While we can expect the likes of Air Canada and Lufthansa to seek more protection from their respective governments, the order is likely to dramatically change the airline environment in the Middle East itself. Specifically, Etihad Airways and Qatar Airways – both of which have been closely following the Emirates model – that of connecting any two cities in the world in one stop – will be forced to think about how to compete with a bigger, much bigger, Emirates. Here’s what I foresee happening within a couple of years.

Etihad Airways – if you can’t beat them, join them

I’ve dismissed an immediate merger of Emirates and Etihad previously on this blog, though it cannot be ruled out in the medium term.

James Hogan, Etihad Airways’ CEO has promised the Abu Dhabi government that the airline will be profitable by 2011. Given that Etihad lost $1.2 billion last year, it looks difficult to achieve, with all the competition the airline faces. If he doesn’t keep his word, then his Arab employers may be forced to seek a replacement. And this new CEO would have a tough job at hand – either beat Emirates, or join forces with them.

In the long term, it actually makes sense to combine two mega-hubs that are a couple of hours drive away and leverage upon each other’s strengths, rather than scavenge for passengers. Moreover, the Dubai World Center (DWC) airport that opens this month is perfectly located halfway between the two emirates of Abu Dhabi and Dubai. Most importantly, it will be better for the country of UAE as a whole, to have one strong airline, than one very strong and one potentially weak airline. Just like an AirFrance-KLM is better for France and Holland.

Ultimately though, the final call will be that of the rulers’ of the two neighboring states, and they might surprise us all.

Qatar Airways – can’t join them? Join others

What happens to Qatar Airways’ business plan even if Etihad doesn’t merge with Emirates? They certainly can’t just keep on expanding at the rate Etihad is expanding, or grow to the size of Emirates. What’s the next best option – join an alliance.

Though the three super-connectors have resisted alliance talk till recently, it will be in Qatar Airways’ benefit to join one of the three global alliances. The CEO has already expressed that he’s not averse to being approached by Star Alliance. Moreover, they already have code shares with United, US Aiwarys and ANA. Joining an alliance would help counter the massive scale of Emirates, at least for some time.

Something else that would help Qatar Airways is if they clearly differentiate their business strategy from Etihad and Emirates. They’re already showing signs of this by expressing interest in buying Bombardier’s CSeries aircraft (watch video tour), which would offer them a very efficient short-haul capabilities.

There are lots more ways the competitive environment would change in the Middle East thanks to Emirates, and this is how I see them affecting their closest competitors – Etihad and Qatar. What do you think? Let’s discuss in the comments or over on Twitter (@simpliflying)

• What does 2010 have in store for Middle East airline brands like Emirates, Etihad, Qatar Airways and others?
• Will the Dubai crises lead to a mega Emirates + Etihad airline brand?
• Etihad Airways charging a second bag fee? Bad idea for a brand trying to establish itself
• How airlines in the Middle East are enhancing brand value through their frequent flyer programs
• Etihad Airways video trip report – Business Class: Athens to Delhi, via Abu Dhabi

So then, what should an ideal frequent flyer program look like to make it truly work for the airline brand? Taking inspiration from the best loyalty programs in the world, as well as my own observations from the two conferences in Miami I spoke at last week, here are some thoughts.

What would make me a loyal traveler with an airline?

1. Simplicity – How often do you know exactly what you can redeem from the points earned from your next flight? What if it was as simple as for every $1 spent, you will be able to redeem $0.01 off your next ticket or a partner purchase? I think keeping the earning-burning process as simple as possible would attract many more customers for the airline’s loyalty programs, than currently possible. I think Westjet’s new loyalty program s doing a good job at this.
2. Comparability – Most travelers these days are part of multiple loyalty programs. When I choose to be “loyal” to an airline, I would love it if at the time of booking, I’m shown how many miles I’d earn on that specific flight, as compared to the competing airlines (which I can choose), and what can I redeem those for? This would boost retention, because more customers would “stick” to your loyalty program, than others’. I’m yet to see an airline that does this well.
   



