Only one can be the cheapest - the rest must offer a different value proposition
After decades of initiatives about “customer centric organisations” (the 1980s), “loyalty and CRM” (the 1990s) and “customer experience management” (the 2000s), business leaders are discovering with dismay that the customer of the 2010s is less loyal than ever.
What happened?
It’s just the logical consequence of the brutal commoditization of the airline business. All (well… most) airlines are basically offering the same thing: transporting loads of people from A to B using the same type of aircraft aircraft, the same airports and even the same handling agents…
Satisfying a customer no longer guarantees his loyalty as competitors satisfy his or her needs equally.
Does this mean that only the cheapest survive?
No way! Sure, costs are key to remain competitive, but only one can be “the cheapest” in a given market. Luckily, all the others have no need to be another Ryanair.
However, it is amazing to watch to which extent these companies are losing opportunities to create new value propositions for customers. Commoditizing yourself is a formula for disaster unless you are the real cost leader!
We are experiencing the second revolution of the airline industry: the first happened after its deregulations starting in the 1970s. With the arrival of true competition, the age of “pilot-CEOs” ended, giving way to a new reality, dominated by “financial CEOs”.
But now, as the low-cost-revolution hardly permits any new turns of the (cost) screw (in mature aviation markets), the age of the “customer CEO” has come. Airlines, hotels, etc. are now dealing with well informed and publicly articulate customers, looking for “memorable experiences” at a fair price.
The time of the “people-CEO” has come. It’s a new breed of leaders genuinely concerned about serving customers, employees and, that’s new, the communities the airline is operating to. Reputation is about genuine leadership, not PR stunts orchestrated by external consultants!
Only Southwest Airline has been able to combine both revolutions consistently during now nearly 40 years – any doubts about ROI?
Of course, costs (driver of second generation airlines’ competitiveness) as well as operational and technical excellence (which made first generation airlines stand apart) will continue to be basic components of any successful airline – we will always want to fly cheap and safely. But in the new generation airlines the corporate power core will shift invariably to the “people” side of the business. This includes service innovators.
Today, airlines must be able to create new value-driven propositions for which customers will be happy to pay for, and this requires applying down-to-earth tools and techniques to re-design the customer experience.
However, the real challenge is to develop a new, people centred leadership style in your organisation.
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Hi Rainer, I think I understand what you mean. But I am not sure we can really talk about “memorable experiences” at a fair price. Sorry, but Ryanair and all those guys have killed the glamour of travelling by air, unless you go on FC or Business (and sometimes even if you do it).
I have the impression that these days you think you are lucky if the cabin crew does not spill a coffee on your trousers, while they rush trying to make sales to increase their wages a bit, or if other passengers around are not too noisy, etc. Comfort, punctuality or the arrival of luggage safe are just not guaranteed when you purchase a ticket. And watch out any extra you want, like a second luggage case or your golf clubs or just a glass of water. You will pay for it, at a, sometimes, ridiculous price.
You are right that transport companies (and hardware and software and many other type of companies) need a change in their focus on the customer. But the financial CEOs are still in place and I’m afraid that share holders are happy with the actual situation.
What they perceive now as a good management of the situation is to get a good social media manager, who hopefully will maintain a good profile with the customers complaining in Facebook or Twitter. And do more or less the same that the others, trying to keep results not too bad.
But I still think you are right and one day they will realize the need for the evolution.
Good financial judgement and cost saving will always remain an essential part of the airline business (and that of any massive service provider where a difference of a few cents can easily become millions of losses or profits). Operational excellence will also continue to remain one of the pillars of airline profitability.
But as you say, now that the unbundling of services has reached the level of creating indivisible “service atoms”, each atom has become a commodity which mostly competes by price.
Not all companies have the cost structure to support that, so they must be inventive and find new value proposals for which customers are willing to pay a premium for. Vueling’s Go! is a good example of how they are trying to differentiate themselves from Ryanair in Barcelona.
Shareholders may be surprised how quickly profits can turn losses if customers no longer value their value formula based only on low prices. As I said, a few cents can make a huge difference when you are transporting tens of millions of customers, so these formulas must be questioned permanently. Customer Experience Management provides proven and profitable tools to do so.