Airline Profits - Vol II - Issue 11 - Nov-Dec 2016

Volume II—Issue 11

A Magazine for Aviation Leaders & Influencers

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FEATURED

Can the Airline Industry Emulate Amazon Retailing Effectively?

More articles inside...

What Impact Will the Brexit Have on Airline Profitability?

Release date: November-December 2016

What Does an Airline Passenger Pay for?

Will Hawaiian Airlines Bounce Back to Record Profitability?

Volume II—Issue 11

November-December 2016

Airline Profits

Contents 6

Editorial: W hat Lesson s Can Air lin e CEOs Learn from the Election of Donald Trump?

12

Profile: Alask a: W hat Did the Air line Profits Sustainability Index Reveal?

16

Perspective: W hat Im pact W ill the B r exit Have on Airline Profitability?

24

Performance: W ill H aw aiian Air lin es Bou n ce Back to Record Profitability?

30

Paradigm: Air lin e Cu stom er Ser vice: What Does an Airline Passenger Pay for?

36

Platform: Air line Distr ibu tion : Can the Air lin e Industry Emulate Amazon Retailing Effectively?

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3

HEAD OF PROGRAMS: Kofi Sonokpon kofi.sonokpon@airlineprofits.com

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Airline Profits

November-December 2016

Volume II—Issue 11

Editorial What Lessons Can Airline CEOs Learn from the Election of Donald Trump?

Kofi Sonokpon editor@airlineprofits.com

To paraphrase Seth Godin, the prolific and bestselling author of Tribes, marketing helps to sell products, marketing also helps to elect presidents. As you well know, US presidential elections get worldwide attention, mainly because of the leadership role the USA has assumed on the world stage since World War I. And following the election of President Barack Obama in 2008, the recent 2016 election was undoubtedly the most defining and historic moment for many reasons, which are beyond the scope of this article.

The prevailing view has always been that for a candidate to win a US presidential election, the person has to have been previously elected

to the Congress, the Senate or as the Governor of a given State.

Therefore, on that premise, most of us thought that the outcome of the

To use Nassim Nicholas Taleb terms, the election of Donald Trump is clearly a black swan event, and as such deserves close attention and analysis.

recent US presidential election was

known well in advance. To Secretary Hillary Clinton, her supporters and mainstream media, November any presidential endorsements. To

hate them with passion. However,

8, 2106 was going to be a formality. use Nassim Nicholas Taleb terms,

there is a fact that we cannot deny:

Yet, the results revealed the exact

this is clearly a black swan event,

tens of millions of American people

opposite. Donald Trump, the out-

and as such deserves close atten-

flocked to the polls to elect him. So

sider, the novice in US politics won tion and analysis. You may or may

there is certainly something of val-

the election, fair and square, with-

ue we can all learn from his first

not like Mr. Trump. You may ap-

out the full support of his party nor preciate his viewpoints or you may and successful political campaign.

6

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Façade of a Trump Tower. Photo Credit: Creative Commons CC0

Different opinions are being shared speculations, especially pertaining about the possible implications of

to the aviation industry and in-

Mr. Trump being elected when it

stead identify some useful lessons

Know your customers and their expectations

in terms of marketing, communica- Firstly, Donald Trump came up with two short yet powerful international relations. Considering tions and sales. phrases or motto, which would apthe fact that many analyses and 1) Know your customers and their peal to anyone who felt they have polls published before the election expectations; 2) Be fully sold on had enough of the so-called estabturned out to be wrong, it is safe to your unique value proposition; 3) lishment or status quo. “Make assume that most of post-election Communicate directly with clariAmerica Great Again” and “Put comments are mostly speculations ty, passion and authenticity.

America First”. Intuitively, this until Donald Trump unveils his comes to internal US affairs and

game plan. Therefore, the purpose

was not about Mr. Trump, it was

of this article is to avoid similar

about his audience, America.

Airline Profits

November-December 2016

Volume II—Issue 11

Airline Profits

November-December 2016

Volume II—Issue 11

Editorial Therefore, anyone who deeply

dent of the United States of Ameri- to endorse him. Moreover, former

feels a connection with the Great

ca.

America he was referring to,

would naturally feel to belong to

candidates and prominent mem-

Communicate directly with clarity, passion and authenticity

his audience or movement as he called it.

bers of his own party denounced

and disavowed him publicly.

When it came to the clarity of his

Thirdly, Donald Trump knew

message, Mr. Trump did not bothwhere to find and interact with his er polishing what he had to say: Be fully sold on your unique valaudience. Thus, he chose the most “he was telling it like it is.” And ue proposition appropriate mix of communication although he has been accused Secondly, let’s agree that everyone channels and shared his message many times of being ignorant else may have been surprised

with passion in a non-traditional

about politics and foreign affairs,

about the outcome of the election, but certainly not Donald Trump.

