Airline Market Study: Introduction To The Airline Industry
By Tom Dougherty
More than two years ago, Stealing Share took a look at an airline industry in extreme flux with a preliminary airline market study. The number of passengers flying was down, airlines were filing for bankruptcy and the model seemed to be broken. We took a look at how the airline carriers were responding and the answer was, “They weren’t.”
If anything, most responded like what you’d expect from cold-hearted corporations. They passed along the costs of fuel to the passenger by adding fees, including for checked baggage. (Which has had a negative effect on the experience of flying. More passengers put their luggage in the overhead compartments, meaning flights were delayed, some were gate checked and frustration mounted.)
They combined forces with six of the biggest airlines – Delta & Northwest, United & Continental, American & US Airways– merging. What those mergers mean to passengers is still a question mark.
Delta has a new campaign and the theme of “Keep Climbing” would be resonant except for the truth of passenger experience. United is still developing its new attempt to create preference, with its new campaign.
What hasn’t changed in this airline market study is passenger anger. If anything it has gotten worse. We had a US Airways flight attendant basically bail out of a flight because passengers were too unruly – and we practically honored him for it. Alec Baldwin got into a ruckus with a flight attendant over playing Words with Friends.
Putting aside the flawed ways in which airlines operate – the model is still broken – airlines could overcome that anger by creating preference with brand. With all things being equal (and, in relative terms, they are almost all equally bad), how passengers see themselves in an airline brand is the only way to alleviate that anger.
The problem, of course, (which we will examine in this airline market study) with creating preference in this industry is that passengers have a hard time selecting an airline even if they have a preferred choice. They are basically trapped by price, location of hubs, flight times and loyalty programs. Instead, we usually choose an airline based on who can get us from Point A to Point B the fastest and cheapest – and by adding miles to a loyalty plan. (Read and article on Airline Frequent Flyer Affinity Programs here)
The airline market study shows that creating preference can be done and there’s a wide-open opportunity to do just that. At least one carrier is slowly creating that preference by building on an emerging brand, but it still hasn’t reached the sweet spot.
The rest? They are wallowing in their mire. Below, we’ve taken a look at the four largest domestic carriers to examine what they are doing about it today.
We didn’t look at US Airways because of the merger – and to go through its approach would be borderline cruelty. US Air, as most of us know, is the absolute worst. In fact, if there’s a preference concerning US Airways, it’s a preference to NOT fly US Airways.
As for the others, let’s take a look.
AIRLINE MARKET STUDY THE MAJOR DOMESTIC AIRLINE CARRIERS
American was the only major carrier who had not gone through a merger until this year. Now it has joined with US Air. But even without the merger it had gone through plenty, nonetheless. (Our thoughts on the American-US Airways merger click here).
It had filed for bankruptcy and laid off workers with plans to lay off more. It is now the largest airline in the world and has surpassed United-Continental and Delta-Northwest since their mergers.
Basically, The New American is struggling. How did it get to this point?
In the last airline market study we looked hard at American we saw a market leader playing defense. Its old theme line of “We Know Why You Fly” was intended to show that American knew the reasons why you fly, such as visiting your grandmother or surprising your wife. However, that was just marketing the category benefits of flying, not the reasons why you fly American. Now they talk about “The New American” and speak of “the worlds largest airline” and “Time Flies.”
American Airlines is vulnerable to having its market share taken because preference has not been developed.
So what does American do about it? It only slightly changed course promoting a New American and an “ease of the travel experience.”
And you read that right. It was two campaigns, but you can hardly tell the difference. Only the decoration has changed.
There are other examples but American Airlines seems to believe it is addressing the frustrations of passengers head on. However, the tone is similar to the competition (think of old United) and it doesn’t align itself with the anger many passengers face. They are forgettable and only market the product benefits.
To become a clear choice, you do have to be positioned against the competition. That’s a problem American Airlines has not solved in recent years and it’s one of the reasons why it has lost market share. The mergers have also played a large part, but those alone don’t account for the $163 million it lost in third quarter last year.
Positioning is also about more than having a different message. Tone and attitude count too (see Southwest). They must also be different and better.
American, once the 800-pound gorilla in this industry, is fast becoming its weakling. It’s time for American to adopt a new approach.
