Posts Tagged ‘airlines’

Why Tiger Australia is so toothless

August 5, 2011

A couple of weeks ago I was contacted by a newspaper journalist seeking some comments on the troubles of low-cost airline Tiger Australia.

The reporter was specifically interested in the likely impact of the current grounding on the firm’s relations with its parent back in Singapore (with a particular focus on the cultural aspect of ‘losing face’).  I offered a few insights – that I couldn’t speak to any cultural dimension, but that HQ clearly was very worried given the group CEO was talking of basing himself in Australia presumably to kick some heads… and that the airline was clearly struggling well before pilots (allegedly) started flying a little recklessly.

These nuggets of wisdom never hit the papers, but I thought I should expand upon the latter point – namely why the firm hasn’t won the hearts or wallets of Aussie flyers.

Low-cost airlines have been a business revelation in the past decade or two.

Innovators like Ryanair and Easyjet, and copycats like Air Asia and Jetstar Asia have sliced enormous costs out of the process of offering international air travel.  This has both sliced into the market share of the older full-service airlines, and also expanded the pie considerably by bringing less wealthy passengers into the market (and also allowing greater frequency of short trips away).

In the typically moribund US domestic market (see Michael Porter’s excellent explanation of why US airlines are typically loss-making – from about the 2 min mark of this video), both Southwest Airlines and JetBlue have been very successful using a low-cost model.

Yet Tiger Australia has been a money pit since kicking off in late-2007. So what is Tiger doing so wrong?

It would seem this a combination of mis-reading the local environment and under delivering on customer value.

Air travel in Australia is an awkward exercise.  While there is little threat of substitutes due to the enormous distances between our major cities (other than Sydney-Canberra driving between mainland capitals takes >7 hours), the fact that there are single airports in pretty much every major city (other than Melbourne’s inconvenient Avalon option).

Low cost airlines typically seek to avoid the high landing costs (and associated parking costs etc for price-sensitive passengers) by using smaller second airports and secondary cities, especially to cross-subsidise those flights that must go through hubs.  In Australia that simply isn’t an option.  The two big local players have very stable and mutually beneficial arrangements with airport management, and upstarts like Tiger are burdened with either tin-shed outhouses or pricey general gates.

The concentration of Australia’s population into a small number of large cities, unlike the more dispersed US markets, has meant Tiger has developed no local monopolies, and struggled to find a niche of consumers willing to sacrifice certainty and convenience for the limited price savings on offer.

At an operational level the firm has also failed to deliver then minimum service required to develop any customer loyalty.  Too many flights are cancelled (and given the infrequent schedule, too long a wait ensues), and the airline is notorious for being close to uncontactable for assistance.

The current grounding of all flights could (and perhaps should) be the end of line for this failed business strategy.

Aussie Cannibals Part One – Jetstar eats Qantas

October 21, 2009

My recent post regarding Starbucks’ potentially damaging shift into the packaged coffee market (see it here), has got me thinking about such issues more generally. In particular, I have been contemplating a couple of prominent Aussie examples.

The question is whether product or brand extensions, especially within the same (or very similar) market space might be more harmful than initially assumed.

Qantas Jetstar cannibalI’ll start with Qantas (our national airline), it created the separate Jetstar brand and business back in 2003 in response to low-cost domestic competitors. The split was a logical means to circumvent a whole range of legacy restrictions in terms of labour practices, existing assets etc., and the split brand was good insurance against any immediate damage to corporate contracts, price premiums etc.

What has got a bit more complex is the move to shift the brand into the international arena, namely Asia. Numerous traditional Qantas routes have been shaved back in terms of frequency, with the gaps filled by decidely low-frills Jetstar flights. It remains unclear how financially viable this move is, and how it places Qantas versus full-service rivals in the region.

While the wording stinks of snobbery, there is certainly some substance in this quote from an Age article:

”Qantas is destroying its brand name,” a former Qantas executive says. ”It is cross-subsidising Jetstar like you won’t believe.”… “The low-fare market is the blue-singlet boys – the fellas going up [to Asia] for the bucks party – and the silver hairs…It’s the newlyweds and the newly deads. It’s just a flying bus service making its money from ancillary services”

The issue with air travel is that the market segments are not quite as simple as they first appear. A given Qantas plane has a mix of passengers cross-subsidising each others’ seats. Removing first and business class passengers hurts the viability of economy class. Flying solely economy class routes (as with Jetstar) must be hurting Qantas economy business.

Just as importantly, contributing to the downgrading of the air travel experience may create an unbreachable chasm in buying behaviour. Qantas will pushed up against higher service, but price-competitive mainstream Asian and Middle Eastern airlines, with considerably lower scope to tap into any jingoistic local market preferences.

Put simply, cheapskate Aussies will fly Jetstar internationally (especially when given little choice first time round on some routes), while more service-seeking Australians may dawdle off to Emirates, Singapore etc.

Might this have been a short-term move than hurts Qantas in the medium-to-longer term?

Expectations and competitive advantage

May 1, 2009

I’ve been a bit of a slack blogger of late. My excuses lie in two domains – (i) travel for work, and (ii) real estate transacting. Both of these experiences have served to highlight an interesting set of issues around the nature of competitive advantage and its interaction with consumer expectations.

emirates-window-gifemirates-windowemiratesTurning to travel first, I flew to the UK and back on an unnamed Middle Eastern airline. In a fit of absence-mindedness I managed to leave my almost brand new laptop behind at a Gatwick Airport security screening point. The laptop had no clear identifying label linking it to me, and I was unable to alert the airline to my error until I got back to Melbourne. Yet they embarked on an incredibly courteous and Herculean effort to recover said item and return it to me at no cost. They bent to my increasingly idiosyncratic requests (e.g. “can I pick it up at 7pm at Tullamarine on a Wednesday night when I land from Brisbane?”) without ever resorting to “sorry, we don’t do it that way”. Their flexibility and good nature has won me over and I am now a happy champion of their business to anyone who asks. That translates to competitive advantage.

In contrast I flew with our national carrier back and forth to Brisbane. I was stunned to get a hot meal for a change on both legs (indicating I must be flying in the very narrow window in which such service is bequeathed). My colleague flying in from Sydney was equally surprised. Now, unfortunately, that is only meeting my minimum expectation. The fact the firm has wound down service levels to such an extent in recent years does not make it something I’ll be lauding to friends and family. The firm has, at best, made up an inch of lost ground.

apartmentOn the real estate side, we had a fantastic set of transactions with a particular agent. He found us the perfect house (in Fitzroy), made us feel unpressed yet lucky, facilitated our purchase with ease, and then also listed and sold our apartment  (in Collingwood) with great results and also integrity. He defied the stereotype of the shonky agent. As such, we have been proselytising on his behalf to all who will listen. Of course, folks are stunned to hear such praise. Being so out of the ordinary no doubt serves to differentiate this agent (and presumably his firm) from competitors (i.e. it represents an advantage).

Alas, these transactions meant we had to go talk with a bank. We begrudgingly are sticked with our current lender, despite negigible service over the past five years. The personal banker we dealt with this time was surprisingly efficient and pleasant to deal with. But, I say this only because we were expecting the complete runaround and much frustration. Does this make me like the bank? No, I’m just not whinging quite as much as before. Again, this is merely enough to stay in the race.

Firms need to have a stronger awareness and responsiveness to consumer expectations. Maintaining them at a high level is great. But in instances were they have been lowered industry-wide, you will make the biggest gains by massively exceeding the norm is the biggest win.