As a successful entrepreneur, he knew what he was doing. Furthermore, he put in the effort and energy required to win. Mr. Trump repeated several times on the campaign trail: “We are going to win, because we know how to win.”

And nothing suggested from the

We hope that you have drawn your own conclusions and key lessons from Mr. Trump’s successful campaign, which can be applied to everyday business especially the airline business, which is in need of rethinking.

tone of his voice or his body language that he had any doubts

he came across as being more au-

about what he was saying. Moreo-

way. He spent far less on political

ver, Mr. Trump persevered where

ads, bypassed mainstream media,

and when most of us would have

which he openly accused of being

given up. Although, most promi-

biased and instead relied heavily

nent voices were raised to suggest

on direct selling through public

that he was not qualified to lead

meetings and social media. He

the country, Donald Trump stayed could not count on celebrity enon course and fought his way to

dorsements to win. For instance,

the White House as the 45th Presi-

no former US president came forth

8

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thentic and closer to his audience: America. Not everyone agreed nor was pleased with the type of language he occasionally used nor some of the things he said during the campaign. However, the final results are there to prove beyond any reasonable doubts that Mr. Trump was heard loud and clear.

Man holding an airplane model. Photo Credit: Envato Photodune

Summary As mentioned earlier, many things

could be said about the recent US presidential election, which led to the victory of Donald Trump, however let’s stop here. We hope that you have drawn your own conclu-

ing. Moreover, this election serves

tray the customer as being at the

as a strong reminder that nothing

center of everything you do? Do

can be won in advance and that in you feel that your airline’s value

final analysis, the customer is the

proposition is unique enough to

ultimate boss who decides what to appeal to the customer? Do you spend time, energy and some-

know where to find your prospect

times money on.

customers and what communication and marketing channels can

sions and key lessons from Mr.

reach them more effectively? Do

Trump’s successful campaign,

Finally, here are some parting

which can be applied to everyday

questions to summarize the es-

you communicate what your air-

line stands for directly with claribusiness especially the airline busi- sence of this article. Does the vity, passion and authenticity? ness, which is in need of rethinksion statement of your airline por-

Airline Profits

November-December 2016

Volume II—Issue 11

“ Hope smiles from the threshold of the year to come, whispering, 'It will be happier.'

― Alfred Lord Tennyson

Airline Profits

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Available in Kindle Book on Amazon

Airline Profits

November-December 2016

Volume II—Issue 11

Profile Alaska Airlines: What Did the Airline Profits Sustainability Index Reveal?

In the previous 10th issue of Airline Profits, we shared our analysis of Allegiant Air. In this edition, we are presenting another airline review on the basis of the Airline Profits Sustainability Index (APSI): that of Alaska Airlines.

Our analysis covered a period of 10 years, starting 2006 through 2015.

We have also considered pieces of information available on Alaska

Airlines’ website and other reputable sources such as Flightglobal at the time our review was conducted.

Based on the data available as of November 2016, our analysis revealed that on a scale of 1 to 10, Alaska Airlines has an Airline Profits Sustainability Index of 8.9.

Based on the data available as of August 2016, our analysis revealed that on a scale of 1 to 10, Alaska Airlines has an Airline Profits Sustainability Index of 8.9.

In the next few lines, we are going to offer a breakdown of this rating.

However, let’s begin with a brief overview of the company by highlighting some key facts.

12

Creation and History Alaska Airlines was formed initial-

ly as McGee Airways in 1932 by Linious “Mac” McGee and offered on-demand flights from Anchorage, Alaska. Following a series of mergers and acquisitions due

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mainly to tough competition within Alaska and difficult financial positions, the airline was absorbed by Star Air Service. The latter was acquired in 1941 by Raymond Marshall and changed its name to Alaska Star Airlines the following year.

An Alaska Airlines Boeing 737 Aircraft. Photo Credit: Alaska Airlines

It was only in 1944 that the airline

lines, far outperforming the global

adopted its current name of Alaska airline industry in terms of operatAirlines.

ing and net profit margins.

Despite its long financial struggles

Alaska Airlines bought Virgin

and a tough competitive environ-

America in 2016 for 2.6 billion US

ment, Alaska Air succeeded in es-

dollars and will become the largest

tablishing itself as a multiple

carrier in the West Coast, when the

award-winning airline in terms of

United States government ap-

both customer and employee satis- proves the merger early 2017. For faction.

