Sunday, 29 September 2013

Ryanair,- A turn away from brand toxicity. Do the Load and Flight planners unknowingly shine the light?

First of all RyanAir gave a profits warning. Then the often abrasive Michael O'Leary declared that the airline would be dropping some of the things that customers and would-be customers find a turnoff.

Has the airline at last been advised about the danger of becoming a toxic brand ? It has probably never been loved and, unusually for  a service business in a competitive market, has never sought to be. Its chosen, and largely successful, battleground has been network, simplicity (though some would argue that its pricing is far from that) and price.

It has been noisily dismissive and even contemptuous of criticism and has been happy to be seen as a "take it or leave it" business, neither giving nor receiving warmth. It has shown no sign of seeing any advantage in people feeling good about handing over their money to it. Unlike Easyjet which has sought to widen its appeal, especially upwards into the business travel segment, Ryanair has cheerfully accepted that a percentage of the market will actively dislike and therefore avoid it. This removed a percentage from the total numbers who might otherwise buy its product. Again, the reverse position to most businesses where widening rather than limiting appealis the name of the game.

Airlines mainly operate on very narrow margins in hopes of being compensated by volume. A few legacy majors (eg BA) deliberately "spill" lower yielding business to keep operating ratios high but in doing so they risk providing growing competitors with a useful bedrock of revenue upon which to build frequencies and thus make themselves more effective in the higher yield end of the aircraft as well (eg Emirates) . The danger is that this in turn further undermines the "spillers" market position and their ability to grow. It can lead to a downward spiral and the withdrawal from rather than increase of routes.

For a low cost carrier to deliberately limit the size of its market is high risk. If the tide goes out and demand drops it can only cut prices further. Then the margins become tighter or even disappear. When the chips are down and other things are equal it's handy to have even a small group of loyal customers who have some kind of emotional attatchment to the company and will stick with it through thick and thin. Every percentage point of market and share counts . Where there is competition on routes and leaving pricing aside ,it is unlikely that Ryanair have many such people.

Many airline industry CEOs and most marketing people in the airline industry do not now have a generalist or operational airline or aeronautical background. As result they are unaware of well honed and scientific skills used in the operational side of their business which could be of enormous value to them in defining market forces and how to deal with them. It's not a place they would normally think to go looking.

The first is the fact that aircraft stay in the air thanks to a straightforward relationship between formula made up of weight, drag, lift  and thrust/speed. The more weight and the more drag, the more lift and therefore thrust is required.  Costs go up and /or performance goes down. The less weight and drag, the better the performance and financial result.  Lack of enthusiasm for ,or worse dislike or hostility to your product =(unnecessary) weight and drag. It is therefore best avoided.  All you need to do is define what constitutes weight (eg overmanning ,low productivity) and what makes up drag (eg poor public perception, attitudes, service style) and the answers leap from the page.

The second is the dispatcher's compilation of a balance chart. This is now largely computerised but in its manual form comprises a simple diagram , done with a pen and ruler ,showing how the aircraft is affected by the weight and location of all that it carries. Ideally it should fly straight and level. That's the start point on the chart. Increases forward of the centre of gravity push the nose down while increases behind it pull the tail down. By skilful manipulation the balance can be achieved. The same principle can be applied to all the elements of approach to the market. On the plus side of the centre of gravity line can be rewards from product, service, network and schedule improvements while on the minus side can be any failings of these and their costs . All this gives a clear visual cost/benefit analysis easily understood by anyone and useful in a host of situations. It would very easily show the market advantages of being liked versus disliked. Any business should use them. Airlines start with the advantage that somewhere in their structure , but probably out of sight on the operational side, the knowledge of these simple aids already exists and is in daily use.

Maybe someone has shown Mr O'Leary these two charts and the penny/cent has dropped. Something certainly seems to have given him an "Oh my God moment" and the realisation that actually being liked by the customers and potential customers reduces drag , increases thrust and  adds a percentage to the bottom line without necessarily costing much. Even a change of tone of voice and a few behaviours can do it.  Easyjet have understood that being a bit cuddly rather than hostile and punitive can work wonders.  A new dawn for Ryanair?

Thursday, 26 September 2013

Jetstar Hong Kong,- Hong Kongs' existing airlines put up a barrage.

In a move reminiscent of pre- 1997 colonial days of intensely protectionist behaviours, Cathay Pacific and Hong Kong's other airlines, Dragonair, Hong Kong Airlines and Hong Kong Express have challenged the Hong Kong Government to declare that proposed new low cost startup Jetstar Hong Kong is not a local company and can not therefore be granted traffic rights as if it were one. The newcomers' parentage goes back to Jetstar Australia and its creator and owner Qantas.

