If you’re in the airline industry, you must have heard about the misery of Jet Airways in the last few days. Half their pilots went on a “mass sick-leave”, causing almost 200 flights to be canceled per day, inconveniencing over 20,000 passengers resulting in absolute mayhem at the major airports, most of which tend to be chaotic on a good day.

Not very long ago, everyone was swooning over the re-birth of the romance of travel and airlines in India leading the pack. Business week had good words to say about Jet Airways, and even here on SimpliFlying, I did interviews with senior Jet executives.

Unfortunately, after two years of heavy losses, the brand was already tattering. A few months back, there was the employee sacking saga, and now, the mass sick-leave by the pilots is ruining the brand image built by the founder with great care over time. Sad but true.

And nowhere was this paradox more evident than on the front page of a leading Indian daily’s website. See it for yourself.

• Three lessons from Jet Airways on how not to treat employees
• Jet Airways employee sacking with an interesting online twist
• Building the “spiciest” airline brand in India: Interview with SpiceJet COO
• Announcement: February will be “Indian Aviation Month”
• Airline industry and branding outlook for 2009: Experts speak

Inspired from my earlier article about legacy airlines being dead, I’ve come up with this graphic to represent which legacy airlines we can look out for, and those which need to work very hard to survive the next decade. What do you think?

• Reality Check: Three reasons why legacy airline brands are dead (and who to look out for)
• How can legacy airlines, airports or hotels make an entry into social media? Start from within
• The business of business class
• Six ways social media can drive brand loyalty: Bollywood-style keynote presentation from World Brand Congress, Mumbai
• Oman Air’s re-branding effort – worth it?

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!

• “Chris Brogan: If I was an airline CEO.” Exclusive video interview with the social media mogul
• Why it’s good for the industry if airlines go bankrupt
• Will the Dubai crises lead to a mega Emirates + Etihad airline brand?
• What makes Lufthansa a successful airline brand in India?
• Airlines: Smile more so flyers “pick” you. In conversation with Patrick Hanlon of Thinktopia

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.

• British Airways’ all-business class from London to New York – is the OpenSkies brand dying?
• Latest Shock: SilverJet stops flying
• Is business-class travel going extinct? Part 2 of 2
• Is business-class travel going extinct? Part 1 of 2
• Is Premium Economy here to stay? A brand review of All Nippon Airlines

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.

1. 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.
2. 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.
   

   In a merger, however, lower costs through economies of scale can take very long to achieve, if at all. This is because the newly merged airline often finds it difficult to manage staff homogeneity. This has been a thorn in the US Airways and American West merger, as well as Air India and Indian Airlines merger. Both the airlines’ staff still maintain different seniority levels, different pay scales and often fly their original routes only, resulting in hardly any cost reductions through rationalization.

3. Survival of the fittest improves service. When fewer airlines operate a route, and make more money on that route, service inevitably improves. This is because these profits can be pumped into improving customer service, on the ground and in the air. Once a couple of airlines have gone bankrupt, the surviving ones generally take the “honor” of being the fittest, and the service often notches up a bit. Not only that, remaining carriers often come to the rescue of the stranded passengers of the bankrupted airlines, as they see a ripe opportunity for acquiring new customers.

At the end of the day, if the industry overall benefits from the perishing of some airlines, isn’t that better than going through the cumbersome merger process which is fraught with the risk of failure anyway?

Ponder that!

If you enjoyed this article, click here to get free updates by email or RSS.

Links:

1. Cathay Pacific reschedules Vancouver flights
2. US Airways and American West pilots feuding
3. AirAsia starting up by with only $0.50 downpayment

• Why a Qantas and British Airways merger is good (and why Qantas + Cathay Pacific will be even better!)
• Are airlines with stronger brands less likely to go bankrupt?
• Boston to New York for $7? Can someone explain why?
• Thoughts on the United and Continental merger – as quoted in the press
• Five reasons why budget airlines in Asia are successful

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.

The bottom line is that an all-business route must make business sense in the long term. Airlines must cater specifically to the needs of the business class traveler, like having a USB port or iPod connectivity in-flight. Singapore Airlines already does that (see link below). They need to be attract more customers, have them pay more per flight (need not be just ticket price) and get them to take the flight more often. Three very simple business principles to keep in mind, in addition to the lessons in economics for airlines I wrote about previously.

If you enjoyed this article, click here to get free updates by email or RSS.

Links:

1. SilverJet stops operations, IHT
2. SilverJet’s official press release
3. Singapore Airlines launches all-business class flight to Newark
4. Singapore Airlines offers iPod connectivity
5. OpenSkies gets ready to fly

• British Airways’ all-business class from London to New York – is the OpenSkies brand dying?
• British Airways buys L’Avion, dissolving the all-business class airlines industry
• Is business-class travel going extinct? Part 1 of 2
• The business of business class
• The importance of resilience: three airline case studies

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.

1. For Oasis HongKong, budget and business, together, were a confusing branding value proposition from the beginning. They tried to provide punctual, top-notch service and in-flight entertainment at discount prices. In the middle of it all, they forgot about recovery of money. Great expectations, good experience, sad ending.

2. For other budget carriers, the lesson of Oasis’s demise is that they have to fill more seats and more passengers into their aircraft. Basically, increase the money made per flight, without compromising on the promises made to the customer.

3. A number of airlines (esp. in the US) make this mistake. They tend to set the wrong brand expectations, and then leave the customer disgruntled when the experience falters. Things like suddenly charging more for a second bag. This is a sure way to drive down customer loyalty. One of the keys to long term success is to keep the brand experience consistent with expectations, even in turbulent times like this.

4. Efforts should be targeted towards providing specific services that truly add value to the brand experience, rather than invoking in the knee-jerk reaction of cutting many services and charging as much as possible for the rest. I’m surely not paying $5 for a bag of pretzels!

5. Some airlines are still succeeding at optimizing their brand in these turbulent times, by keeping their primary customer base happy, yet cultivating more sources of revenue. Southwest is attracting business travelers, for a higher fare. Air Canada is giving each passenger Ala Carte choices of value added services in each seat, for an additional cost. Pay for only what you want. Singapore Airlines has begun all-business class route to New York. British Airways’ Open Skies will soon fly all-business from Paris to New York. ANA and Lufthansa have started all-business flights to India.

The key to success is to increase number of passengers per departure, and revenue per passenger, without deteriorating, and possibly enhancing the experience. Having a loyalty program in place will keep them coming back for more too.

Ponder that!

If you enjoyed this article, click here to get free updates by email or RSS.

• The importance of resilience: three airline case studies
• AirAsia X: a brand with a huge potential, but remember, “you’re only buying the flying”
• Is Premium Economy here to stay? A brand review of All Nippon Airlines
• Five reasons why budget airlines in Asia are successful
• Conde Nast Traveler 2008 airline rankings prove that product is the brand