Aussie Cannibals Part One – Jetstar eats Qantas

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.

I’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?

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Expectations and competitive advantage

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.

Turning 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.

On 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.