Hong Kong may have the image of a free booting city state dedicated to competition but in fact it never was. It has almost always strenously protected its own and within its own there has been a clear pecking order originally led by the two rival trading companies, Swires and Jardines. Over time Hutchison Whampoa and one or two more elbowed their way into this tight  top tier. Since 1997 Chinese mainland influence has grown inside and outside these players but regardless of that  anyone trying to break into their prime business spheres has a tough job on their hands. Just ask the French supermarket operator, Carrefour. In the end they just gave up the struggle.

Cathay and the other Hong Kong airlines have claimed that Jetstar Hong Kong would be primarily controlled from Sydney . This would mean that their principle place of business would not be the city state as is required under the post 1997 Basic Law. That would bar them from gaining anything but 5th freedom rights in Hong Kong.

 There is an understandable fear that the appearance of a true low cost and low fare local competitor could damage the existing Hong Kong airlines' profitability which could also mean them having to downsize and lay off staff.  Jetstar would arge that any loss of other airlines'  jobs would be more than compensated for by the additional ones it creates. Much more fundamental though is the fear that Jetstar could gain traffic rights between Hong Kong and the mainland. These are extremely valuable to the current incumbents. Cathay's view is clearly that there is no reason why it should accept losing a single passenger to anyone through increased competition and the arival of a new entrant. Again this is a reasonable enough stance for a business in their position to take. The world is not about love and brotherhood if it costs you money. It is the duty of any business to look after its own and its shareholders' interests first and foremost.

As a counter move, Jetstar has now brought on board ,with a 33% holding, Hong Kong's Shun Tak Shipping Company , originally a specialist in Hong Kong-Macau ferries but vastly expanded since its development into Shun Tak Holdings which was floated in 1972. Jetstar Hong Kong has also appointed a local Chairwoman, Shun Tak's Managing Director Pansy Ho, and a board with a local majority.

As we noted above, the parent of all the Jetstar subsidiaries and franchises is Cathay Pacific's One World alliance partner Australia's Qantas who last April ditched the most recent version of their historic partnerships with One World founding member British Airways in favour of a deal with that airline's arch rival Emirates. So much then for alliances when the chips are really down. Embroiled in the Hong Kong contest are two airlines, Cathay and Qantas who are not anaesthetised by the superficial bonhommie of alliances but fully understand what competition is all about. Also as noted above, cooperation is all very well until it costs you a single dollar, pound or whatever.  Then self interest steps in.  Any member of any alliance who does not understand that is living dangerously and ,as far as the shareholders are concerned, on another planet.

Several balls are in play here.

Friday, 6 September 2013

787s slide quietly into service.

Usually the introduction into service of any major new aircraft type, particularly one with revolutionary features and likely to form the backbone of the fleet for the best part of the next 20 years triggers much celebration, and PR and media hype on the part of the proud new owner.

Somehow this doesn't seem to be happening amongst the rapidly proliferating operators of the much delayed 787. For example there wasn't a ripple on the surface when IAG's BA introduced the aircraft on its first "proper"  scheduled long haul services to Toronto on September 1st . In the UK Tui, the first British operator, didn't make a big thing of their 787 launch on its holiday programme a couple of months ago.

What's happening?

Is it a) That after all the adverse publicity around fires and problems with lithium batteries the airlines have decided that the best form of publicity is none at all and that it's best to just slip the aircraft into service, let it build up its own favourable passenger impressions and soon be able to say casually "Oh yes, we've had them for some time and they are absolutely fine. The passengers love them".

or b) That Marketing departments have won out in their long held belief that aircraft are actually boring or even represent more hassle than benefit and they form little , if any , part in customer choice of airline or flight?  Unless it is spectacularly different (step forward some A380s) , few sitting on board have much idea of whether they are sitting in a Boeing or an Airbus, and presuming the state of the interior gives no clues, whether the aircraft is brand new or 20 years old. Whether the engines are 20% more efficient or eco friendly or whether they are slurping paraffin or burning coal is of little interest to the man or woman in 47D,- or any other seat, provided that the engines are going round and his or her surroundings are good, the IFE is working and there is nothing visibly falling off inside or outside the aircraft. Hence the marketeers would prefer to save spending money by not shouting about having the latest, most efficient best aircraft in the sky but instead spend the funds on other activities to build (or even enforce-eg Frequent Flyer Programmes and alliances) brand loyalties.

The answer?

Probably both a) and b).