Delta Airlines is one of the most interesting in this airline market study of the airline bunch because of its utter failure to capitalize on any equity the merger with Northwest might have. When we last looked at it, Delta looked a bit lost. It was much too focused on itself – even airing that old standby, our good employees – but changed advertising agencies and campaigns like it had money to burn. (Five different themes in 10 years is craziness.)
Since then, Delta has merged with Northwest, making it briefly the market leader until United and Continental merged. Like that merger, Delta and Northwest immediately came out with an interim campaign of “Together in Style” and “One Great Airline.”
Interim campaigns are often like that as companies assess what the new brand should actually mean. That takes time and hard work. However, once Delta seemingly figured it out, it still had the same problem: It’s always about Delta, not the passenger.
Its new campaign has the theme of “Keep Climbing.” But if you watch this TV spot, it’s all about Delta. There’s no place for the passenger in it.
To be fair, there’s a brief second or two that addresses passenger frustrations, but in a whimsical way. But the point is clear: We (Delta) work hard and we’re the ones climbing. That probably does a great job elevating morale within Delta, but it does very little in terms of creating preference.
Not to mention that, in terms of tone and attitude, it’s very similar to what United has always done but better. Even the Donald Sutherland voiceover is reminiscent of the Gene Hackman one for old United ads – only without the Gershwin.
It’s interesting to note that the Delta-Northwest merger seems to have been largely forgotten anymore – and not just because it’s been more than three years since it happened.
The cumulative effect has been that nothing has changed, at least from the perspective of passengers. Just more flights and destinations – as this print ad shows.
When we last left United Airlines, we gave it credit for having the strongest equity markers in the industry. Gershwin’s “Rhapsody in Blue,” a consistent look and feel, and the most sophisticated brand in the industry powered the brand. Since then, the United CEO (Jeffery Alan “Jeff” Smisek) resigned do to a new scandal involving influence peddling. Will the change in leadership herald a change in the business model? Only if United Airlines can get out of their own way.
But much has changed for United, and not for the better (yet). Since then, United merged with Continental, combined the two logos into one and introduced an interim campaign meant to highlight features rather than the new brand.
Recently, United hired McGarryBowen to create a new campaign that is no doubt intended to reveal what the newly merged United brand means – and if it’s any different than before. The new campaign is expected to be unveiled sometime this year, but our confidence is not real high.
McGarryBowen is known for its campaigns for Chase Bank, 7UP (the Cee Lo spot), Miracle Whip and that truly failed brand, Sears. Most of the spots it has created are centered on product benefits, although the Miracle Whip campaign had some interesting elements (the spots played with the idea that some actively hate it).
Therefore, it is a mildly troubling sign that, when United and Continental first merged, the first ads out (not by McGarryBown) were of the product benefit variety. They simply featured low fares, being able to watch DirecTV on flights and increased destinations. The same messages as everybody else.
Be warned, though, that it is simply an interim campaign because, if anyone in the airline industry can truly reflect the customer, it’s these guys. This is meant in the plural, because we gave high marks to Continental as well the last time.
Back then, Continental was the only one that considered passenger frustration. It played off what you, as a passenger, should expect from an airline. That an airline should fulfill its promises and that professionals should fly like professionals.
We noted last time that it wasn’t a long-lasting brand take because it was still too soft. But it showed a kind of fearlessness. That ability to address the elephant in the room combined with United’s brand sense may produce the most meaningful brand in the market.
It certainly has the power to do so. Right now, United is the largest domestic carrier, just nudging Delta.
Before we leave United, a word about the logo. It is intended to demonstrate the combined strengths of each brand (United name, Continental’s globe) and I’m hoping that kind of intended synergy works to its advantage.
We’re not fans of the merged logo, though. But we’re aware that the success of the logo is dependent on what the new brand will mean. A logo is only a visual demonstration of that brand. At the moment, the logo itself reflects the interim feel of United’s positioning.
A new logo is probably not in play. But, to truly capture market share, United should consider it if the brand, especially if it’s based on projectable market research, doesn’t jibe with it.
Then the whole process will start again.
Now we’re talking. In the previous examination of this category, Southwest was the only one that was positioned differently than its competitors. However, it was still a relatively small player compared to the giants.
Not anymore. It is now third among domestic carriers – although only a percentage point above American – and nobody outspends Southwest when it comes to national TV advertising.
We’ve all seen them. The campaign, “Bags Fly Free,” is only a mild step away from its previous, “You Are Now Free to Move About the Country” because it still has the Southwest populist angle.
