Is It About More Competition, or A Different Kind of Competition?
Last week’s lawsuit filed by the Justice Department to block the merger of American Airlines and US Airways on grounds that it would limit competition, and lead to reduced service and higher prices, may be missing the point.
Consider these facts:
- The biggest mergers have taken place in the last 12 years, with American/TWA in 2001, Delta/Northwest in 2009, and Continental/United in 2010.
- Over that same time period, the airline category American Customer Satisfaction Index, a predictor of consumer spending, pricing power and shareholder value, has trended relatively flat, consistently ranking at the bottom of all 43 categories measured.
- Since 1995, Passenger Revenue per Available Seat (PRASM) has lagged the CPI, suggesting relative airline price deflation.
- Since 2008, there is virtually no difference in PRASM between network carriers (which include all newly merged airlines) and low cost carriers, like Jet Blue and Southwest.
What does all this
mean? Well perhaps it means that consolidation has had no effect on service or price. And perhaps it really means that airlines’
value equations are broken.
If that is the case, then
perhaps what airlines need is not more competition, but a different kind of
competition. A kind of competition that
is not driven solely by price and availability; a kind
of competition that de-commoditizes one of the most potentially experiential
categories in existence; Simply put, a kind of competition that is driven by brand
value creation.
Unfortunately, there is
little sustainable brand value creation occurring among the network carriers. Ironically, the exceptions are the low cost carriers, Southwest, Jet Blue and Virgin.
Southwest pioneered democratized flying 38 years ago, with the vision of getting people to their destinations on time, at a lower price and have fun doing it. It has never strayed from this simple idea. While the amenities may be bare bones, its consistently reliable experience and unique personality earns strong customer satisfaction, fierce loyalty, and higher PRASM than US Air or United.
Jet Blue launched in 2000 with a unique value proposition of bringing humanity back to air travel. Over the course of time, Jet Blue has not strayed from its core brand proposition. Its customers know that they will sit in relative comfort, not have to pay for their first checked bag, in-flight entertainment, or in flight snacks, like their signature Terra Blue Chips; that should something go wrong, they are protected by a Passenger Bill of Rights.
Southwest pioneered democratized flying 38 years ago, with the vision of getting people to their destinations on time, at a lower price and have fun doing it. It has never strayed from this simple idea. While the amenities may be bare bones, its consistently reliable experience and unique personality earns strong customer satisfaction, fierce loyalty, and higher PRASM than US Air or United.
Jet Blue launched in 2000 with a unique value proposition of bringing humanity back to air travel. Over the course of time, Jet Blue has not strayed from its core brand proposition. Its customers know that they will sit in relative comfort, not have to pay for their first checked bag, in-flight entertainment, or in flight snacks, like their signature Terra Blue Chips; that should something go wrong, they are protected by a Passenger Bill of Rights.
All of this has paid off in
real brand value creation. Today, Jet Blue enjoys the highest customer satisfaction index
rating, 14 points above category average. Consequently, Jet Blue has increased PRASM by almost $4 since the year 2000, closing the revenue gap with
network carriers from over $2.32 to less than 75 cents.
So what could this mean for
network airline brands in the future? Are mergers alone the answer to surviving this changing landscape? Or do they need to rethink their go to market strategies, with value added brand propositions?
Perhaps the first thing that they need to do is regain a sense of purpose for their newly formed brands. That sense should drive differentiated, brand behaviors and customer experiences.
Perhaps the first thing that they need to do is regain a sense of purpose for their newly formed brands. That sense should drive differentiated, brand behaviors and customer experiences.
For instance, shouldn’t an
airline that proclaimed ‘We know why you fly’ be able to track your history,
anticipate where and when you will fly next, and pre-reserve a ticket for you?
Shouldn’t an airline that
proclaimed ‘We love to fly and it shows’ spread that love to its passengers by offering
flying lessons as a frequent flier reward?
Shouldn’t an airline that
extolled the virtues of face to face business meetings in its post 9/11 ‘It’s
time to fly’ campaign facilitate the arrangement of face to face business
meetings with complementary airport business centers and fully wired ground
transportation?
Yes, all these ideas would
likely raise prices, but they would also enhance the value equation, raise
customer satisfaction, and re-establish the network carriers' position in the market. And isn't that the kind of competition we really need?
Sources: American Customer Satisfaction Survey; MIT Airline Data Project