As of 2015, Alaska Airlines is one of the world’s most profitable air-

the time being, the Virgin America brand will coexist alongside that of Alaska Airlines until the time a full

out.

Business Model, Network and Fleet

A mainline carrier, Alaska Airlines serves 116 destinations mostly in the USA, but also in Canada, Costa Rica and Mexico. Alaska Airlines operates a fleet of 205 aircraft inservice composed of 153 Boeing 737 and 52 Bombardier Q400. The current in-service fleet has an average age of 9.2 years.

merger plan is eventually rolled

Airline Profits

November-December 2016

Volume II—Issue 11

Airline Profits

November-December 2016

Volume II—Issue 11

Profile Ownership and Subsidiaries

People Index

Summary

Alaska Air Group holds 100 per-

The Airline Profits People Index is

Alaska Airlines’ Airline Profits

cent of Alaska Airlines’ equity as

based on a scale of 1 to 10. Alaska

Sustainability Index of 8.9 is es-

well as that of its regional airline,

Airlines has a very high People

sentially driven by the People and

Horizon Air.

Index of 9.0. Five factors were con- Performance Indices, which in this sidered in our calculation. The Peo- case happen to be very high. This is

Leadership, People and

ple Index has a 45% weight in the

mainly due to the fact that over the

overall APSI.

past decade (2006-2015), Alaska

Operations

Airlines was profitable eight years out of ten. In addition to that, the

Alaska Airlines is currently led by Brad Tilden in the role of Chair-

Performance Index

airline has posted above average operating and net profit margins.

man and Chief Executive Officer.

The Airline Profits Performance

And as of 2015, the airline em-

Index is based on a scale of 1 to 10.

ployed over 15,000 people.

Alaska Airlines has a very high

Headquartered in Seattle, Wash-

Performance Index of 9.0. Five fac- mance indices, our primary recomtors were considered in our calcu- mendation is that Alaska Airlines

ington, Alaska Airlines uses Ted

Stevens Anchorage International Airport as its main operational

With very high People and Perfor-

lation. The Performance Index has

would do well to focus on improv-

a 40% weight in the overall APSI.

ing its Agility index.

base.

Agility Index

Airline Profits Sustainability

The Airline Profits Agility Index is

Profile

based on a scale of 1 to 10. Alaska

As mentioned at the beginning of this review, our analysis covered a 10-year period ranging from 2006 to 2015.

Airlines has a high Agility Index of 8.6. Seventeen factors were considered in our calculation. The

Agility Index has a 15% weight in the overall APSI.

Brad Tilden CEO, Alaska Air Group

14

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Leadership

“No man will make a great leader who wants to do it all himself or get all the credit for doing it. ” — Andrew Carnegie

Airline Profits

November-December 2016

Volume II—Issue 11

Airline Profits

November-December 2016

Volume II—Issue 11

Perspective What Impact Will the Brexit Have on Airline Profitability?

When the British Government called for a referendum to allow its citizens to decide whether the United Kingdom (UK) should remain within the European Union or withdraw from it, not many people really expected what happened at the close of polls on June 23, 2016. Now the Brexit vote is a reality and it brings along potential changes, which like it or not, individuals and businesses alike, including airlines will have to cope with sooner or later.

As a matter of fact, some large European carriers, namely EasyJet and Ryanair have recently lowered their respective financial outlooks

for the last quarter of 2016. Obviously, investors reacted unfavorably to these profitability adjustments.

In this edition of Airline Profits, we are interested in the potential that

Some large European carriers, namely EasyJet and Ryanair have recently lowered their respective financial outlooks for the last quarter of 2016. Obviously, investors reacted unfavorably to these profitability adjustments.

impact the Brexit would have on airlines, especially in terms of profitability.

intent to leave the union, both par- namely: ties have to reach an exit agreement within a period of two years.

The Withdrawal Process and Possible Scenarios From the time the British Government formally notify the EU of its

16

1) The UK joins the European Eco-

nomic Area (EEA); 2) The UK joins

According to various sources, in-

the European Common Aviation

cluding IATA, there are typically

Area (ECAA); 3) The UK opts to

three possible outcomes for the UK fully break away from the EU. after 40 years of EU membership,

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An easyJet Airbus A320 Aircraft. Photo Credit: easyJet

Scenario 1: The UK joins the Euro- laws pertaining to the single mar-

In the likelihood that the British

pean Economic Area (EEA)

ket. Besides, the UK would contin-

Government chooses the easy way

ue to pay membership dues to the

out, the economic landscape would

EU. Moreover, in such a case, the

likely change, but not very much.

