Recently, there has been a surge in online betting on an interesting issue - which would be the next airline to go bust? Below is a screenshot of one of those sites. From the odds, we can tell that FlyGlobespan and SkyEurope are the most likely to go bust very soon, and British Airways and Lufthansa are the commercial airlines least likely to go bust.
So, does that mean that airlines with stronger brands less likely to go bankrupt? It’s a lot about consumer perception and brand equity. Let’s discuss, and hopefully, we’ll reach a conclusion that derives a relationship between betting odds and brand equity!
A recent article on The Sietch Blog claims that Virgin Atlantic is “on the brink of collapse”. The argument is based on Sir Richard Branson’s recent statements in the press about the threat posed by the BA/AA collusion. On this, an un-named source has commented that it reflects that Virgin Atlantic is in trouble.
Whether Virgin Atlantic, and their sister companies Virgin America and Virgin Blue can ride out the storm depends on many factors, but at the moment things are not looking good for the former wunderkind of British industry. The “budget house of cards” won’t stop toppling for some time yet.
Prevention is better than cure
In fact, Branson’s comments show Virgin’s preparedness for the upcoming threat and they are dealing with it head-on. Forbes Magazine revealed in an article that Branson unveiled last Friday the slogan “No Way, BA/AA,” which will be painted on the side of Virgin’s aircraft. This campaign will alert consumers to the “anti-competitive” nature of the proposed tie-up, which Virgin hopes will then indirectly put pressure on American antitrust regulators.
Virgin is a trusted brand
Virgin Atlantic is one of the few airlines in the world with a sound business model (first class service at business class prices) and an outstanding brand image. Most importantly, Branson is an icon people can relate with. Customers trust the Virgin brand, and this brings loyalty. They will not ditch a loved brand easily and Virgin is likely to further strengthen its position an industry leader once this crisis is over.
This blog’s predictions that all-business class airlines would go extinct have come true, with British Airways making an offer of $107.3 million for the last remaining major all-business class airline - France’s L’Avion. With one less competitor operating between Paris and New York, BA’s new OpenSkies airline will be able to dominate the route. In fact, since L’Avion was also operating Boeing 757s, they may now be combined to form a fleet of three Boeing 757s for OpenSkies. According to Reuters, L’Avion started in January 2007 and has transported 65,000 passengers. But the going was certainly getting tough as the price of oil crossed $140 per barrel, evidence of which are the recent spate of bankruptcies in the airline industry.
Big bird BA picks up the last fish in the river (Image Credit: Esox Lucius)
How does this impact the British Airways and OpenSkies brands?
The effect of this acquisition on the parent airline’s brand should be generally positive, due to two key factors. Firstly, the lack of competition would surely help the OpenSkies brand since there is no direct comparison for their services. Moreover, lack of competition results in lower price pressure - which means that OpenSkies can charge realistic higher fares and be profitable sooner than later. Secondly, the acquisition is of an all-business class airline, which adds greater value to BA/OpenSkies, since L’Avion had planes that offered more luxury to the customer. So instead of sprucing them up, BA just needs to remove some seats to include Economy class, if they choose to do so.
In the end, this means the end of cross-Atlantic all-business airlines, and bodes well for British Airways as well. A win-win situation for both the airlines. A questionable one from the customers’ perspective though.
What do you think? Will this help the customer? Please feel free to leave your comments below.
The recent spate of airline mergers - or merger talks - begs the question: Is it better for the industry if two airlines merge or one of them goes bankrupt. Verdict: It’s better if an airline goes bankrupt.
Here’re three reasons why bankruptcies are good for the industry overall.
Increases industry revenues. Many airlines are not making money because fares are too low, compared to costs. More bankruptcies mean less price competition for the remaining airlines. They can then raise fares with less fear of undercutting. This would help them cover costs, and increase profits for the industry overall. Cathay Pacific was able to optimize flight times between Hong Kong and Vancouver after Oasis HongKong went bust.By contrast, in mergers, the new combination of airlines takes long to rationalize routes, and when they do, they still charge low rates since fares never really increased the way they could have, due to sudden disappearance of competition from a route.
Dramatically lower costs. When airlines close for business, they lay off a large number of people. These people increase the labor supply in the market, and are hired by other airlines at lower wages. This reduces the overall wage component of the costs. When airlines go bust, they also get rid of their planes at very low prices. They are sold to other airlines, which can then put them on their under-serviced routes. Again, reducing the cost of the equipment. AirAsia is a great example of an airline, which inherited two planes with just a $0.50 down payment, and was able to tap on the abundance of cheap labor, right after 9/11. Read the rest of this entry »
On June 10, a Sudan Airways flight caught fire on the runway at Khartoum airport, which resulted in the runway being closed due to the damage. Such incidences can wreak havoc for airport officials and passengers of other airlines. This is when an airline’s resilience is tested. Here is an account of a person who was stranded at the airport the day after the incident and had to bear through much inconvenience in order to finally fly out on the Qatar Airways operated flight to reach his final destination - Delhi, India.