3. Extensibility of benefits to beyond the airport and the plane – Currently, benefits are concentrated in priority security lines at airports, airline lounges and optional upgrades in-flight. How about cultivating new touch-points in the travel life cycle where the elite travelers are pampered online and offline before even traveling. How about allowing them to earn points if they “check-in” on Foursquare at the airline office, or building a travel app like Lufthansa’s MySkyStatus that offer true value to the customer? Airlines like Qantas (screenshot above) and Etihad are venturing in this space.

So, what’s your favorite FFP and why? What would your ideal FFP would look like? One that can be offered by LCCs as well?  Let’s discuss in the comments or over on Twitter (@simpliflying)

• [Infographic] The future of loyalty programs will be powered by social media
• Top 10 branding insights from the best airline loyalty programs at the Freddies 2008
• Five lessons from the most innovative loyalty programs in the world – Inspired from Loyalty 2010
• Is social loyalty the next phase of development for frequent flyer programs?
• Randy Petersen of Flyertalk on social media and frequent flyers – Part 2 of 2

Also part of the event was the Loyalty 2010 Awards for the Most Innovative Loyalty program. The judges had shortlisted the Top 3, and the audience voted for the best. Air Berlin came out tops, though I think each program was very unique. And I share with you here, what makes them so good!

1. Air Berlin’s MyRoute customers earn double miles on their frequently flown routes

Try to solve this problem. You need to get price sensitive customers to fly you on their most-flown routes, which are also the most competitive due to many airlines offering an undifferentiated product on those routes. You know you got to think out of the box when solving this one. And Air Berlin’s Johannes Ganser and Sophie Wennekers, along with their Loyalty Marketing team, did just that.

In April 2009, the airline launched MyRoute where members select their favorite or most frequently traveled route within Europe. On this route, they earn double miles. Simple. And gets the job done.

Not only did this offering help Air Berlin clearly differentiate itself in the market place, which has other credible carriers like Lufthansa, it also increased loyalty for business travellers and commuters – traditionally a Lufthansa stronghold. Not to say, it minimized churn rate too. The side effects have been that Air Berlin can now forecast high-density routes better and there are more return journeys performed. Very innovative indeed.

2. SAS Scandinavian – visualizing rewards to boost redemption

How many times have you logged in to your Frequent Flier Program (FFP) and didn’t know what to do with your points? Frankly, I’ve had that situation many times. SAS solved this for their loyal customers by visualizing the rewards they can get. And it was all personalized too, with each roll-over showing you how many points you needed to redeem an award.

The results? As Thomas Bruhn, EuroBonus Manager shared, 18,000 redemptions were generated from 80,000 visits – that’s a much higher conversion rate than the industry standard. Personalization matters indeed.

3. Swedish Rail – loyalty program from scratch, for a train service

Imagine you’re a senior executive at a government-owned monopoly that runs trains and this is your situation:

• The industry is deregulated and new competition grabs your customers
• Even though you’re the incumbent, you have no customer date, because no efforts were ever required
• There’s no concept of loyalty in the industry, which was more of a public utility previously

How do you deal with this? Frankly, I was very impressed with what Claes Lindholtz of Swedish Rail shared with me, on how he and his team built a loyalty program from the ground up in a very short period of time. It included totally revamping the customer experience, with on-board wifi and iPhone apps that you can point to a landmark outside the train to retrieve its info from Wikipedia (!!). Swedish Rail is now also the top corporate Twitter account in Sweden!

4. Milan Airport – building loyalty at an airport city

Milan Airport’s Vittorino Capobianco opened my eyes to a new category of loyalty programs – those at an airport! At Italy’s largest airport, you earn points for parking, for eating at restaurants, for buying from Duty Free shops and even by using the speed-check-in service!

And you can redeem these for lounges, phone check-in and even free wireless internet. The best part is that you can earn and burn points at both the airports run by SEA in Italy. Certainly something I’d sign up for when I start shuttling to Lake Como once a month =p

5. Payback – the most personalized loyalty program in the world?

Everyone at the conference was stunned by the presentation made by the folks from Payback – the European retail loyalty program. Yes, the basics are earn and burn, but it was the personalization that everyone was impressed by. Not only offers that were sent out highly customized to each individual’s purchase history, the trending data for each individual is also used for market research and developing more products.

Though airlines are still far from such in-depth business intelligence and personlization, I think it’s important to see what’s being done at the cutting edge and how they can adapt that to drive loyalty for their brands as well.