The tone and attitude is certainly different than the competition, and Southwest has always been that way. Even its model is different.
The question is whether it’s better. You could hang a picture upside down and it would certainly be different. But would it be better?
In this case, it is better. The numbers certainly demonstrate it as Southwest’s earnings rose 16% in last year’s fourth quarter.
But isn’t “Bags Fly Free” just a product benefit? Yes, and largely no. For one thing, its tone, attitude and even messaging are strongly encased within the Southwest brand. You could see those ads and say to yourself, “Only Southwest could do that.”
There’s another reason, though. The campaign takes direct aim at the competition, thus feeding – although mildly – into the frustration of passengers. It’s not angry by any means. The spots are mostly funny, but Southwest has claimed that spot for years. (American took a crack at being funny a few years ago, and it didn’t feel right.)
Additionally, the underlying message in “Bags Fly Free” is that Southwest isn’t going to screw you. Not like those other guys.
That is what passengers are feeling. That the airlines are taking advantage of us. Charging for bags is only the start.
Southwest holds the solid position right now and it can only get stronger if it finds new ways to dimensionlize the brand so other ways in which the competition cares less about the passenger are mocked.
MAJOR WORLDWIDE AIRLINES
The reputation of the non-U.S. airlines is they do it right. They take better care of passengers. They spend a great effort on providing luxury.
There is some truth to that and passengers have been responding with their wallets. More people are flying in countries other than the U.S. than before, although some of that can be attributed to economic growth in Asia (China) and Latin America (Brazil).
However, it is these non-US carriers who are gaining market share (without acquisition), especially those in the Middle East. Emirates have been gaining market share faster than any airline in the world, as it’s now the fourth largest airline after only cracking the top 10 two years ago. China Southern, Ethihad, Qatar and Turkish Airlines are other major movers in global market share.
Emirates has grown by widening its reach and expanding into six continents to become the fastest growing airline in the world, based on passengers carried.
That’s quite an impressive feat considering Emirates was only founded 25 years ago and has become the dominant player in the Middle East. Based in Dubai, and owned by the government of Dubai (with backing from Dubai’s royal family), it has grown by investing heavily into the business. It doesn’t have the constraints of being a public company answering to a board of directors.
Emirates, for example, bought 130 aircraft in 2007 and has doubled in size every four years. Despite all that spending, Emirates has been profitable for 22 years with growth being at least by 20% each year.
That expansion has been part of its marketing strategy lately. The approach has basically included three components: The wide variety of destinations, using the tagline “Over 100 destinations” that end its commercials; Building the category of visiting Dubai; and the luxury and glamour of flying on Emirates with first-class private cubicles and an on-board chef.
How effective are those ads? The glamour and luxury angle is extremely effective because it is different than the competitors (it puts the supposed luxuries of other airlines to shame) and Dubai is becoming a hot spot for world travelers. Ethihad is a competitor in Dubai, but Emirates is the market leader there. (Dubai even has one terminal solely dedicated to Emirates.)
Marketing the pleasures of visiting Dubai is a smart strategy for Emirates because it is the market leader. When you market a category (whether it’s healthy cereal or light beer), it only helps the market leader. That’s because the market leader is always the default choice when all the messages are about category benefits.
But all is not perfect with Emirates. While its luxury is a reflection of its brand (you fly Emirates if you have class) and the Dubai promotions are tactically smart, Emirates’ marketing still hinges too much on having many destinations. That is a message delivered by everyone and is not a reason to choose.
It is probable that Emirates took that route as a piece of education because most travelers may just see it as a Middle Eastern airline. But the many destinations angle is so front and center, it feels overdone. The imagery already tells that story.
Emirates, while growing faster than anyone, can take the next step in overtaking this category globally – without having to invest so much in its inventory – by understanding the belief systems (the answer to the question of why luxury and Dubai are important). If it could align itself with those, it would become more meaningful and find itself becoming the market leader in more markets.
AIRLINE MARKET STUDY. THE OTHERS
The three largest airlines globally after the American three and Emirates offer an interesting take on tone. Lufthansa, Air France and British Airways may have somewhat similar messaging to other airlines (destinations, luxury appeal, heritage, etc.). But being positioned against the competition is as much about tone and attitude as it is about messaging because the right tone can be very emotional.
Air France has especially been better and different tonally of late, with a romantic air in its current L’Envol (“take off”) campaign. Take a look at this spot in which its aspiring and ethereal feeling invokes a kind of magic.