UK will still benefit from existing

In such a case, one can expect air

trade agreements, contracted be-

travel to and from the UK to be

tween the EU and other countries.

much similar to what it is today.

In a nutshell, this scenario can be

Some immigration and custom

considered the easy way and is

changes can be expected for some

likely to be implemented quickly.

international travellers, which

The first scenario is the best case or the least painful option, depending on how you look at it. And that

consists of both parties agreeing to preserve the progress made over 40 years of political and socioeconomic relationship. In such a case the UK would agree to join the

would have very little or no impact

European single market, formally known as the European Economic Area (EEA). The implications of this option are such that the UK

on intra-European travellers. This Potential Impact on Air Travel and Airline Profitability under Scenario 1

would agree to abide by European

Airline Profits

November-December 2016

scenario would also imply that UKbased airlines will continue to have access to the current markets.

Volume II—Issue 11

Airline Profits

November-December 2016

Volume II—Issue 11

Perspective As far as profitability is concerned, tries like Norway and Iceland, are

likely follow general economic out-

one would expect no major impact, part of the ECAA, without being

look of the European region. How-

either positive or negative as a re-

ever, international routes would

sult of the Brexit. Some anticipated impacts would be more driven by the economy in general. With that said, currency fluctuations resulting from the level of uncertainty pertaining to the Brexit is already proving to be damaging to airline

members of the European Union.

Some of the drawbacks of this option are the contributions the UK would still have to make to the EU and the application of European

aviation laws and regulations, in which the UK would not have much to say.

profitability, as far as EasyJet and Ryanair are concerned.

likely be reduced significantly.

As a result, this would severely impact the overall airline profitability of UK-based airlines. Non-UK carriers also would likely suffer some financial drawbacks, especially those that offer several direct or connecting flights through the UK.

Potential Impact on Air Travel and Airline Profitability under

All told, the EEA option is the sce-

Scenario 2

nario, which could lower the perceived level of uncertainty, if the British Government were to choose that approach.

In the likelihood that the British

Scenario 3: The UK opts to fully break away from the EU

Government opts for the European The third scenario is tied to the Common Aviation Area (ECAA),

likelihood of the British Govern-

intra-European connectivity to and ment deciding to go the hard way from the UK would remain like it is and dive anyways into the unScenario 2: The UK joins the Euro- today. However, significant chang- known and face uncertainty head pean Common Aviation Area

es for international flights would

on. In this case, the divorce with

(ECAA)

be expected, since the UK would

the EU would be complete. As a

need to contract bilateral or multi-

result, the UK would break free

lateral economic agreements with

from current European laws and

other non-European countries be-

chart the course of its future on its

fore gaining access to a market as

own. An obvious consequence of

wide as today. As far as airline

this option would be the negotia-

Joining the ECAA would be a more likely scenario for the UK. It is very similar to the first scenario, except that instead of being entitled to the

benefits in connection with the entire single market, the UK would be taking advantage of the existing European aviation space, rules and regulations. Other European coun-

18

profitability is concerned, although tion of bilateral agreements with domestic intra-European routes

not only EU members individually,

would remain the same, therefore

but also non-EU members.

their financial contribution would

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Airline Profits

November-December 2016

Volume II—Issue 11

Perspective As a result, on one hand the UK

as a result of reduced traffic to and to and from the UK would be

market would be restricted to

from the UK, especially knowing

somewhat negligible, although the

many countries, at least temporari- that London is one of the world’s

ECAA option could affect interna-

ly. On the other hand, the access to major economic platforms and one tional travel more severely. many European and non-European of the busiest international destinamarkets would be restricted to Brit- tions. ish business, including airlines.

tail a great deal of uncertainty

Summary

Despite intensified warnings from Potential Impact on Air Travel

politicians and prominent business

and Airline Profitability under

leaders about the devastating po-

Scenario 3

tential of the Brexit, the majority of

An anticipated consequence for airlines, whether UK-based or not, would be a very difficult environment, where access is restricted and traffic is negatively impacted.

This market condition would persist until such a time when the British Government would conclude enough bilateral and multilateral agreements to re-create an economic environment similar to the one, which exists today under the EU membership. Even with a good dose of optimism, one could not expect such a market condition to happen quickly. In fact, it may take several years or decades to accomplish that. Airline profitability would likely be severely impacted

British voters opted on June 23, 2016 to leave the European Union.

