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!

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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?
• Five reasons why budget airlines in Asia are successful
• Thoughts on the United and Continental merger – as quoted in the press

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).

1. Setting realistic expectations. Some of my friends have spent nights in airport transit areas as they missed their flights – not because they were late, but they were at the wrong terminal for their code-shared flight. A merged airline is likely to operate from different terminals, surely at the beginning, and it should make the extra effort to ensure that the passengers are rightly informed. Setting realistic expectations that things may just go wrong is key to building trust in the brand over time. Customers don’t lose faith in the brand when things go wrong, but when they unexpectedly go wrong.
2. Ensuring a consistent experience. Nobody likes change, including airline customers. But since change is inevitable, especially when the industry is going through tough times, the airlines must ensure that customers are getting as consistent an experience as possible over time. Even when something needs to be drastically changed, information transparency should be prioritized and customers should be kept well informed ahead of time.
3. Providing value first, then charging for it. Lately, many US airlines have introduced a fee for checking-in a second bag. If I’m flying a full-service airline, I don’t expect to pay an additional fee for a second bag, as this has always been a free service. It would leave me disgruntled. Putting up with a fuel tax is understandable, but in this case, I’m not being provided any additional value for the extra cost. Since a merged airline generally has greater market power, it would be inclined to over-charge for some existing services. But it is important note that to keep customers happy, it is always better to provide a value-add before charging them for it.
4. Engaging the customer. One of the secret weapons used by great airline brands is deep customer engagement. One great example of this was Singapore Airlines’ campaign prior to their first A380 flight to London, which was written about in a previous article. Ensuring customer participation in times of change works especially well as they feel they have a stake in the process. During a merger, latest web technologies can be tapped to get customer feedback and incorporating it in the new plans. Everything from suggestions for the in-flight menu to their preferred mode of reservation of tickets can be captured and attributed to the person. Holding competitions is yet another simple way to keep the customer engaged with the brand.
5. Keeping employees happy. This is probably the most difficult of these five branding suggestions to achieve. Employees tend to suffer the most during a merger, and keeping them happy, though difficult, can do wonders for a brand. Merging airlines should work hand in hand with the pilot unions and other airline staff representatives to ensure their interests are not overly compromised. Often, cultivating a family-like culture (think SouthWest and Virgin) among the employees can go a long way in cheering up the mood in tough times. Employees then pass on these good vibes to the customer resulting in a great brand experience. As always, Happy Employees = Happy Customers = Great brand!

Ponder that!

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The next article in this series, about how airline bankruptcies affect the brand, will be posted on Wed, April 30. Do keep a lookout for it.

• Happy Crew = Happy Passengers = Great Brand!
• Why time is running out for the Singapore Airlines brand to get into Web 2.0
• Why the Southwest and WestJet alliance is good for both the brands
• Thoughts on the United and Continental merger – as quoted in the press
• Emirates engages employees through self-composed music video

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.

The fact of life is if you treat a human with dignity and respect, most people will go an extra mile for you. JetBlue in the US, Virgin Atlantic in Europe and AirAsia are prime examples of airlines that are known to take good care of their staff, who in turn go the extra mile in keeping the brand Xperience top-notch.

So, how to keep the crew happy in a merger?

Consolidation in the airline industry seems inevitable, with costs shooting through the roof. Airlines till now have not come up with a good model to integrate seniority-based crew roles upon a merger. Most airlines let separate crew operate on their original routes, under separate unions – as that keeps them happy due to lack of disruption. However, a better way to do this may be to involve crews from both airlines in the merger talks right from the beginning, so that their concerns are addressed too. This way, costs can be cut effectively (the aim of the merger) and a majority of the crew will be happy, in turn ensuring happy customers.

Ponder that!

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

• Five ways to get brand value out of Airline Mergers
• What makes Volaris from Mexico the world’s happiest airline? Interview with COO, Andres Fabre
• Three lessons from American Airlines’ big blooper
• Jet Airways’ pilots mass sick-leave make the once glorious Indian airline brand look confused
• How Singapore Airlines converts the biggest critics into its strongest brand advocates