You could, in a sense, say that is so French, but that’s the point. There’s an elegance and beauty here you don’t see with anyone else. You recognize it as Air France. (You can’t, though, in its marketing theme lines. “The Art of Flying” and “Making the sky the best place on Earth” doesn’t differentiate Air France or neither is intensely emotional.)
For many years British Airways claimed to be “The World’s Favourite Airline.” As one of the original legacy international carriers, tracing its roots back to BOAC, which was created in 1940, British Airways pioneered what it meant to be a globe trotter.
Their award winning and emotional advertising by Saatchi & Saatchi and later M&C Saatchi positioned the brand to fulfill that “favorite” position. In many ways, British Airways has fallen victim to the Airline Frequent Flyer Alliance Catch-22. Your domestic traffic limits your international traffic because frequent flyer affinity trumps choices. In the US, the dominance of the Star Alliance makes choosing British Airways a challenge for travelers.
In each case, the airline has staked out a unique position in the category – either because it has a unique tone (Air France), a reflection of its cultural heritage (British Air) or its own reputation (Lufthansa).
So why can’t the American-based airlines get it right?
In terms of market share, the leading European airline is Lufthansa, based in Germany and, much like Emirates, has built a brand based on dependability and luxury – only with a sense of humor. Lufthansa is one of the largest carriers in Europe with a well developed hub system out of Frankfurt.
Their current brand theme of Nonstop you” has an aspirational and personal feel that speaks about the customer more than the airline. Like DELTA’s theme Keep Climbing, Nonstop you positions the brand in terms of the flyer but its cleverness masks its importance. European carriers, especially Lufthansa and British Airways, are more prone to work stoppages due to labor disputes than their Asian and North American counterparts. So, in point of fact, many Lufthansa regulars are not non-stop. Neither are the flights with a hub system as intrenched as Lufthansa’s.
We’ve already mentioned the success of Southwest Airlines, and it is the king of the low-cost carrier crop. What’s interesting, in further examination, is the rest of the low-cost carriers try the same anti-big airline kind of messaging without the punch.
It is, in its way, similar to the mostly lame attempts of credit unions to be the anti-banks against the big banks. The problem with credit unions, however, is that they refuse to tap into the anger at banks. They are the smiley-happy faces of marketing that have almost no effect.
To illustrate this point, let’s briefly examine the next two low-cost carriers: JetBlue and AirTran.
Even though it is related to Southwest’s approach of being the anti-big airline, JetBlue had it nailed when it first started flying in 2000. It started with a “Bringing humanity back to air travel” that was ahead of its time as 9/11 hadn’t happened yet and passenger anger didn’t emerge until several years later.
Maybe it was the mistake of timing because JetBlue ditched that and went through a series of positions that were essentially meaningless. That was especially true of the ill-fated “Happy Jetting,” which was overly clever and not about the passenger at all.
JetBlue has now come to “You Above All,” which has the right sentiment in that it’s about the passenger and not the airline. It needs to be more emotional and it’s essentially just talking about service, which is usually a table stake. Not any more in these angry times with airlines.
But it still feels unbelievable because it’s so cliché and unemotional. This is especially the case when JetBlue became infamous for holding passengers on a plane for 11 hours a few years ago, waiting to take off.
And it’s especially true when JetBlue simply markets table stakes such as direct flights.
AirTran is a stranger animal. Like most airlines, AirTran faced bankruptcy and in came a competitor to purchase it last September: Southwest, which has a more meaningful brand (because it’s positioned against something) and is a larger airline.
Southwest bought AirTran because it wanted access to more hubs, especially in the Southeast. How much effect it’ll have on the AirTran brand is unknown at this point, but don’t be surprised if AirTran disappears in the coming years.
The idea of low prices (or even, no baggage fees) and service sound right in the face of passenger anger, but the big airlines are making a bit of a comeback because those positions are still not tapping into the anger of the market.
Tone is everything, and even the low-cost carriers fail to have it right.
Ryanair is the European leader in low-cost airfares. The Irish low-cost airline with HQ in Swords, County Dublin, Ireland, has main hubs at Dublin Airport and London Stansted Airports. Proof that airlines do very little to develop and brand loyalty beyond price nit was reported in 2013 that Ryanair was the largest European airline by scheduled passengers carried.