Thus practically speaking, by the end of 2019, the UK could have officially left the union. The options

available to the UK are essentially three folds, ranging from an economic co-existence or an aviation co-existence to a complete break-

whereby the UK would have to re-

negotiate dozens of bilateral or multilateral agreements both with EU and non-EU countries before accessing a market comparable in size to what currently exists

through the EU membership. This scenario comes with a greater level of risk and uncertainty, but will also require a lot of time and energy to accomplish. In the meantime, UK-bound air travel will tremendously suffer in terms of traffic and ultimately profitability.

up. Under an economic co-

Unfortunately for UK-based air-

existence through the European

lines, the uncertainty raised by

Economic Area (EEA) or an avia-

the vote in favor of the Brexit and

tion co-existence through the Euro- the subsequent currency plunge pean Common Aviation Area

were somehow entertained by the

(ECAA), which in both cases

lack of guidance as to as to which

equates to a lower level of mem-

option the British Government is

bership, one would expect some or going to pursue and when it will most of the current arrangements

engage the EU to trigger the exit

between the UK and the EU to stay negotiation process. as they are. The effect on air travel

20

Whereas, the full break-up will en-

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Possibility

“It always seems impossible until it’s done.”

— Nelson Mandela

Airline Profits

November-December 2016

Volume II—Issue 11

“ Let our New Year's resolution be this: we will be there for one another as fellow members of humanity, in the finest sense of the word. ― Goran Persson

Airline Profits

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Available in Kindle Book on Amazon

Airline Profits

November-December 2016

Volume II—Issue 11

Performance Will Hawaiian Airlines Bounce Back to Record Profitability?

In the previous edition of Airline Profits, we discussed the financial performance of Air Canada over the decade ending December 2015. In this article, we are reviewing the Aloha spirit guided Hawaiian Airlines’ profitability during the same span of time.

Review of Net Profits In 2006, Hawaiian Airlines ended the fiscal year with a 40 million US dollar loss. Given the context of the airline, that negative result was significant. Yet, that has proven so far to be the only time Hawaiian Airlines saw a red-ink bottom line for

Hawaiian Airlines saw a revenue surge to 1.2 billion US dollars and quadrupled its net profits to 28.5 million US dollars in 2008, when most airlines were reporting significant losses.

that decade. Shortly thereafter, the airline increased its total revenues by 10% to .98 billion and bounced back with 7 million US dollars in net earnings in 2007.

The next three years will end with even higher profits. Firstly, the airline saw a revenue surge to 1.2 billion US dollars and quadrupled its net profits to 28.5 million US dol-

24

lars in 2008, when most airlines

based carrier reported another

were reporting significant losses.

10.8% increase in total revenues

Then, just one year later, although

and closed the financial year with

total revenues dropped 2% down

slightly lower net earnings of 114.3

to 1.1 billion US dollars, Hawaiian

million US dollars. By contrast, alt-

Airlines did it again by quadru-

hough Hawaiian Airlines reported

pling its profits to 116.7 million US

a significant 25% more revenues,

dollars in 2009. The Honolulu-

which reach 1.65 billion US dollars,

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A Walt Disney Moana-themed Hawaiian Airbus A330. Photo Credit: Hawaiian Airlines

the airline experienced what can be 2.31 billion US dollars. Meanwhile, 2009. Then followed a slight drop dubbed a touchdown with a deep

net profits have skyrocketed to

to 7.28% in 2010 with a significant

dive in net profits to 7.9 million US reach 182.6 million US dollar that

dive to 1.5% just a year later. How-

dollars. Since then however, the

ever, Hawaiian Airlines made a

Aloha-driven airline began an up-

same year.

Review of Profit Margins

ward climb in terms of profitabil-

and progressively reached a covet-

ity. For instance in 2012, Hawaiian

Operating Margins

Airlines earned more revenue to

From a slight break-even point in

reach 1.96 billion US dollars and

2006 and 2007, the subsequent fi-

reported a seven-fold profit com-

nancial years were much more

pared to the previous year. From

profitable from an operational

then until the end of 2015, yearly

standpoint. Operating margins

total revenues have surpassed be-

have risen quickly from the previ-

yond the two billion mark to reach

ous two years to reach 9.08% in

Airline Profits

rebound starting 2011 with 6.59%

November-December 2016

ed 18.39% at the end of 2015.

During the 10-year period ending 2015, Hawaiian Airlines has consistently outperformed the airline industry except on three occasions namely 2006, 2007 and 2011.

Volume II—Issue 11

Airline Profits

November-December 2016

Volume II—Issue 11

Performance

Net Margins As mentioned earlier, Hawaiian Airlines reported a loss in 2006 with a negative 4.57% net margin.

