As usual, there was great discussion at the Phoenix Aviation Symposium last week, but one in particular grabbed me. Steven Kavanagh, Chief Commercial Officer for Aer Lingus in Ireland has an interesting way of looking at his airline. He wants to be “an expert at producing seats” and then make that a platform for others to peddle their wares. It’s a view that certainly isn’t shared industry-wide, but for an airline in Aer Lingus’s position, it probably makes sense.
This piece of the discussion came up during a back and forth about inflight internet. Steven argued that airlines shouldn’t have to pay to install internet at all and that the internet company should take all the risk. In his mind, Aer Lingus has a captive audience of people on the airplane and other companies, like internet providers, should pay a price to be able to have access to those people. So internet would be installed at the provider’s expense and in addition, a small royalty would be given to the airline for each sale. The bulk of the revenue goes to the internet provider.
You could repeat this with all kinds of products and services. Meals? Sure. Inflight shopping? Why not? Entertainment options? Yep. It’s an interesting way of looking at what an airline does. I imagine the view is colored by the fact that Aer Lingus has tremendous competition from Ryanair on nearly all its short haul routes. It’s tough to compete with those guys, but this kind of model lends itself well to that effort.
Of course, this biggest issue here is one of branding consistency. If you use this model, you’re going to be offering all different kinds of brands on top of your brand and the message can be muddled. That might not be an issue for Aer Lingus or other carriers where brand isn’t considered that important. After all, people make choices based primarily on schedule and price, right? So if Aer Lingus has a good fare at the right time (and it runs an on time airline), then it may think it’s got the idea right.
Others, however, disagree. Take a look at Southwest, for example. Gogo inflight internet has a model that’s somewhat similar to what Steven suggests. That company handles the pricing and takes on some of the risk. They also brand the service as Gogo. Southwest hates that idea, and that’s one of the main reasons it opted to go with a different provider, Row 44. It wanted to control the experience and have it branded as Southwest. Southwest wants to own the entire customer experience; the opposite of what Aer Lingus proposes.
Part of that may be that Southwest has one of the better brands out there (despite the recent problem of holes in 737s), so it wants to cultivate it and protect it. Opening the airline up to look similar to an app store for your mobile phone doesn’t work for that purpose.
But even those airlines that like this model only like it when it benefits them. Let’s say, for example, that Expedia pitches itself as a provider of travelers who want to book tickets and that if you want access to those travelers, you have to pay for placement. This is exactly the opposite of what American has suggested should happen. American has said that maybe Expedia and others should pay for the privilege of having their information available for the customers. It’s the opposite argument. Something tells me that we’ll only hear this argument when it means airlines don’t have to spend money.
In the end, this strategy isn’t right or wrong in general. It’s an airline-specific thing. And for Aer Lingus, which competes hard with low fare airline Ryanair, it probably makes sense. But it does come at the expense of the brand.
[Original photo via Flickr user UggBoy?UggGirl [ PHOTO // WORLD // SENSE ]/CC 2.0]
I think another danger of this comes on the operational side. So someone else is providing the food? Great, it is yet another thing to coordinate and go to wrong.
Another side is does the food vendor cover the additional fuel costs of the fuel? What about labor costs etc? While the union probably doesn’t have any say in it, whats to ensure that the products are presented in a good light?
Some airlines have been selling ad space on the outside and inside of their planes for years, so what’s the difference on selling other services on the plane.
When all flights serviced meals you could have a different experience with the food. I can tell you a story of a fantastic breakfast on a night flight from LAX to MIA on Eastern, but the exact same breakfast MIA-SJU on Eastern tasted like garbage. The catering company in California did a better job then the one in Florida.
But if McDonald’s provided all the meals on a carriers flight, then they would all be the same every time because that’s how McD’s does it.
So EI isn’t to far off in it’s thinking.
I think brand is very important to Aer Lingus and I wonder if the message has been misinterpreted and if this is in fact what was being said by their CCO.
It flies in the face of so many other airlines and seems at odds with industry trends in terms of touching and owning the customer and, as a result, offering the right/relevant product at the right time and at the right price in order to maximize revenue.
Comments?