The airline is seen as bare bones and utilitarian and even petitioned the European Aviation Authority to have aircraft with standing room (it was disallowed) but says a great deal about how air travel is more and more becoming as no-frills as a municipal bus service.
FREQUENT FLYER ALLIANCES A WORLD ABOUT CONNECTIONS
Now that Emirates has been introduced, one of the few global leaders that is not part of an alliance, let’s talk about the alliances themselves. There are three basic airline alliances: Star Alliance, SkyTeam and Oneworld.
Star Alliance includes Adria Airways, Aegean Airlines, Air Canada,Air China, Air India, Air New Zealand, ANA, Asiana Airlines, Austrian,Avianca, Brussels Airlines, Copa Airlines, Croatia Airlines, EGYPTAIR, Ethiopian Airlines, EVA Air, LOT Polish Airlines, Lufthansa, Scandinavian Airlines, Shenzhen Airlines, Singapore Airlines, South African Airways, SWISS, TAP Portugal, THAI, Turkish Airlines and United.
SkyTeam includes Aeroflot, Aerolinas Argentinas, Aeromexico, AirEuropa, AirFrance, Alitalia, China Airlines, China Eastern, China Southern, Czech Airlines, Delta, Garuda Indonesia, Kenya airways, KLM, Korean Air, Saudia, Tarom, Vietnam Airlines, and Xiamen Air
Oneworld includes, Airberlin, American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, LAN, TAM, Malaysia Airlines, Qantas, Qatar Airways, Royal Jordanian, S7 Airlines, SriLankan Airlines, and Mexicana.
The advantage of the alliance from the point of view of the airlines is they keep passengers trapped into their loyalty programs, meaning you would also try to fly Star Alliance if you were, for example, a member of the United miles club. It would be the only way to continue to rack up miles.
It does cause some anger or, at least, discomfort for travelers who have to fly on an airline from another alliance without getting any miles. But the alliances themselves have done no favors to passengers when it comes to creating brand loyalty outside what they do.
For one thing, there is no standard within each alliance. Let’s take the United example. If you are a United frequent flyer, you get no status on any of the other airlines within the alliance. If alliances could find ways to institute standards so you would know what to expect, they could generate greater loyalty among its members without angering them.
Even more importantly, there is no meaning within the alliance brands beyond just the airlines that are in them and what the logo may or may not mean.
Star Alliance does have a theme line, “The Way the Earth Connects,” but that’s just about connecting across the world. The problem with that is any alliance could claim it and there are regions of the Earth that Star Alliance does not reach.
Neither SkyTeam or Oneworld have a brand position or a promise at all. What if the alliances created a brand preference that went beyond loyalty programs? For the airlines involved, it would give them the brand association they currently don’t have and raise all boats, so to speak.
If there’s one thing we’ve learned examining markets at Stealing Share – both for our clients and not – it’s that change is hard. Yet, as it’s been said elsewhere, to keep doing the same thing over and over and expecting a different result is insanity.
The airline industry is insane.
Few industries have gone through more turbulence (pun not intended) than the airline industry. Fuel costs have risen, jobs have been cut, airlines have merged and new fees have been introduced.
Most importantly from a marketing point of view, passenger anger still exists and it’s getting stronger. Yet no one directly addresses it in a meaningful, emotional way. Most stick to the same formula: Getting you where you need, mobile access, working harder, blah, blah.
Even Southwest, who is closer to the prime position than anybody, hasn’t quite gotten there. What Southwest does with its marketing fits within its brand, is positioned against the competition and addresses the passenger feeling of slowly being squeezed to death. But it still isn’t emotional.
The opportunity still exists to grab that position and create actual preference in a market where there is little beyond loyalty programs and hub locations to create it right now. However, once an airline takes it by the throat, the game is over.
Think, for a moment, about the banking industry. With all the Occupy This and Occupy That, anger at the financial world is also increasing. Yet financial institutions are basically torpedoing their heads into the sand and ignoring it. Credit unions were in the position to take that spot, but they cannot get along (no matter what they say) to form a national campaign that aligns itself with that anger. (We know from experience.) They are missing it too.
We have serious doubts the new United campaign coming this year will address this, but we can all wish, can’t we? American, with its falling numbers, might be desperate enough to try it, but it can’t seem to get out of its market leadership mentality, even though it is no longer the market leader. And Delta is just flat.
Flying the friendly skies is over. Time to take off for someplace else.