Two (global alliance member) airlines go bust and nobody notices – why Customer Experience matters

Spain’s Spanair and Hungary’s Malev closed down this week. I feel really bad about thousands of great people losing their jobs, about tens of thousands of stranded passengers. But the demise of both airlines was predictable. What can we learn from a strategic Customer Experience Management perspective?

In my last post, I transmitted Spirit Airlines EVP Barry Biffle’s strong opinions about how a strategic positioning mismatch between price and product (customer experience) generates a loss for the airline.

Malev, once the flag carrier of Hungary, did not find its place in a European Union without protected home markets. Low cost carrier Wizz Air had become Hungary’s largest airline a few years ago.

Spanair was the result of one of Spain’s provincial farces, unexplainable by common sense in a globalized world. The Catalonian regional government wanted a “flag carrier” for the region, despite being home already to thriving Vueling. It bought Spanair from SAS and relocated it from Majorca to Barcelona. Three years and 160 million euros of hardly disguised public money, now bitterly missing in the Catalonian Education and Health systems, later, the new regional government pulled the plug.

The most interesting thing is that few passengers will miss these airlines. Their offering had become a commodity. In the same way as nobody cares about buying sugar from one brand or another, neither Spanair nor Malev managed to distinguish themselves with coherent and highly valued propositions. In the case of Spanair, Vueling’s brilliant rollout of an immediate growth plan has made its disappearance barely noticeable in just a matter of days. This also says a lot about how unimportant the airline had become over the last years.

How could this happen?

Both airlines were members of global alliances. Malev belonged to Oneworld, Spanair to Star Alliance, which it joined in 2003 when Madrid was still Spanair’s main hub. But ultimately, neither had Star Alliance any use for a hub in Barcelona, nor was Budapest a viable connection center for OneWorld. In consequence, their network carrier positioning was flawed and did no longer serve as a hideaway from unresolved high cost structures or unattractive value propositions.

Spanair Airbus A320 with Star Alliance livery in Madrid

Following Barry Biffle’s Price-Product value analysis, pure low cost and pure premium network carriers can make a profit but neither low cost airlines going hybrid, nor network carriers with a low-cost camouflage will be able to survive. While I have my doubts about the former (there are interesting examples of how adding value to a low-cost DNA and its corresponding customer expectation baseline can actually be quite profitable), Spanair and Malev definitely prove the latter.

In the 1990s and early 2000s, Spanair managed to reposition itself as “Spain’s quality airline”. It stole many passengers from Iberia as they got the value proposition right: good service, service guarantees, motivated employees with a “can do” attitude and a reasonable price. “I prefer Spanair” was a common phrase at that time.

After the airline’s transfer to Barcelona, former Barcelona Football Club general manager Ferran Soriano became its highly visible president. Given Soriano’s inexperience with the airline business, former Easyjet COO and CEO of Mexican LCC VivaAerobus Mike Szücs was headhunted to become Spanair’s publicly invisible general director. What followed was a relaunch of the airline, whose confusing value proposition remained beyond the understanding of its customers as the service deteriorated into some kind of unannounced low-cost product, while marketing communication remained product centric.

In consequence, fares declined continuously to levels frequently below Ryanair’s. Business travellers had abandoned the airline altogether and the airline started selling upgrades to business class (which it never dumped) for as little as 14.50€, hot meal included. In one of its many tactical pirouettes, it recently outsourced upgrade sales to opaque pricing distress inventory distributor Optiontown.

Spanair embarked in a strategy that was full of contradictory value promises as it…

• created a “hub” in Barcelona, but without a critical mass. Apparently, not even the new Catalonian owners believed in Barcelona’s potential to become a Star Alliance power hub and left many aircraft operating on none-hub routes. The result was a broken connection center, without sufficient frequencies to connect properly many of its spoke routes.
• maintained the Star Alliance membership, which, however, added little value to customers who preferred flights operated by Lufthansa or TAP Portugal whenever possible.
• launched a major rebranding effort, but without communicating a clear and necessary repositioning of the brand promise
• did not manage deliberately the inherited high customer expectation baselines, while the product became deliberately low-cost (no surprise as Szücs, a great expert in operations, brought in the DNA of LCCs EasyJet and VivaAerobus).
• had a number of innovative initiatives, which, however, had little connection with the company’s reality and hardly delivered what they promised. Examples are the crowd-sourced revamp of its frequent flyer program, which was a great idea but alienated participants by not fulfilling award promises given to participants, or the baggage delivery service, whose pricing and usability was way too opaque and confusing to attract customers.

In summary, consolidation in the aviation industry will continue. Some airlines will merge, others will be acquired, others will die. The winners will be those, which have worked out a clear, attractive and differentiated value proposition for every customer segment it wants to serve in an increasingly sophisticated market place.

Either you are the absolute cost leader or you better start dating your customers until they fall in love with you and stop considering the price the only factor when choosing an airline.

This may also be a lesson for the global alliances as they might need to step up efforts to assist some of their weaker members to keep up with the leaders or, eventually, even let them go. Member airlines adding little value network-wise while confusing customers about what to expect from the umbrella brands of the alliances do little good neither to them, nor to themselves.