Valentine’s day massacre for an industry already in decline
With four of the top US airline brands in or emerging from bankruptcy, this isn’t a good time for newcomers – but Virgin is trying to join the party
It can’t be much fun being in the airline business these days. The glamour has gone, margins are down and if you’re in the US the competition is more brutal and cut-throat than ever.
Add to this the increased security and terror alerts since 9/11, which can throw out all the best laid plans and disrupt an entire business more quickly than you can remove your sneakers at an American airport.
Back in 1999, one US airline set about trying to be different from the others by bringing back the romance and fun to airline travel. JetBlue was founded on a promise that it was possible for one airline to have low fares, excellent customer service and plenty of extras like live satellite TV channels.
JetBlue managed to keep that promise and grew rapidly, winning thousands of loyal customers and gaining airport gates at many of the big city and holiday destinations in North America, Mexico and the Caribbean. In fact, so successful was JetBlue, that it passed one of the strongest tests of brand marketing: customer recommendation.
It’s perhaps because of this stellar background and its ability to do well in a struggling industry that it was all the more shocking to see how quickly its image was damaged last month when several of its aircraft got stuck on the runways at JFK airport due to a snow storm on February 14.
It wasn’t the cancellation of flights due to bad weather that really hurt JetBlue but the vivid image of passengers being cooped up in planes on runways for hours, some for up to 11 hours. JetBlue had to cancel as many as 250 of its 500 flights and ended up cancelling over 1,000 that week.
As well as trying to get passengers up in the air as quickly as they could, JetBlue tried to put in place a brand damage control plan by offering to pay for customers’ flights even if they had to take other airlines.
Allen Adamson, managing director of brand communications agency Landor Associates New York, says it was JetBlue’s success that, ironically, contributed to its Valentine’s Day debacle. He believes the airline had focused more on building a great brand than focusing on its operations; something he says worked when it was a small airline but not at its present size serving 50 destinations with 500 flights daily.
"It’s easier to be different as a small company," says Adamson. "That worked for many years, but when it became a big airline, its operations could not live up to delivering its brand experience because the company was built around a different philosophy."
Adamson is a fan of the way JetBlue’s founders and management have nurtured their brand to date. Indeed, he dedicated an entire chapter to JetBlue in his book BrandSimple (published by Palgrave, Macmillan).
JetBlue has tried to stick to its brand principles by being as transparent and earnest as possible. Founder and chief executive David Neeleman has taken full-page ads in national papers like the New York Times apologising to customers. He even posted a video on YouTube, in which he says: "The events that transpired and the way they transpired will never happen again." JetBlue also unveiled a Bill of Rights for its passengers which among other things promises vouchers to those delayed by events that the airline could have avoided.
Adamson thinks JetBlue’s management has taken the right first step with its mea culpa but says now comes the difficult second step. "Now it is a really big company, and the question is can it deliver the same experience it did as a small one?" says Adamson.
Still it never rains but pours – as just days later bad weather again forced JetBlue to "pre-cancel" 66 flights out of New York – this time in a bid to avoid passengers getting stuck in planes. Like the last time, the press coverage was all on JetBlue although other airlines had had to do the same. Even Conan O’Brien, the NBC late night talkshow host, joined the fray: "JetBlue has apologised now for stranding thousands of passengers," he said the other night, "and today, JetBlue’s president introduced a passenger Bill of Rights. First on the list is, ‘You have the right to fly Delta and United’."
Both Delta and United tried the brand-led approach in 2003. Delta started its Song airline while United started Ted, from the last three letters of its name. But experts, including Adamson, believe the big airlines struggled to differentiate their mother brand from the new airline. Song, for instance, continued to use Delta-branded check-in facilities at many airports; it integrated Song planes back into Delta last April. United continues to operate Ted, but its website and operations are still heavily United-branded, which as Adamson says, could confuse customers.
But whichever brand they use, the US airline industry has been in turmoil since 9/11. Of the top seven carriers, four have been or are in Chapter 11 bankruptcy proceedings. Two of those that aren’t bankrupt have been losing millions of dollars and cut just as many jobs, flights and customer services as everyone else just to stay afloat.
In the past year airlines have considered mergers as a way out of their difficult predicament. Delta recently admitted in regulatory filing that it had considered a merger with Northwest to help it out of Chapter 11. Last November US Airways proposed an $8.4bn (£4.3bn) takeover of Delta but that idea got knocked back by Delta’s management and staff. There has also been talk of a merger between United and Continental Airlines. The only top airline that has maintained relatively good financial health through all this has been SouthWest, which established the low-fare model and was the inspiration for Sir Stelios Haji-Ioannou’s easyJet in the UK.
With all the financial mayhem and uncertainty in the US airline industry, it makes you wonder why anyone would come into this market afresh, but they do and Sir Richard Branson, no less, has been looking at this market for several years now.
Unfortunately, it hasn’t gone as smoothly for him as he would have hoped. Virgin America, as the proposed airline is called, was denied an operating licence by the US Department of Transportation last December because the government department felt the airline’s ownership structure, which included Branson’s 25% stake, didn’t satisfy US law requirements. Federal law requires any airline operating domestically to have 75% US citizen ownership and the DOT concluded that Branson would have undue influence on the US airline. Virgin America submitted a revised application in January and it must be keeping its fingers crossed. It will be interesting to see when it does start flying, using San Francisco as its hub, whether Virgin’s brand can bring something new and fresh to low-cost flights in the US.
Yinka Adegoke is a New York-based business journalist. firstname.lastname@example.org