I don’t really have a view on whether this is the right strategy for Aer Lingus or not, I’m based out of Dublin and work in travel technology so I see their competitive situation up close.
What I would say is that this strategy does not seem to be in line with what the larger American and European carriers are telling us (OpenJaw Technologies) about their retail strategy. I admit I’m not a neutral observer but…
Most airlines see themselves as much more than a captive market where highest bidder gets access. Most airlines want better long term customer engagement, they want to understand the customer and personalize the ancillary products, they want to leverage their loyalty programs into independently sustainable businesses. In other words – to be a trusted brand in their own right, and to be the “retailer” for as much of the entire travel experience as possible.
This strategy is actually not new at all — it’s essentially what airlines have been doing with their in-flight magazines for decades.
I disagree. The magazines are not branded as a third party. Nobody knows that Hemispheres, for example, isn’t produced by United. Yes, it’s outsourced to a third party, but that third party isn’t trying to build a brand and increase usage. (It’s just trying to sell to advertisers.)
Isn’t AA’s in-flight magazine (American Way) actually produced by a subsidiary, American Airlines publications? I think they do all of the AA magazines (in addition to the main American Way publication, there’s Nexos and the Celebrated Living first class magazine) and a variety of other publications for other customers (Dallas/Ft. Worth, etc.). Could be wrong, but that’s what I’ve gathered from the ads…
It seems to me that those airlines who unbundle services (i.e. legacies) are better candidates for this outsourcing model than Southwest that includes everything in its fares. Those things that are about transportation (i.e. bags and seats) should probably be kept in house; but amenities (or amenity upgrades?) like wi-fi, entertainment, buy on board food, etc. might be good candidates for outsourcing. As you point out, this should probably be a case by case and airline by airline decision. It’s certainly worth looking into.
I seem to remember that a buy on board meal on a Midwest fllight I took once was outsourced. If I remember correctly, the meal was from a Milwaukee based caterer and was a good bit more expensive (20-30%) than a comparble America West meal at the time. But it was quite good and worth the extra money.
There are really two separate issues here. One is the financial risk, meaning who would pay for the losses if not enough customers choose to use the service? The second is the brand. It should be possible for Aer Lingus, or any airline, to outsource the risk to an internet company and require them to operate the service under their own brand and to their specifications.
I think that the only reason we are having this debate right now is because no one has really figured out how to make in-flight internet profitable. Once that model is figured out, the risk will be lessened and airlines will want to do it themselves.
I think this “turn the airplane into a marketplace” strategy is ultimately going to fail – especially for the legacy carriers who have built up an expectation that they provide services and that they want loyalty (and as they remove amenities have failed to lower their fares comensurately). I am required to fly frequently on a major low-cost carrier in Asia (price and schedule!) that, like Southwest, is heavy into its own branding. It is a travel environment that is tolerable at best. The pay-by-the drink cart (followed by the overpriced duty free cart) rolls up the aisle with nary a purchaser in sight. People regularly smuggle their own food (and water bottles – “only the air is free”) on board. In spite of the hoopla about what a “fun” airline it is – customers see it as the enemy and go for the minimum services and pay for only those additional services that seem to be necessary to make the flight tolerable. I wouldn’t feel any more favorably disposed to someone else’s branded product (airplane chicken is airplane chicken). Who’d want to contract to provide a for-fee add on service in that kind of sales environment? Trapped customers are hostile customers and any wise service provider would rather have happy customers who will look for them on the ground as well as in the air – so why create negative experiences unnecessarily?
Practicing what they preach? From travel.united.com :
Depart Thu, 05 May, 2011
Washington, DC, United States (IAD) to
Madrid, Spain (MAD)
5:40 PM IAD – 7:35 AM MAD
United 4963 View seats
Arrives next day
Operated by AER LINGUS LIMITED
That is exactly what I thought about when I saw the headline for this blog post. they already are the provider of seats for United.
I took this flight last fall. The branding presence was by far Aer Lingus over United. The FAs and GAs announced the flight as “Aer Lingus in partnership with United” and there were copies of Hemisphere magazine on board.
Although in MAD the desk is a small “United” desk set apart from the other Aer Lingus check ins.