Posts Tagged ‘airlines’

I had the pleasure of being interviewed by one of the most passionate and well-informed airline observers, The AirObserver’s Blog, last week. It’s now online here. I talk about the challenges faced by traditional carriers and low cost carriers alike when dealing with digital natives (Generation Y and Generation Z). I would personally like airlines to put a lot more effort into understanding digital natives and coming up with more great initiatives like Southwest, Cathay and Virgin.

Another couple of inspired guys are Chris Brogan and Shashank Nigam.

Why have traditional low cost airlines reached the beginning of the end? Well, why did they succeed in carving out huge market shares from traditional airlines in the first place?

They succeeded because they understood the over-riding priority of travellers in the late 90’s and early millennium: Low cost. Nothing else mattered, really. And the reason was that we all suddenly had the opportunity to visit Rome, Barcelona, Dublin and Paris several times a year for weekend get-aways, Champion League matches or visiting friends and family. It was a shift on the same scale as the removal of the iron curtain in 1989. It gave the peoples of Europe the freedom and, not least, the possibility to travel.

So far so good, but of course, nothing lasts forever: Low cost airlines are constantly hunting for new revenue sources and with major socio-demographic changes taking place, travellers’ priorities, too, are changing. Check out these two YouTube video clips. Apart from being funny enough that people spread them virally, they are also clear early signs that Ryanair (and their mates) have reached the end of the road:

Or the Aussie way, which is 100% in line with the recent customer statement on EasyJet:

“EasyJet are following hot in the heels of Ryanair. Was just booking my flight to the UK. Once I’d made my choice they tried to whack on 170kr. for a check-in bag, then a load of other stuff. I also had to pay 70kr. to pay by credit card. Each step I went through after making my flight decision just irritated me.”

Finally, I had fun at It’s a website constantly streaming all tweets written worldwide. You can filter it by any term. I tried to filter it by “ryanair” and I got approximately 1 tweet per second, about 80% being slightly to very negative. The illustration below is a totally random selection.

Picture 10

The digital natives

There are two trends spelling major changes for the airline industry.

Trend 1: One is the trend among low cost airline companies to become the exact opposite of low cost, but not actually admitting it. That’s what these viral videos are about.

Trend 2: The other trend is a mega trend, it’s irreversible, it’s fundamental and far bigger than airline positioning. I’m talking about the emergence of what the American writer and speaker Marc Prensky calls the generation of digital natives. Danish writer and media expert, Morten Bay, author of Generation Network, recently coined a new phrase for the new type of homo sapiens: homo conexus, the connected man. To quote Prensky, they are the first generation to grow up with new technology. They have spent their entire lives surrounded by and using computers, videogames, digital music players, video cams, mobile phones, and all the other toys and tools of the digital age.

And hey, they are no longer kids and they are no longer a small minority. In the next 3-5 years they will become a much bigger spending factor than the rest of us (the “digital immigrants”). That factors becomes even bigger, because some of us immigrants will try to follow the natives in their purchasing patterns and preferences.

Why is all this important to airline companies and how can that spell the end for Ryanair and EasyJet?

Well, I previously spoke about the “illusion of free”. Digital natives, the networked generation, have grown up on free, or at least the appearance, the illusion of free. But, of course, nothing in this world is free. There is always a cost associated with getting “stuff” for free, one of the most important costs being that you agree to be exposed to ads. According to Morten Bay digital natives are literally bottle-fed on advertising exposure and can spot “fake” instantly. On the other hand, they love authenticity and honesty.

The second Ryanair and all the other low cost airlines started to cross that threshold and went from being “cheap, low cost” to “appearing to be cheap, low cost”, they lost their credibility. The viral videos prove it, the millions of tweets prove it. They’re on the highway to hell.

Future opportunities with digital natives

I’m actually amazed that nobody in an otherwise highly competitive airline industry has spotted the potential.

Now, I would say that I have booked and am booking my fair share of airline tickets across several airline companies. And admitted: Things have become a little easier over the last couple of years, but do I feel that the process appeals to my emotions? Far from it. Perhaps I get emotionally involved in the awareness phase (I dream about going to Barcelona, when I see an ad), but during purchase, pre-travel, during travel and post-travel I am totally stripped of the two most important purchasing factors to digital natives: Emotional involvement and convenience. On the contrary, when travelling low cost airlines I am bombarded with negative emotions and inconvenience.

Not that the opportunities don’t present themselves: Take (or the Danish me-too equivalent Momondo) or TripIt (via LinkedIn). They all add value, emotional involvement and more and more convenience in the travel experience, but so far they are just scratching the surface of opportunities with “Generation Digital Natives”.

Therefore, my single piece of advice to the “old” airlines is this: Become the airline of choice for digital natives.

Am I suggesting that SAS should copy Ryanair? No, definitely not.

