Industry Comment
Is air travel a commodity?
Rob Britton discusses consumer buying behaviour in a competitive market and considers ways in which an airline can differentiate itself
Dr. Rob Britton leads AirLearn (www.AirLearn. Net), a consultancy that helps people to understand the complex and ever- changing airline industry,
and to translate those insights and knowledge into effective business results. During question time following a recent presentation to an industry meeting in Asia, several of your colleagues took issue with my assertion that airline customers perceive the product as an undifferentiated commodity, like bushels of wheat or barrels of oil. These questioners noted the remarkable success of many Asia-Pacific airlines in creating strong brands based on excellent and consistent service delivery.
Established carriers like Cathay Pacific and newcomers like Etihad have indeed built a solid position in the marketplace based on service excellence. However, all of us who strive to understand where the consumer has been and where he or she is headed must understand a basic reality: as markets become more competitive – generally as a result of economic deregulation and the resulting growth of new airlines with much lower cost structures – consumer buying behaviour tends to gravitate toward price, and away from service. We’ve seen this happen in the US after domestic deregulation in 1978; in Canada in the 1980s; the EU in the early 1990s, and more recently in Southeast Asia. This isn’t to say that consistently great service
isn’t important, only to understand consumer preference and direction in more and more markets. Here are three origins of the commodity perception: - During the regulated era, governments that
either owned airlines, or heavily restricted them, simply discouraged service differentiation. Forty years ago, Western Airlines (now part of Delta) got in big trouble by offering free wine in Economy on every flight; Western prevailed, but not before
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a legal battle. True, overall service standards back then were higher than today, but so were fares (in the U.S. today, when adjusted for inflation it’s typical to find ticket prices that are five times lower than they were in the 1960s). - For the majority who fly ‘in the back’, the fundamental experience is largely the same. Clever marketeers can try to create sustainable differentiation, but consider this fact: in a time of huge technological change, the most important quality of flight, speed, has remained unchanged for more than 50 years! No airline promises to get you nonstop to London in three fewer hours. - Flying is a service produced and consumed simultaneously, with lots of things (weather, airports, ATC) beyond airline control. Let’s face it: flying is prone to failure. Contrast that with a manufacturer like Honda, which has delivered on a promise of greater mechanical reliability with each new model, and when flaws get fixed, they stay fixed.
Etihad has gained a reputation for service excellence Taken together, these three factors have, in
open markets, created a consumer belief that ‘a seat is a seat’. In the most competitive market, the US, people use the term ‘the airlines’, rather than individual brands or companies. No one talks about ‘the car makers’ do they? In my next column, we’ll explore more recent
drivers of the commodity perception, for example, now that consumers can quickly shop by price across online travel agencies and websites, do they pay any attention to brand and service reputation? And what, if anything, can we do to reverse the commodity perception? Meanwhile, we would love to hear from you about this column and any ideas for future exploration.
Email your ideas and comments to:
rob.britton@
airlearn.net
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