This week’s featured link:
British Airways CEO Interview: How to Bring a Low-Cost Mindset to a Legacy Airline – Skift
This is a good, long interview with the current CEO of British Airways Alex Cruz. Alex came from Vueling before this, and he’s brought a lot of that mindset to BA. But it’s what he says about pricing that’s most interesting (or frightening, depending upon who you are). His vision is the pricing holy grail: finding the maximum amount each traveler is willing to pay and charge that. And robots will help him get there.
Two for the road:
American Airlines is 2017 ATW Airline of the Year – ATW
I’m guessing anyone who saw this headline was scratching their heads a little. Is this possible? You can read why ATW thinks it’s deserved in this article. I do think American has done a fantastic job with the merger so far, but I still had to pause when I saw this. (Though I know employees are happy. To celebrate, they each got 2 confirmed tickets to use on the airline.)
British Airways Struggles To Launch Buy-On-Board Food And Drinks – Forbes
In that BA interview above, Alex talked a bit about selling food and drinks onboard. Apparently the roll-out has been a bit rocky. They’ll figure it out.
Fascinating interview, Cranky. With Cruz’s glib attitude, it’s no wonder morale at BA seems to be in the toilet.
What he said about the future of pricing is interesting, but I can see some big holes in his line of thinking. I know industries like retail and CPG have made some big strides in using predictive analytics to capture customers’ willingness to pay, but the business models are fundamentally different from the airline industry.
An airline has to be able to both price to capture a passenger’s willingness to pay and evaluate that value relative to other passengers given the limited number of seats on a flight. If you’re selling something like shampoo or potato chips, you have infinitely more flexibility to adjust supply to capture whatever extra demand your newly-calculated price points create.
Also, both an airline’s inventory and to a lesser extent the demand for it are perishable. If you don’t sell a bottle of Pepsi today, you can still sell it tomorrow. You can’t sell a seat on a flight after it leaves and while Google might be able to recommend different travel dates, the business and holiday-specific travel that drives a disproportionate share of traffic and revenue is much less flexible.
And then there’s the fact that most people consider air travel a commodity and shop largely on price. Let’s say Jenny Sloan (random name) is brand agnostic and wants to travel in a competitive market like NYC-LHR. What happens if the sophisticated and expensive AI you use calculates a fare tailored for her based on her Amazon history or whatever but a competitor (AI driven or not) puts out something cheaper and she books with them. Your whole model is rendered useless.
So to summarize, the high level issues would be finding a system that can predict and capture willingness to pay for a seat on a specific flight, optimize all of its offerings to all of its customers based on relatively static capacity, be able to constantly change these prices since willingness to pay your price is partially determined by what the competition charges (again, whether made by AI or people), and do all of this while interfacing with older res and IT systems.
Sorry for the essay, but it really grinds my gears when prominent people trot out big, profound buzzwords like “disruption” and when it’s obvious that they’re going through the motions and haven’t actually given it serious thought.
Itami – All good points. I think he’s just saying that’s where he wants to go. And ultimately that’s where every pricer wants to be. You want to charge as much as possible for each seat on that airplane and maximize total revenue. But there are a whole lot of hurdles in the way of getting to that point. Then again, I suppose it’s the CEO’s job to make it sound easy.
The CEO’s job should be to make it happen!
Yeah, I see a lot of reasons why his dream is a pipe dream.
How about they first figure out how much food to stock on their planes (3rd article). That shouldn’t be rocket science.
“We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.”
– Ayn Rand
There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.
-Soren Kierkegaard 1813-1855
“If you don’t read the papers you’re uninformed. If you do read them, you’re misinformed.”
When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.
“Make the lie big, make it simple, repeat it frequently and people will come to believe it”-“The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.” Joseph Goebbels.
Bill Casey, incoming director of the CIA: “We’ll know our disinformation program is complete when everything the American public believes is false.”
“No man’s life, liberty, or property are safe while the legislature is in session.”