Air Berlin and SAS are setting the standards for airline loyalty program. I must say that I really liked Etihad Airways’ as well, in which I can redeem even my first 3000 miles, for items like USB drives and iPods! Swedish Rail offers lessons to any government owned legacy airline on how to beat the competition. Airports around the world can learn from Milan Airport’s efforts. An Payback seems a decade ahead of its equivalents in airlines. Maybe Aeroplan or The Mileage Company can acquire Payback and we’ll all have a happy life

What do you think about this programs? Is there an airline FFP that you’re very impressed by? Share your thoughts with us here in comments, or over on Twitter (@simpliFlying)

• Three keys to making loyalty programs work for the airline brand of the future
• [Infographic] The future of loyalty programs will be powered by social media
• Top 10 branding insights from the best airline loyalty programs at the Freddies 2008
• Is social loyalty the next phase of development for frequent flyer programs?
• American Airlines’ AAdvantage Facebook Fans grow 84 fold in 54 hours. The most successful campaign ever by an airline?

—–—–—–

“ETIHAD may charge for second piece of luggage”

This  was a remark made by James Hogan Etihad’s CEO, otherwise I would have thought it was a joke. Why would an aspiring and highly branded airline with cash flushed owners want to do something like this?

Etihad operates in a highly competitive and well connected market, whether it is the UAE, MENA or the Indian subcontinent. The traveling public (both Arabs and Indians) in the region is traditionally price sensitive and is used to weight and not number of bags. It is basically a visit friends and relatives (VFR) market used to carrying gifts and shopping across continents, bags and sacks of them.

So price sensitive, just look at the number of LCCs and quasi LCCs in the GCC alone  (Air Arabia, FlyDubai, Jazzera Airways, nasair, SAMA and Bahrain Air) that have started in the last 5 years. There are rumors of another LCC in Abu Dhabi and Qatar Airways intimated that they may set up one to compete in that segment. Even legacy carriers compete on price, at the peak of the summer season an extra ten (10) kilos of free excess baggage may be the only price differentiator.

Currently and among legacy carriers, the least expensive tickets are probably on Qatar Airways. So as long as you are not in a hurry and do not mind transiting through Doha for a few hours, then you are in luck. And, this is a highly branded airline too.

At a time when carriers in the region are restructuring (Gulf Air) or have joined alliances (Royal Jordanian and Egypt Air) or are rebranding (Saudia and Oman Air), and faced with stiff competition from two of the most branded airlines in the world (Emirates and Qatar Airways), I fail to see what Etihad hopes to achieve.

It seems airline branding does not include economy class. And this is a sad situation indeed.

What do you think? Is it a good idea or a bad idea for a premium Middle East airline to charge a bag fee? Will they lose customers? Let’s hear your thoughts in the comments and on Twitter (@simpliflying)

• What does 2010 have in store for Middle East airline brands like Emirates, Etihad, Qatar Airways and others?
• Gulf Air and Kuwait Airways up for sale – do the brands stand a chance?
• The future of Middle East Super-Airlines: Emirates and Etihad to merge, and Qatar to join an alliance
• How airlines in the Middle East are enhancing brand value through their frequent flyer programs
• King of ancillary revenues, RyanAir offers €1,000 for best idea on making money!

In this 3 min video trip report, I share my experience on-board one of Etihad Airways‘ brand new Airbus A320 planes. This was a flight from Athens, Greece to New Delhi, India, via Abu Dhabi. Three things stood out about Etihad:

1) They greet you by name and talk to you personally
2) The planes smell of the desert!
3) Their transit lounge for Business Class in Abu Dhabi offers free spa treatments!

My rating for the flight is 4.5 out of 5. njoy the 3 min video trip report (Click here if you can’t watch the video)

If you haven’t flown Etihad Airways before, I’d encourage you to give it a shot – they’re one of the finest. If you’ve flown them before, then I’d love to hear how your experience was, in the comments or on Twitter (@simpliflying). Oh, and pls share how I can improve these reports further and what you’d like to see.

Special thanks to Michael Tan from Etihad Airways Singapore office and the Athens ground staff who made my trip such a memorable one.