Image courtesy BBC news
“I was in Sudan for a presentation and experience sharing with East African Telecentre Networks. I was scheduled to travel back to Delhi on Qatar Airways, via Doha. Traveling the day after the crash, I was issued boarding passes at the airport, even though the runway was only open for small planes as it was partially damaged. All passengers were standing in front of the boarding gate from 2 PM till 9 PM without any information, food or water. Communication with the ground staff was difficult due to language problems, and they did not seem to have any information as well. As the night approached, the airline refused to put us in a hotel, since they claimed this wasn’t their fault. Luckily, our trip organizers made alternative arrangements for us for the night. Read the rest of this entry »
In times of economic uncertainty, business travel decreases as organizations slash travel budgets. The International Air Transport Assn. is already reporting that business and first-class travel have experienced the biggest plunge in five years. Promising all-business class airlines like MaxJet, Eos and Silverjet have gone out of business in just a matter of months. Other airlines are cutting capacity too, as fuel costs rise. So what does this mean for the future of business travel? Is it going extinct, or is it here to stay? Let’s analyze this from two perspectives: business class-only airlines, and full service airlines with specific all-business routes.
All-business class airlines: Verdict – Going Extinct
The all-business model was always considered an experiment and at record high oil prices any new model struggles. Aviation analysts point to the premium-class graveyard where the tombstones are reminders of such short-lived U.S. airlines as Air One, Air Atlanta, McClain, Regent, MGM Grand and Legend. Most of these offered domestic US routes only, which re-affirms the point that there is little domestic market for all-business carriers. Read the rest of this entry »
Oil prices reached $135 per barrel last week and have just claimed the latest victim: SilverJet. The all-business airline stopped operations today (Friday, May 30) since it failed to secure a $5 million loan to carry on operations. This now makes it three-in-three for all-business airlines operating between New York and London. MaxJet and EOS have shut down operations in the last year as well. Interestingly, SilverJet helped carry EOS’ passengers when the latter ceased operations. I wonder who will come to rescue SilverJet’s stranded passengers. (Update @ 30 May, 11.49pm: Virgin Atlantic is offering special fares to stranded SilverJet passengers)
(Image courtesy http://www.airflights.to)
The irony is that even as full-business class carriers go out of business, legacy airlines have been starting up all-business class routes recently. Singapore Airlines’ route between the city-state and Newark seems to be off to a good start. British Airways’ OpenSkies looks all set for launching operations too, and L’Avion still flies between Paris and New York. May be the difference is the deep pockets of the parent airlines, who sustain an unprofitable route much longer than greenhorns like SilverJet and Maxjet could.
Everyone is now aware of the much criticized move by American Airlines to charge $15 for the first checked in bag, and $25 each for subsequent bags - a perfect example of the knee-jerk reactions we are getting used to from airlines. This is a one-way street for the passenger. What if oil goes down to $100 in two months? Surely the baggage fee will not be reduced. Sounds like a perfect recipe for disaster for customer confidence (if there is any left now).
Photo courtesy of http://www.worldrider.com/
Surely, there are better ways to deal with externalities than to squeeze out every nickle-and-dime out of the already exploited passenger. Airline executives in the US can learn some things from their counterparts in Asia (who’re still doing well in this environment) and also take some lessons in Economics. Here are three tips to get started: Read the rest of this entry »
The airline industry is one in which there are a lot of externalities – situations beyond the control of individual airlines, which they have to deal with. These may include events such as 9/11, weather conditions, pilot union trouble or even the bankruptcy of a competitor. Though on the face of it, these may all seem to bring trouble, but if leveraged well, these externalities can lift the airline brand in a number of ways. This is because almost always, a number of airlines face a similar macro-situation simultaneously, but it is those who deal with it well who come out triumphant.
Here are three examples of how airlines around the world have been resilient in the face of externalities.
Olympics in Beijing? Let’s send the A380 there. To capitalize on the increased travel demand to Beijing during the Olympics, Singapore Airlines recently announced that they will be flying the A380 to Beijing during this period. What a perfect example of dexterity. Not only will SIA be able to showcase their premium product to a large number of travelers (who’re ever so happy to be on the A380), they’re charging more for those tickets too. Perfect win-win situation.
Competition died?Let’s service their routes. Alaska Air started new routes to Hawaii from Seattle after Aloha Airlines collapsed earlier this year. Not only were they able to service existing demand. Another win-win situation.
Passengers stranded by competition?Let’s help them out. SilverJet offered seats to stranded Eos passengers between London and New York once the latter ceased operations. Cathay Pacific offered seats to tons of students heading to London once Oasis Hong Kong went out of business. Both these airlines appeared as “rescuers” in the eyes of the passengers. What better way to acquire customer loyalty, that too from those who were going to the competition earlier.
Response to externalities is a crucial, but often overlooked, strategy that can be utilized by airlines to win the hearts and minds of their passengers. These three customer examples demonstrate that.
Please feel free to share your own experiences in the comments section, where you’ve encountered dexterity on airlines’ part.
If you enjoyed this article, click here to get free updates by email or RSS.
When an American Airlines passenger died in-flight earlier this year resulted in a public outrage, the airline’s attempt to rescue its reputation fell flat on its face. Two days after the death, American Airlines decided to honor a stewardess for saving the life of a passenger on board a flight - three years ago!
What already sounds like a bad attempt at generating positive PR turned much worse when the stewardess blatantly rejected the award, at the ceremony, instead spilling the beans on bad management practices at the airline. All this in front of shocked executives and ever-eager media. Check out the stewardess’ interview with MSNBC, after the incident.
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=d7a8591d-4cf7-431f-a374-441516fafc32)
