generally the ones traveling are some of the smartest. They will begin to recognize that the fare to travel somewhere on business becomes inefficient at a certain point.
I suspect that it is time for airlines to begin eliminating some perks in the business class cabin as well. Often the business cabin is occupied by many travelers who purchased full fare economy class tickets and used their frequent flier status to upgrade into that seat. Airlines will have to begin to find ways to differentiate their service and charge accordingly. Perhaps a full fare economy ticket should be upgradeable to an Economy Plus seat rather than a business class seat.
Service is important to the frequent flier but what is that “service” that is most important? Is it a hot meal? A business class seat? A friendly flight attendant? No doubt each of those things has some importantance but I’d argue that the primary measure of service is whether or not you can dependanbly transport your customer from point A to point B on time. That is, after all, what the airline is contracting to do. Deliver that and the customers bags as well, and you’ll likely win their hearts and minds.
