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!
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 »
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.
Airlines are dropping from the skies like dead flies these days, especially in the US. And the bankruptcies have not been limited to just one category of airlines – everyone from budget carriers to luxury airlines seem to be going bust. The latest to fold up is Eos, the all-business class airline that operated between New York and London. Oasis HongKong folded in the long-haul budget airline category, and of course there were the multiple US airlines like Aloha, Skybus and ATA that have gone out of business within weeks of each other.
Ironically, a number of them seemed to have great brands! Aloha was rated as being the best airline in the US for service. Eos was right up there in the all-business airlines category and we wrote about them in a previous post. Oasis HongKong was a well known brand in the region as well. Reasons for failure are everywhere. But what are some lessons that can be learnt from the experiences of the airlines that were? Here are five of them. Read the rest of this entry »
I wonder what it would be like to take a flight on the new Northwelta from Boston to Singapore via Detroit and Tokyo on a Boeing 747, once the US$17 billion merger between Northwest and Delta comes through. Will I get the Northwest experience or a predominantly Delta one, a mish-mash or none?
There’s been a lot of chatter around the merger, though more negative than positive (check out the one by Center for Asia Pacific Aviation for a different view). But I’ve hardly read anything about how the merger would affect the brand. Even though the new airline (largest in the US with over 70,000 employees) will be operated under the Delta name, which currently doesn’t have any 747s and also doesn’t fly to Asia Pacific, the brand experience can certainly be enhanced to make the sum greater than the parts combined.
Here are five ways how Northwelta can leverage on the merger to boost its brand (something soon-to-be-merging airlines can keep in mind too). Read the rest of this entry »
With airline mergers and takeovers happening around the world, and now looming in the US too, one of the biggest “obstacles” encountered by airlines is airline staff unions. I beg to differ.
Here are a couple of the latest news about crew unhappiness in the last few days:
Air France Agrees to Buy Alitalia for $1.2 Billion (but faces union troubles), March 17, 08 - Bloomberg
British Airways Pilots Protest Plan to Start New Airline, March 15, 08 - Bloomberg
Pilots have much to lose during mergers, March 9, 08 - USA Today
Internal branding as a strategic corporate communications tool
Airlines should ensure that they take good care of their employees in case of a merger, and not construe it as an obstacle. Having them in the fold and ensuring their happiness would help ensure that the passengers receive a superior brand experience. Some branding experts refer to this as internal branding, other claim this is integrated branding. Regardless of the terminology, it is an established fact that if the working conditions are good, the crew is happy, and that rubs off onto the passengers so that they too are happy. Read the rest of this entry »
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