Recently I came across a very funny video on You Tube. In this video, flight attendance charges passengers fees for use of seat belts, reading material and even emergency oxygen masks. It seems that the parody is coming to reality. Just yesterday, in a letter to the Federal Aviation Administration, United Airlines' Pilot Union alleged that four recent engine failures or compressor stalls on United 737 aircraft may signal the "maintenance standards have deteriorated at United as operational decisions are increasingly driven by economic considerations." [WSJ]. Last Month US Airline Pilots Association complained that the airline was pressuring pilots to carry less fuel to reduce the weight of the plane. [Fox Business]
The sky-rocketing oil prices have clearly crippled the airline industry. Airlines are taking major decisions to keep operating costs low; ranging from consolidations, eliminating routes, and cutting jobs to charging for check-in baggage and in-flight services including food, beverages, blankets and pillows. There have many arguments from both sides of the fence. The critics criticize declining value of service while supporters argue pointing that the cost of air travel has not been increased significantly with the increased fuel prices.
In my opinion issue real problem is not oil price but the business model itself. 5 of “Big Six” airlines have gone through chapter 11; some of them have gone more than one time. There is an urgent need to refine the complete business model:
The sky-rocketing oil prices have clearly crippled the airline industry. Airlines are taking major decisions to keep operating costs low; ranging from consolidations, eliminating routes, and cutting jobs to charging for check-in baggage and in-flight services including food, beverages, blankets and pillows. There have many arguments from both sides of the fence. The critics criticize declining value of service while supporters argue pointing that the cost of air travel has not been increased significantly with the increased fuel prices.
In my opinion issue real problem is not oil price but the business model itself. 5 of “Big Six” airlines have gone through chapter 11; some of them have gone more than one time. There is an urgent need to refine the complete business model:
- Demanding cutting edge technologies that will reduce the risk exposure to volatile energy market;
- Building strategic partnerships with all the stakeholders, particularly with the customers;
- Eliminating the non-value addition processes. They have done it well in recent days; But most importantly:
- Defining the business as ‘transportation business’ instead of just ‘airline business’. This will open avenues to sustainable horizontal growth. (This is much analogues to railroad industry decline in “Marketing Myopia” by Theodore Levitt)
Few days back I got email letter signed by the CEOs of major airline companies urging to join campaign against speculation in oil futures market that allegedly drives oil prices. With 20% drop in oil prices in last few days, I hope they don’t take away the ‘complimentary’ seat belts.
Airline stock performance with compared Dow Jones Industrial average (last six months)
Airline stock performance with compared Dow Jones Industrial average (last one month)
Links:
Airline Video –
http://www.youtube.com/watch?v=Q-nX6g148mA
Airline CEOs sign joint letter to frequent fliers -http://www.stopoilspeculationnow.com/uploads/An_Open_letter_to_All_Airline_Customers.pdf
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1 comment:
Airlines' travel rewards programs are in some sense strategic partnerships with their customers. These have been fully exploited, and airlines have no wriggle room to squeeze more profits through this avenue. Such miles programs are more of a retention tool these days, not a growth engine.
The problem with the airline industry is that customers treat price as the only differentiation. Services and routes do not matter anymore. In a way, customers have had it coming - if they chose the lowest fare, they are bound to get the service they deserve. While people hate being herded into planes, they don't think twice before choosing the lowest available fare. With such a clientele, airlines have to be competitive and must keep fares low. Not only does this have a degrading effect on in-flight services, but also leads to poor airline maintenance, inadequate long term planning and messy relations with suppliers. These problems in turn send the airline industry spiraling downwards.
The only way I see matters improving are if there is a big time consolidation of airline companies, leaving fewer competitors, thereby helping airline companies increase fares eventually.
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