Don’t get me wrong, the existence of Ryanair has been tremendously good for the airline passengers of this world. After all, where would we be without the deregulation of 1996 – and someone to exploit it. Back in my years at university I used to go to London for my long summer holidays to brush up my English and make money to sweeten student life in the coming year. Back then, going by aeroplane wasn’t something we students even contemplated for one minute. I would take the train to Esbjerg, then go by overnight boat to Harwich and finally hop on another train in England that would take me into Liverpool Street Station. This would take well over 24 hours, but still cost me 3-5 times less than an plane ticket.

ryanair_vs_sasWith deregulation came low cost airlines. And mind you, not all of them did too well. Debonair, anyone? An early leader in no-frills airlines, who flew out of London Luton, but ended up bankrupt in 1999 having to dismiss some 500 employees? Or BA’s low cost subsidiary Go? Or last year’s collapse of Sterling Airlines? The point is this; simply being a low cost airline doesn’t automatically make you successful.

The illusion of free

Part of what Ryanair is really good at is the “illusion of free”. They can always quote prices on certain routes at €1 against competitors’ €50 ot €100. “Go to Rome, from €13”, whereas in reality most people will pay €113 for just the raw ticket. Then come online check-in fees, payment handling fees, checked baggage fees, infant fees, infant equipment fees, sports equipment fees, seat charges and you end up paying €180. Then you may arrive 75 km from the city you really wanted to go to and it may cost you an additional €100 return to get to and from the airport. The point is, people still have the illusion of free – or nearly free. It’s all about the way we (the travellers) think about the money we spend on a trip. In our minds we like to work in easy numbers and we like to think that we save money and make good deals. It’s almost as if we want to convince ourselves (or our wives or husbands) that we are being wise with our money.

It’s exactly the same mechanism in action when people decide to go to Italy by car. They end up with a myriad of expenses (petrol, hotels, bar drinks, meals (many), snacks (many), sweets (many) investing in DVD players for the kids etc.), but when they compare the “main numbers”, it’s a really good deal. In most cases it’s actually not. That’s why the illusion of free is so effective: We travellers want to fool ourselves, because we want to go on that trip. We’ll justify it and close our eyes on those “few” extra charges.

Ryanair’s edge

As the expression suggests, the “illusion of free” is just an illusion. Of course someone has to pay, especially when you see the financial success of Ryanair. Part of the secret is the use of revenue management. Seconds after Manchester United has drawn AC Milan in Champions League, the Ryanair revenue manager responsible for the route Manchester-Milan will ramp up prices by several hundred percent 1-4 days before and after the match. Most airlines these days have some form of revenue management, but some, like Ryanair, are particularly good (some may say ruthless) at applying it.

Ryanair is also second to none at advertising the illusion of free – and at ridiculing their competitors for being the exact opposite. Ryanair’s real edge is not being cheap – it’s giving us all (including their competitors) the illusion that they’re cheap. In strategy terms they have built a blue ocean on the combination of illusion of free, on managing revenue and on constantly provoking conventions in the media.

When I say that SAS must beat Ryanair at its own game, I’m not suggesting that they should copy Ryanair’s competitive parameters. It would, of course, never work and they would just end up being a failed me-too service. Some have tried to copy Ryanair and failed for various reasons, mainly because they didn’t understand the true reasons for Ryanair’s success or because they weren’t prepared to be as ruthless as Ryanair about it.

SAS must be true to their DNA

If SAS really, really want to strike back and drive long-term success, they must identify their own blue ocean differentiators. And in order to be credible at that, they must be authentic and true to their own airline DNA of being a service company. If they don’t, I’m pretty sure they will fail. On the other hand I’m equally certain that there’s another blue ocean waiting around the corner for SAS. And one of the key words is convenience. Convenience is hugely important to today’s consumer and air traveller – and we (the air travellers) are actually prepared to pay a certain premium for real (not fake) convenience. The trick is to offer convenience which doesn’t add significant cost to the airline company’s cost base.

Now, a good starting point is to start highlighting the convenience of not having to pay for checked baggage at the airport. Or the fee of €10, we once had to pay in cash as we went through customs at Knock Airport in Ireland (an almost exclusive Ryanair hub) for the ongoing development of the airport. Ryanair, of course, claimed that this had nothing to do with their ticket prices or fees, but a qualified guess is that the fee was introduced by the airport, because Ryanair had negotiated low/non-existent airport fees with Knock. At the end of the day, it was part of the price.

My point is that I believe Ryanair may be about to have taken their strategy to the point where inconvenience simply cannot be offset by the illusion of free. Rumoured to be one of their next money-making schemes is making passengers pay to use the toilet. My guess is that Ryanair

In one of my next blogs I will explore and examine the areas available to SAS if they are determined to win the battle of the blue oceans.