Yesterday, I attended a lunch & learn hosted by our London Business School Marketing Club (they do GREAT events). The guest speaker was Rob Britton, a professor turned airline executive. He spent over 20 years at American Airlines and left as Advisor to the Chairman. In the 1970s, Rob helped launched AAdvantage, the first airline loyalty programme, and his seminar focused on the value of these frequent flyer programmes (the only marketing tactic that has really worked for airlines).
A few random factoids and musings I wrote down in my Moleskine about this challenging yet very interesting industry:
-There's significant spoilage by the very nature of the service. Weak demand, stiff competition, overcapacity, etc. leads to empty seats. A surprising 20% (!) of seats flew empty on flights last year in the United States.
-The airlines business has relatively low barriers to entry (not good from a firm standpoint). And, on top of that there are high exit barriers. New airlines seem to sprout up every year but think about how they don't go away as often. Once an airline goes belly up, the assets (planes) are worth more cobbled together as a going concern than grounded separate planes. And I don't imagine the secondary market for used (and many times old) aircraft is so great when the industry already has an overcapacity problem.
-The innovation in the industry has to come from customer experience (legroom, wifi, food, online distribution, etc.) and not the actual product or service (fast, long travel). For over 30 years, most airplanes fly between 500-600 mph, which is slower than the speed of sound. I don't quite understand all the physics behind it (need a Khan Academy talk!), but once a commercial jet breaks the speed of sound barrier, it becomes prohibitively expensive because of the amount of energy required. More interesting info here: http://www.physicsforums.com/archive/index.php/t-173394.html
-Travelers prefer frequency to differentiation. Boutique aspirants have tried to carve a niche in this space but fail every time. Imagine a Goldman Sachs employee chooses to fly one of these high end airlines from NYC to London. If and when a meeting runs over or there is bad weather, one of the legacy carriers could book him or her on the next flight out that day. With a boutique airline, she or he may have to wait a day. This resonated with me. When I travel for work and return home, I want to get there NOW and will pay anything to make it happen.
-If you added up global airline profits throughout time, the sum is a loss. That's not too surprising and could be used to call for shutdowns or thwarting of future investments. However, I think airlines are similar to banks, they lubricate the rest of the global economy. And thus, I foresee subsidization and loss minimizing policies for at least my lifetime.
Rob is a very entertaining and energetic speaker! He is quite generous with his time too and does a circuit of top business schools each year. Am going to solicit his help with an idea I came up with to see if British Airways or Lufthansa would be willing to give LBS Class Gift 2012 student donors the perk of airline status for a year. I see it as a win-win-win marketing tactic for the airline, the school, and students. Fingers crossed!
A few random factoids and musings I wrote down in my Moleskine about this challenging yet very interesting industry:
-There's significant spoilage by the very nature of the service. Weak demand, stiff competition, overcapacity, etc. leads to empty seats. A surprising 20% (!) of seats flew empty on flights last year in the United States.
-The airlines business has relatively low barriers to entry (not good from a firm standpoint). And, on top of that there are high exit barriers. New airlines seem to sprout up every year but think about how they don't go away as often. Once an airline goes belly up, the assets (planes) are worth more cobbled together as a going concern than grounded separate planes. And I don't imagine the secondary market for used (and many times old) aircraft is so great when the industry already has an overcapacity problem.
-The innovation in the industry has to come from customer experience (legroom, wifi, food, online distribution, etc.) and not the actual product or service (fast, long travel). For over 30 years, most airplanes fly between 500-600 mph, which is slower than the speed of sound. I don't quite understand all the physics behind it (need a Khan Academy talk!), but once a commercial jet breaks the speed of sound barrier, it becomes prohibitively expensive because of the amount of energy required. More interesting info here: http://www.physicsforums.com/archive/index.php/t-173394.html
-Travelers prefer frequency to differentiation. Boutique aspirants have tried to carve a niche in this space but fail every time. Imagine a Goldman Sachs employee chooses to fly one of these high end airlines from NYC to London. If and when a meeting runs over or there is bad weather, one of the legacy carriers could book him or her on the next flight out that day. With a boutique airline, she or he may have to wait a day. This resonated with me. When I travel for work and return home, I want to get there NOW and will pay anything to make it happen.
-If you added up global airline profits throughout time, the sum is a loss. That's not too surprising and could be used to call for shutdowns or thwarting of future investments. However, I think airlines are similar to banks, they lubricate the rest of the global economy. And thus, I foresee subsidization and loss minimizing policies for at least my lifetime.
Rob is a very entertaining and energetic speaker! He is quite generous with his time too and does a circuit of top business schools each year. Am going to solicit his help with an idea I came up with to see if British Airways or Lufthansa would be willing to give LBS Class Gift 2012 student donors the perk of airline status for a year. I see it as a win-win-win marketing tactic for the airline, the school, and students. Fingers crossed!
"if British Airways or Lufthansa would be willing to give LBS Class Gift 2012 student donors the perk of airline status for a year"
ReplyDeleteThat's an excellent idea, Pi!