From the following year until 2015, Hawaiian Airlines’ net margins appear to be almost cyclical. Starting at a near break-even point in

Although total revenues dropped 2% down to 1.1 billion US dollars, Hawaiian Airlines did it again by quadrupling its profits to 116.7 million US dollars in 2009.

2007 then climbed quickly to 9.86%

in 2009. From that high point, if first dropped slightly to 8.72% a

ly just above 2%, reach 2.98% in

year later, then dived abruptly to

2014. The following year however,

0.48% in 2010. For the following

was a different story, Hawaiian

Similar to operating margins, Hawaiian Airlines has also outperformed the airline industry, except

three years, Hawaiian Airlines’ net Airlines was able to achieve 7.88%. on three occasions 2006, 2007 and 2011. margin remained almost constant-

26

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It must be highlighted however,

that from 2012 to 2014, the gap has narrowed significantly due to the fact that the airline’s net margins have shrunk well below 3%. It is only in 2015 that Hawaiian Airlines has again widen that gap by 3.2%.

Summary Based on the results of the first three quarters, Hawaiian Airlines is well on its way to report another profitability record for the financial year ending December 31, 2016, and probably with higher profit margins compared to 2015. With that said, these are two things worth highlighting.

Firstly, the airline’s total revenues

Although Hawaiian Airlines’ total revenues have increased significantly over the decade ending 2015, operating costs are also rising rapidly.

Furthermore, the average net profits represent only 50% of the average operating results. pared to 2006, the revenues have

ian Airlines’ total revenues have

doubled in 2011, then almost tri-

increased significantly over the

pled since 2014. Secondly and by

decade ending 2015, operating

contrast, when considering cumu-

costs are also rising rapidly. Fur-

lative revenues and earnings, the

thermore, the average net profits

first half of the decade has proved

represent only 50% of the average

to be more profitable than the sec-

operating results. This suggests

ond half, even though cumulative

that financial costs are eating a

revenues have almost doubled af-

good chunk of the earnings before

ter 2011. The key takeaway from

interest and taxes (EBIT).

have increased considerably. Com- this review is that although Hawai-

Airline Profits

November-December 2016

Volume II—Issue 11

“ Year's end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us. ―Hal Borland

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Airline Profits

November-December 2016

Volume II—Issue 11

Paradigm Airline Customer Service: What Does an Airline Passenger Pay for?

This is one of those seemingly simple, basic and straightforward questions, which may sound silly at first, until one actually takes the time to think about it. One may say that the airline passenger has paid to get from a given point A, the departure point to a given point B, a desired destination point. We all understand that rightfully. So a straightforward deduction from that would be that the customer has paid for air transportation. Yet, that is just a superficial way of looking at it; no wonder why the question appears to be so obvious.

Taken from another angle, that of an airline marketer’s perspective, the passenger has paid for a given class of airfare or a bucket of fares.

This includes mainly a seat and any other amenities the airline decides to offer in addition to that. And although this may sound very a knowledgeable and expert answer,

that too offers a very limited view

Taken from another angle, that of an airline marketer’s perspective, the passenger has paid for a given class of airfare or a bucket of fares. And although this may sound very a knowledgeable and expert answer, that too offers a very limited view of what the customer really paid for.

of what the customer really paid for. According to a report earlier

just a standing spot.

worse than the following one. In any case, you may arrive at the

this year, a Chinese airline was exploring the possibility of having

Now, let us consider the perspec-

same conclusions. An acquaintance

passengers stand in flight instead

tive of a customer through the fol-

of mine recently got paid a visit by

of seating. So sooner or later, a seat lowing story. You may have a simi- Mrs. Helen, an aunt of his, just a lar story to tell about your own ex- few weeks ago. Mrs. Helen flew may not be included in the ticket perience or that of someone you from Boston to Montreal with a price, all you would get may be know. And your story may be

30

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A Full Commercial Aircraft Cabin. Photo Credit: Creative Commons CC0

connecting flight through Toronto.

her boarding call. However, as the

plan for. Her flight finally left for

That part of the journey was

schedule time for departure was

Toronto around 5:00 pm as sched-

smooth with nearly nothing to

approaching, Mrs. Helen was told

uled and her connecting flight also

complain about. The return flight

that she could not board the plane,

left for Boston on time around 8:00

however, was more complicated

because her flight was full. The

pm. Mrs. Helen finally arrive in

than the first part. The first leg of

next flight would be leaving five

Boston around 9:30 pm. However,

her return flight was Montreal to

hours later around 5:00 pm. Had

by the time she got home, it was

Toronto. Her plane was schedule to she been informed of that at the

already 1:00 am. It certainly was

take off around 12:30 pm, so Mrs.

