Industry Comment


Part 2 Is air travel a commodity?


Continuing his thoughts and commentary on the inflight experience, Rob Britton adds four more factors that cause passengers to see air travel as a commodity


In my last column, I proposed that air travel gravitates toward commodity (an undifferentiated good, like barrels of oil), and offered


the view that in open and competitive airline markets – which are becoming the norm in more and more parts of the world – consumer buying behaviour tends to lean towards price, and away from service. I introduced three reasons for this “commoditisation.” First, during the period of intrusive economic regulation, governments actively discouraged differentiation. Second, the fundamental flight experience has long been similar – planes all go the same speed. Third, unlike manufactured products, airline services are prone to failure, because they are produced and consumed simultaneously, and with many factors (weather, ground congestion, ATC) beyond producer control. In this column, I’d like to discuss four additional


factors that have caused passengers to see air services as a commodity. The first reason has long existed: travellers, especially Business flyers, favour airlines that offer broad schedule choice – big networks and lots of flights on each route. Nothing unusual there, but it is the converse that is interesting. Historically, niche producers with a highly differentiated product have failed, because their networks are too small. Consider, for example, that in the middle of the last decade, no fewer than three boutique airlines were flying London-New York, and all three failed. They disappeared not because of big-airline “predation” as popular myth suggests, but because with one flight a day, Eos, Silverjet and Maxjet simply could not compete with seven or eight from British Airways, six from American, and so on. Schedule has always trumped differentiation. The second reason is related to the very reality


of open markets. As governments deregulate markets and allow new entrants, those newcomers – such as Southwest, WestJet and Air Asia – almost always offer a simple product


50 www.onboardhospitality.com


based on low price – they take advantage of the lower costs that come from being young. Their customer proposition is based on simplicity, and their success typically forces older carriers to reduce amenities (differentiating factors) in an effort to match the newcomers’ cost (and fare) structure. The product thus converges. A third and related reason is the rise of open,


“the low cost proposition is based on simplicity and its success typically forces older carriers to reduce amenities in an effort to match the newcomer’s cost and fare structure”


easily accessible ticket prices on the internet. When customers see competing prices either on the same screen (as with online travel agencies like Travelocity or Opodo) or within a few seconds by surfing to several sites, they tend to see the products as all the same, and increasingly buy the one that is cheapest.


What is it that passengers are looking for when they travel? Finally, the growth of airline alliances, in which


partners sell each others’ services through codesharing, also reduces differentiation and drives convergence. Joint ventures, like the several in the transatlantic market, naturally encourage product uniformity. Does this mean that the entire business will become colourless, with gruel served in troughs? Indeed not, but understanding the seven drivers of commodity are essential in designing and executing successful services. In subsequent columns we’ll look at some good examples, as well as other topics. Please send me an e-mail with your comments! rob.britton@airlearn.net


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.


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