Airline Brands And Low Profits

Nigel HollisFebruary 20, 20132 min

And then there were four…major U.S. airlines that is. Last week, it was announced that American Airlines will merge with US Airways.

Neither airline can be considered a strong business or a strong brand, but perhaps consolidation will finally lead to an improvement in business results and customer satisfaction. The only question to my mind is which of those two things is the chicken and which is the egg?

The conventional wisdom is that airlines suffer from systemic problems that make it tough to run a successful business. This post from Investopedia suggests four basic reasons why airlines struggle financially.

1. Unprofitable airlines keep flying and so undermine demand for the other carriers

2. Fixed and variable costs are high making it difficult to respond to changing market conditions

3. Exogenous events can have a big impact on demand e.g. volcanic dust clouds

4. Airlines have a reputation for hassle and bad service

Bankruptcy, which would often see normal businesses shuttered for good, seems to be a safe haven from which the airline uses to effect cost efficiency plans and upgrades they could not afford otherwise. They then emerge from bankruptcy with the expectation of improved financial performance, but the same dismal customer service. What is the definition of madness? Doing the same thing repeatedly but expecting different results.

Airlines in general have a low customer satisfaction score by comparison to other industries and it is notable that the two smaller, value airlines – JetBlue and Southwest – achieve satisfaction scores significantly higher than the traditional carriers: Delta, US Airways, American and United Airlines. We saw exactly the same picture last time when we measured U.S. airlines in BrandZ back in 2011. Southwest was far better known than JetBlue, but both brands were meaningfully different from the competition and poised for growth. None of the legacy airlines came even close to matching the equity scores achieved by the value airlines, which were seen to be setting the trends for the category.

Brands that fail lack a meaningful difference compared to their competition. They tend to be equally well-known but they are unable to establish positive and differentiating perceptions of the brand, particularly among the people who use them.

Of course, you don’t have to offer great service to make money in the airline business. Ryanair in Europe makes more money than British Airways, has a lousy reputation for service but it is well-known for being the cheapest. The problem with the traditional U.S. carriers is that they need to command a premium to keep flying, but are not able to deliver the service necessary to justify that premium. Unfortunately, I am not sure the merger between American and US Airways is going to make any difference on that count.

So what do you think? Is customer service the chicken or the egg when it comes to airline profitability? Please share your thoughts.

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Nigel Hollis


  • Tom Asacker

    February 20, 2013 at 11:08 am

    Southwest is the third largest airline in North America, and not a “smaller, value airline.” And the company recorded its 39th consecutive year of profitability in 2012. Surely this is evidence that service is the chicken and business results are the egg.

  • Thomas Oosthuizen

    February 21, 2013 at 4:32 am

    I agree with Tom, service can still be a differentiator, as airlines like Southwest, Emirates, Etihad, Singapore Airlines and Qatar have indicated.

    Yet, much of their profitability is still outside of the control of airlines, like supply/ demand on routes, inflexibility to change routes fast, the oil price, etc.

    Many of the so-called better service airlines, still have a disproportionate reliance upon certain routes (most of the Middle Eastern airlines are very dependent upon the region and Indian subcontinent). Also, I was told that one of the Middle Eastern airlines increased rates by 10% in the middle of the last economic slump, and hardly noticed any decline in demand – surely that suggests passengers are prepared to pay for service – up to a point.

    Then it is also difficult to eliminate other factors, i.e. some Middle Eastern airlines put as much capacity and frequency into the market as it can bear, believing that scheduling largely drives behaviour and may mask many other factors…

    In the end, I have to believe that even though others factors play a role, service will prevail when consumers face a choice. I would rather offer better service, than to be left in the void of the commoditisation of choice, when your entire existence as an airline becomes anecdotal. As a marketer, why would you want to deliver a bad service, all else being equal? Better service also need no longer cost more…

  • Vibhav Vankeller

    February 24, 2013 at 9:41 pm

    I agree that service will prove to be a key differentiation factor, which might justify the higher asking price by the premium players. But then, i feel that this is generally true in case of international/longer duration flights only. World over, domestic aviation markets seem to be driven by price, and international markets by service.

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