time she checked in, chances are

not her commuting time from the

Helen got to the airport around

Mrs. Helen would have had

airport to her place, which took her

9:30 am to make sure she complet-

enough time to return to her neph- more than three additional hours.

ed all formalities to catch her flight ew’s place and spend some addi-

It was rather the fact that she had

on time. Once at the airport, Mrs.

waited at the carousel to get her

tional time with him. Conversely,

Helen checked-in with her luggage Mrs. Helen had to wait at the air-

luggage, which unfortunately were

and went through all required for-

port for extra hours, something she nowhere to be found.

malities as planned and waited for

obviously did not anticipate and

Airline Profits

November-December 2016

Volume II—Issue 11

Airline Profits

November-December 2016

Volume II—Issue 11

Paradigm After engaging the airline’s cus-

again in the future? And would she and related amenities they had

tomer service to try to locate her

remember the first part of her jour- supposedly paid for in the first

bags, it turned out that they were

ney and recommend that airline to

place. This has become a sort of

in fact loaded to the initial flight

other potential passengers? If we

commonplace experience that on

from Montreal she was denied to

can genuinely answer “no” or

the one hand no single airline

board. So clearly, although the air- “maybe” to any of those questions, could be blamed for. On the other line made sure that Mrs. Helen

then we can safely conclude that

hand, this sub-par customer service

didn’t board her initial flight, the

Mrs. Helen did not receive the ser-

is perceived as normal. And this is

airline agent didn’t even bother

vice she expected and for which

precisely one of the things that con-

making sure that her luggage was she had paid for. And this despite

tributes to devalue air travel to the

loaded to the new flight she was

the fact that, she got to her destina- extent of making it a mere com-

actually going to take.

tion safely and had probably found modity. It should be said, however,

The end of this story was not available at the time of this writing.

Nonetheless, it would be of no surprise to know that at the end of her journey, having a seat on an airplane was not essentially what Mrs. Helen paid for. She was certainly frustrated over the blatant lack of efficiency she suffered from.

Yet, a key question that comes to

This is what the customer has ultimately paid for: a no hassle end-to-end air travel experience using the safest, fastest and most reliable means of transportation for leisure, to meet family and friend or to conduct business.

mind is the following. Did Mrs. Helen get the service she actually paid for and was expecting to receive? And that begs the following

her luggage the next day or a few

that in this particular instance, the

days later.

airline had at least three specific

ultimate questions. Would Mrs.

In summary, there are countless

Helen book that airline, had she

similar stories in which airline pas-

known in advance the terrible ex-

sengers cannot fully agree that they

perience she has gone through?

got their money’s worth, even

Would Mrs. Helen book that airline though they were offered the seat

32

www.airlineprofits.com

opportunities to make a great impression on this customer. The first opportunity was at the check-in or even before that. The check-in agent should have known that

Passenger and child waiting at the airport. Photo Credit: DigiProducts Stock Photo

Mrs. Helen could not board the

taken a critical next step to advise

first flight, because of her discount

her colleagues in Toronto or Boston Mrs. Helen from going and wast-

ticket. The airline could have in-

about the checked bags. On one

formed her that she will be booked hand, the luggage from Montreal

this step would have prevented ing her time at the carousel. Why the airline seized none of these op-

on a different flight leaving about

was going to be deplaned in Toron- portunities to delight the customer

five hours later. That information

to. That was the second opportuni- is not only shocking, but also indic-

could have left Mrs. Helen to de-

ty to make sure Mrs. Helen’s bags

ative of how the airline industry

cide, whether she would spend her were identified and held in custody needs to redefine its purpose long waiting time at the airport or

by the airline and loaded on her

around customer satisfaction.

with her relative she has paid a vis- flight to Boston, once she effective-

And that is what the customer has

it to. The second opportunity was

ly arrives in Toronto. The Third

ultimately paid for: a no hassle

for the gate agent who advised

opportunity was to let the tagged

end-to-end air travel experience

Mrs. Helen about her flight change bags to be sent to Boston directly,

using the safest, fastest and most

should have thought about her

have them held in custody there

reliable means of transportation

checked luggage. With that infor-

and inform Mrs. Helen about how

for leisure, to meet family and

mation, the gate agent should have to claim her luggage. Obviously,

Airline Profits

November-December 2016

friend or to conduct business.

Volume II—Issue 11

“ Celebrate what you want to see more of.

― Tom Peters

Airline Profits

www.airlineprofits.com

@AirlineProfits

Available in Kindle & Paperback on Amazon

Airline Profits

November-December 2016

Volume II—Issue 11

Platform Airline Distribution: Can the Airline Industry Emulate Amazon Retailing Effectively?