• Will the Dubai crises lead to a mega Emirates + Etihad airline brand?
• The essence of SimpliFlying: aviation, branding, travel, airlines and social media (Plus: What’s new in 2010)
• The future of Middle East Super-Airlines: Emirates and Etihad to merge, and Qatar to join an alliance
• Etihad Airways charging a second bag fee? Bad idea for a brand trying to establish itself
• How airlines in the Middle East are enhancing brand value through their frequent flyer programs

—–

The MENA region airlines bucked the global trend in 2009. It was the only region that had an increase in traffic and had the loss forecast dropped by 50% to half a billion. The region saw an increase in flights and in destinations.

2010 promises to be an exciting year for the region. Airlines in all segments are competing for a leading position.

Emirates facing the crunch?

Emirates remain the leader of the pack, with a brand that, by far has no rival not only in the region but globally. So far Emirates has shown a financial ability to finance its expansion without burdening Dubai. The problem Emirates might face is a tightening of credit due to Dubai World’s and by extension Dubai’s problems. And as previously mentioned on SimpliFlying, even a merger between Emirates and Etihad cannot be absolutely ruled out.

Etihad and Qatar Airways expanding?

Etihad and Qatar Airways are both embarking on an expansion spree, supported by oil revenues of their respective governments, a viable means as long as oil prices hold at their current levels. Needless to say both carriers have not turned any profit yet. On a service level and as a brand both are offering services that in some cases not only rival Emirates, but exceeds it.

Royal Jordanian merging?

Royal Jordanian, the first Arab Carrier to join an alliance (One World) and the second Arab Carrier to privatize and be listed in the Amman Stock Exchange, is floating the idea of a merger with another regional airline or European airline by mid 2010 as the means of sustaining growth. This may be easier said than done since the Government’s approval is crucial (holds 39.5% of the stock) and the other problem is finding an airline that is compatible with the RJA brand displayed in their new A319, A320 and A321 fleets in terms of cabin and IFE.

Gulf Air going regional?

Gulf Air is looking to restructure and reinvent itself as a regional carrier as opposed to an Emirates or Etihad clone. For that they have employed Royal Jordanian’s ex CEO, the same person that lead RJA to profitability, privatization and into an alliance. GFA has already made its first review and as a result returned the Leased B777 back to Jet Airways and confirmed a 20 A320 orders from Airbus with a delivery rate of one aircraft a month. A sticking point is the union that opposes any Bahrain nationals staff cuts. The union has thwarted several restructuring plans in the last 10 years.

Oman Air re-inventing itself?

Oman Air has lead the region with an new First, Business and Economy seating plus connectivity on their A330 fleet with a Thales IFE and Higher bandwidth SwiftBroadband platform to deliver GSM/GPRS and WLAN via OnAir., launching a new campaign of “The Change is Here” .

The LCC onslaught?

On the LCC front as Air Arabia launches its second international hub (Alexandria-Egypt) in 2010, it faces stiff competition from FlyDubai and a reemerging RAK Airways. In Kuwait Jazeera Airways departed form the LCC model and is offering Business Class similar to Bahrain Air.  This sector is facing competition not only from within but from other Legacy regional airlines.

These are a few of the issues facing the region’s airlines and promises an even more exciting year.

• Etihad Airways charging a second bag fee? Bad idea for a brand trying to establish itself
• Gulf Air and Kuwait Airways up for sale – do the brands stand a chance?
• Will the Dubai crises lead to a mega Emirates + Etihad airline brand?
• How airlines in the Middle East are enhancing brand value through their frequent flyer programs
• The future of Middle East Super-Airlines: Emirates and Etihad to merge, and Qatar to join an alliance

Every single time I’ve been to Dubai, I’ve heard that Emirates is bankrupt and the state of Abu Dhabi has bought the airline. But I always dismissed them as baseless rumors. Then, the Dubai World crises happened around Thanksgiving/Eid. And that made me think again. That the Abu Dhabi government could ask for Emirates, the airline, as collateral in bailing out Dubai, the state.

So, let’s imagine that if this does happen, that Abu Dhabi takes over Emirates and by default it merges with Etihad. What will that mean for the airline brands?

