In his autobiography, “Straight from the top – The truth about Air Canada“, Robert Milton – the former CEO of the airline – concludes, “There is no reward in life without risk, and there are times in our lives when we must all balance risk against reward and make a decision accordingly, whether we want or not.” He has taken his own advice to heart.

Divide and conquer – the best way to win

Milton was making a risky bet in 2005 as he floated as an independent unit, Air Canada’s Aeroplan – their frequent flier program. It was the first time a major airline was separating from itself probably the most valuable part of the business. But his instincts have been proven right. Today,  Milton has been successful in monetizing the once troubled airline and its subsidiaries and turning them into profitable entities through a holding company – ACE Aviation Holdings. As Airline Business describes it in an article about Milton, “The evolution of ACE from a struggling flag carrier into money-making holding company is the story of turning side dishes into main courses.”

In fact, not only have most of the individual entities pleased investors with their financial performance over the past few years, they have actually improved performance as independent companies. Essentially, working as independent divisions, these businesses sell services to a variety of customers, not just the parent airline, hence tapping on greater revenue sources than before.

The whole is greater than the sum of parts

The “componentization” of Air Canada’s business model is evident even on their website, as you buy a ticket. Almost every service and product available is broken down and one can choose them ala-carte style. For example, you can pay an additional amount up front if you want to use their lounge before the flight, or want a better seat or a meal on short-haul flights or want to earn 150% status miles. This caters well to the full spectrum of Air Canada’s passengers – the budget travelers, as well as the “travel-in-style” types. It allows the customer to pay for what he or she values the most.

Similarly, having separate business units for Aeroplan, the maintanence business and the airline allows investors to focus on what component of the company they value the most, and derive greater value out of it.

The brand value of the some of these parts increases too,  since it’s broken down by the divisions as well. This break down into smaller, more tangible chunks allows each business to quantify its own brand value, rather than a large, intangible airline brand.

A model for other airlines to follow?

A number of airlines around the world, like Qantas, are considering floating or selling parts of their businesses to investors. But is it realistic to emulate Air Canada’s business model in different markets with different regulations and operating conditions? It may very well work for some, but how far can an airline move away from a “holistic” business model as its traditionally been, to an Air Canada-styled holding company? Would the brand strengthen or be more diluted because of this?

Let’s discuss…

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In service businesses like airlines, first impressions count. On my hour-long American Airlines flight last evening from Toronto to Boston, I was welcomed on-board by a cheerful flight attendant, Heather. She was genuinely pleasant (and not over-doing it) and extremely courteous, even though she was the only flight attendant on board the small Embraer jet. She played along when people were not paying close attention to the safety demonstration, and cracked jokes while serving beverages. A very pleasant experience – but that’s just one tenth of the job done for the airline when it comes to creating first impressions.

Creating lasting first impressions – a hundred million times

Air Canada’s Robert Milton mentions in his book that on average each passenger comes in contact with the airline ten times, every time he flies. This may be through the call center, website, at the check-in counter and of course, on-board the plane. So if an airline flies 10 million passengers per year, there would be a total of 100 million interactions on average! So how can airlines create a lasting first impression, every customer interaction? Here are three ways.

1. Exceed expectations. Before a customer interacts with an airline, he has certain expectations formed through advertisements, word-of-mouth or previous experiences. Airlines should aim to exceed them. Reduce the waiting time at the call center. Have pleasant check-in counter staff. Cater to the fliers’ needs on-board. This is not to say that each and every airline must spend millions in sprucing up service levels, but rather exceed the expectations they have set themselves. For example, budget airlines like AirAsia promise on-time performance and not in-flight luxuries. They then ensure these metrics are adhered to. Airlines like Thai Airways and Qatar Airways promise a pampered service for their business class passengers, and then deliver it. Prioritize, then execute and keep the word.
2. Stay consistent. Every time a customer interacts with an element of the airline, from the website to the stewardess, he registers the moment as a future reference point. There is no substitute for a consistently good experience across multiple interaction points. An airline cannot afford to let the customer wait for 35 mins before speaking to a call center officer, or have unfriendly staff in a frequent flier lounge operated by a partner airline while having extremely courteous flight attendants. It is not just the on-board service that a customer cares about. An unusable website can chase away customers just as much as a dirty plane. Hence, consistency is key to creating a lasting impression.
3. Be different. A pleasant surprise almost always makes for a great first impression. Virgin America’s  famous safety video surprised even the most seasoned traveler with their off-beat safety instructions. Kulula.com’s advertisements never show any planes, but rather everyday travelers and common South African folks stuck in a funny situation. Their advertisements often contain more slapstick humor than a stand up comedy show. Again, creating a very different first impression than a screen full of smiling stewardesses and jumbo jets.

At the end of the day, an airline must maximize every interaction it has with the consumers. The easiest way to do that is to create a lasting first impression.

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