Counting on lower fuel prices to make a record profit is not enough, in fact it may turn out to be a losing strategy. Yet can the airline industry effectively copy Amazon’s online retailing approach? There are competing initiatives tending to offer airlines new solutions about optimizing their revenues. The main intent behind these solutions is the notion of maximizing ancillary revenues through down-selling, upselling and crossselling.

Based on a report from IdeaWorksCompany, since 2008 airlines have more than tripled their revenues generated through extra fees, with

a total in excess of US $25 billion in 2015. Therefore, ancillary revenues represent the new gold rush, which appears to be a very lucrative path the airline industry wants to ex-

Since 2008 airlines have more than tripled their revenues generated through extra fees, with a total in excess of US $25 billion in 2015.

plore further.

With down-selling, you can sell a lower value item or package, if the prospect failed to purchase at a

high price point. With upselling,

gest to the prospect what other cus- variety of products. Moreover, this tomers who purchased a particular well-rounded system also allows a item or package have also bought.

you offer an upgrade after the pro- In addition to these basic capabilispect has purchased an item or

ties, the Amazon’s online retailing

package at a lower price point. Fi-

platform also allows independent

nally, with cross-selling, you sug-

vendors to promote and sell a wide

36

www.airlineprofits.com

growing network of affiliates to promote Amazon products throughout the world.

A Crowded Book Fair. Photo Credit: DigiProduct Stock Photos

The whole idea is to capture a sale and maximize the revenue per customer, both per transaction and over the lifetime of the relationship with a given customer. This is in

essence the new rule, yet not so new paradigm of marketing and sales, which Amazon and other online businesses employ success-

oriented Knowing the customer’s needs and behaviours Building a long-term customer relationship

Having a congruent technological platform

to Succeed Like Amazon?

So the question is: do airlines have success of this approach requires four pillars: Being customer satisfaction-

Airline Profits

the answer may tend to be affirmative.

However, when one understands where successful businesses like Amazon came from, the answer will tend to be negative.

Do Airlines Meet the Pre-requisite

fully.

It is worth highlighting that the

to help airlines maximize revenues,

all these critical building blocks in place to be and win like Amazon?

When one considers the new distribution platforms being considered

November-December 2016

And here is why. Amazon started

by challenging the book market status quo, which in essence can be summarized as follows: to buy a book, you have to go to a bookstore.

Volume II—Issue 11

Airline Profits

November-December 2016

Volume II—Issue 11

Platform

That was the norm, which ap-

ucts or services. What Amazon is

The point which we are trying to

peared intuitive and a generally

engaged in is in reality about

get across is that copying Ama-

accepted foundation of the book

providing convenience to custom- zon’s recipes is easy and most

industry. Amazon started with a

ers. In return customers willingly

probably the simplest part. Ap-

business concept which eliminat-

pay Amazon what they are

plying them successfully, howev-

ed the need for the customer to

charged, because they feel they are er, is a completely different ball

walk into a bookstore to buy a

getting their money’s worth and

game. This requires a solid cus-

book. With that extra time, the

probably much more.

tomer-centered foundation, which

customer can actually search through millions of titles online, from the comfort of their home or

Furthermore, Amazon’s basic business model has evolved to the point where they even allow their

office. Nowadays, that constitutes

it is hard to say that the airline industry has at this point in time.

In fact, most airlines are mainly technology-driven that they are

only a fraction of what Amazon has to offer. The company has a diversified business model, which offers convenient solutions to a

wide range of market segments.

Yet with that, Amazon has lost nothing of its core value and guiding philosophy: customer satisfaction.

Copying Amazon’s recipes is easy and most probably the simplest part.

Applying them successfully, however, is a completely different ball game.

This requires a solid customercentered foundation, which it is hard to say that the airline industry has at this point in time.

What Business Is Amazon Really Engaged In?

customers and non-customers to earn a share of their revenues

Consider the diversified portfolio

through affiliate marketing.

not ready to benefit from the full potential of Amazon’s recipes until and unless they shift their fo-

of products or solutions Amazon

cus toward customer satisfaction

offers today and you may notice a

by rethinking their business from

common theme. One is tempted to

The Key Take-away from this

even suggest that the company is

Article

not engaged in the selling of prod-

38

www.airlineprofits.com

the ground up.

Character

“Character is the ability to carry out a good resolution long after the excitement of the moment has passed.”

— Cavett Robert

Airline Profits

November-December 2016

Volume II—Issue 11

“ Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning. ―Albert Einstein

Airline Profits

www.airlineprofits.com

@AirlineProfits

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