1. Emirates and Etihad merge to form a mega-airline with over 250 planes connecting almost any major city in the world with any other – one-stop.
2. Emirates and Etihad move operations to the Jebel Ali Airport – DWC from their respctive hubs to centralize operations
3. Ultimately, effectively managing the scale of the new airline’s operations can determine its chances of success

However, I feel that this is unlikely to happen, because:

1. Emirates is much larger than Etihad, and much more profitable too (Etihad is yet to turn a profit)
2. Emirates is a much better known brand than Etihad
3. They have very different fleet compositions – Emirates all-widebodies, Etihad a mix
4. Chances of integrating two hubs that close to each other (Dubai-Abu Dhabi is a 2hr drive) is not practical
5. Abu Dhabi Airport has already invested huge amounts in developing the airport as a future hub and Jebel Ali airport is far from being completed – so a hub merger is not on the cards
6. Especially because a Jebel Ali airport which is 1.5 hours from either Dubai or Abu Dhabi, connected by trains, is impractical

Hence, the my conclusion is that no, the crises will not lead to an Emirates and Etihad merger. What may very well happen is this:

1. Etihad takes a large stake in Emirates, just like Lufthansa has a stake in Austrian or Swiss
2. Both brands should be kept intact
3. Etihad and Emirates optimize their route networks such that they complement each other and don’t bleed each other on major route. For example, instead of offering flight from Sydney to London 20 mins apart from each other, they can be more even spread out throughout the day. And I don’t think an Aussie is concerned whether he would transit in Abu Dhabi or Dubai on his way to London
4. Both Emirates and Etihad should optimize capacity on certain routes. For example, an Etihad A320 can be sent to Cochin or Peshawar, instead of an Emirates B777.
5. They save money through join procurement and technology implementation

And I think we’ll have a strong pair of airlines, just like AirFrance-KLM, which have the might to take on any other major carriers.

So, what do you think about the prospects of Emirates after the Dubai crises? Is mine a fair analysis? I’d love to hear your thoughts here and on Twitter.

• The future of Middle East Super-Airlines: Emirates and Etihad to merge, and Qatar to join an alliance
• What does 2010 have in store for Middle East airline brands like Emirates, Etihad, Qatar Airways and others?
• Etihad Airways video trip report – Business Class: Athens to Delhi, via Abu Dhabi
• Why Indians need to get over Air India and recognize Emirates as the national carrier
• How will Emirates ensure high levels of service across its A380 fleet? VP Nigel Page explains

Catering services specifically to customers’ needs ensures loyalty

The region is flush with oil revenues, and more rich Arabs are taking to the skies – flying business class and first class. Airlines in the region pamper this key segment of their customers. Etihad Airways just opened a plush business class lounge at Abu Dhabi airport and offers limousine pick-ups, like Emirates. Emirates is also the first airline to introduce showers on-board its new A380 first class cabin. Qatar Airways has gourmet meals catered to suit their frequent flyers. It is no wonder that programs like Emirates Skywards reports that the program’s current rate of growth is just over a member a minute.

More importantly, all of these airlines give a variety of options to their customers to en-cash their frequent flyer points – up to 600 options at Etihad! These include not just flight tickets and partner merchandise, but also specially catered experiences like weekend breaks and shopping to one-of-a-kind experiences such as a night with the paparazzi or tandem skydiving among many others.

In addition to pampering the super rich, the budget airlines in the region offer the millions of low-wage workers from South Asia, China and The Philippines to fly home without burning a hole in their pocket. Again, a number of these airlines are owned by the legacy carriers, and new ones are propping up very often. The latest is FlyDubai, being launched by Emirates.

Airline services and frequent flyer programs that actively cater to customers’ needs can have a huge leverage on airline’s brand loyalty, especially over time, as new competitors take to the skies. And this is demonstrated very well by the Middle East carriers.

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• Etihad Airways charging a second bag fee? Bad idea for a brand trying to establish itself
• What does 2010 have in store for Middle East airline brands like Emirates, Etihad, Qatar Airways and others?
• The future of Middle East Super-Airlines: Emirates and Etihad to merge, and Qatar to join an alliance
• Five lessons to be learnt from airline bankruptcies
• Is business-class travel going extinct? Part 1 of 2