Category: Airlines

Singapore Airlines Suites, branding blunder or recession victim?

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There have been numerous branding blunders and you can read about some of them here but rarely does Singapore Airlines feature. Singapore Airlines (SIA) consistently leads the industry in profitability and manages to ride out turbulent times better than most in its class. It has always been aggressive, acquiring aircraft and expanding its fleet quickly, in 1979 it set a record at the time, when it traded relatively new aircraft for an updated version of the B-747 for a then record of S$2.2 billion. SIA also differentiated itself early on with its adoption of the Singapore Girl as the face of the airline and service as the unique selling point.

But the world of today and the world of the 1970s are very different. The 1970s were the halcyon days of the mass economy. In the mass economy, with its mass markets and mass media, perhaps a little bit of help from the government and a large dose of nationalism. And by broadcasting the same message to large audiences who had limited sources of information, it was a lot easier for an airline to establish a brand.

More of this and more of that and better this and better that or bigger this and bigger that coupled with large advertising budgets worked well. As competition increased, consumers became more segmented and media choices fragmented, like many other industries, airlines turned to positioning as a strategy.

Positioning
Positioning consisted of creating a position in prospects minds that reflected the strengths and weaknesses of the offering as well as those of competitors. Ideally, this position was based on being first in a particular category. If someone was already first in a category, then companies attempted to redefine themselves in a new category to be first. In the airline business, this tended to be related to passenger comfort or service. The effectiveness of positioning depended on the ability of advertising to drive branding perceptions in the mind of consumers. To do this, airlines often made promises they were unable to keep (admittedly, often due to third party issues out of their control), failed to meet traveller expectations, often because dynamic competitors moved quickly and so raised the bar, which in turn led to brand disillusionment.

Positioning was ideal for the mass economy. It was also ideal for advertising agencies and marketing departments because it gave them enormous power without the responsibility of accountability. Al Ries and Jack Trout invented the concept of positioning. The preface to one book states, “Positioning has nothing to do with the product,…. (it) is what you do in the mind of the prospect.” So, essentially this means that the consumer can be made to believe, through extensive advertising and PR in the right conduits to consumers, and other vehicles, what an offering means to them.

Airbus A380
When Airbus announced it’s super plane, the Airbus A380, ever aggressive, SIA was one of the first to sign up and the first A380 delivered was delivered to Singapore Airlines on 15 October 2007. It entered service on 25 October 2007 with an inaugural flight from Singapore to Sydney. Passengers bought seats in a charity online auction paying between US$560 and US$100,000 for seats. Understandably, the new aircraft, a clever publicity stunt and an inquisitive general public, generated a lot of media coverage and by the end of February 2009, a million passengers had flown with Singapore Airlines on the A380.

Suites
But the majority of those passengers are flying economy. The problem has been getting passengers to use the suites, positioned as, “a class beyond first.” When the new A380 service was launched, in the way that has always done, SIA used global TV, print and online advertising and PR campaigns to launch the new A380.

Beautifully executed TVCs were developed for the Suites by a top advertising agency using taglines such as “your own private bedroom in the sky”. Other taglines included “an unprecedented level of privacy” in a “cabin unlike any other”, and sleeping on a “standalone bed that was not converted from a seat”. Givenchy Beddings (and pyjamas) Ferragamo toiletries and Krug or Dom Perignon were also part of the deal.

But despite a unique product, some slick marketing based on a huge investment in a one-size-fits-all message to mass markets using mass media, consumers and corporations haven’t bought into it. Why not?

Lack of research
One of the reasons could be that SIA didn’t talk to customers and prospects about what they might want from such a service, and, more importantly, how much they would be preparred to pay for it. In fact, it appears that SIA didn’t even engage with members of its Frequest Flyer Programme. SIA simply went ahead and developed the product and then, in a traditional 4 Ps (product, price, place and promotion) and positioning strategy, tried to sell it.

To make it even harder for themselves, and despite charging a premium of more than 50% over the first class fare, SIA would only reward loyal members of its Frequent Flyer Programme (FFP) Krisflyer with 10% more miles than a regular first class ticket! Moreover, any redemption of miles could only be for economy, business or first class and not for the Suites!

According to Shashank Nigam, “Several HR departments of companies, including civil service departments in Singapore, issued circulars or directives stating that “Since the Singapore Airlines Suites are a class beyond first, officers who are usually eligible for First Class travel will be ineligible for Suites”. So by now, SIA had upset its two most important customers, its own government and elite members of the frequent flyer programme!

In 2008, as the economic crisis began to take hold and suite sales nosedived, SIA maintained its pricing strategy, making it even harder for financial institutions, already under scrutiny for lack of risk management, to justify such extravagance.

Another reason for the poor response is probably related to the ground experience. Although positioned as a class beyond first, elite passengers were expected to use the same check-in facilities as passengers travelling in first class, the same lounge and essentially, the same food as first class passengers.

Premium revenues drop by 40%
By the middle of 2009, SIA was feeling the heat on a number of fronts. The economic situation gripping the world caused international premium passenger numbers to fall by 18% year on year in the first 10 months of 2009. At the same time, premium revenues dropped by up to 40% over the same period (IATA). Another challenge was from competitors such as Emirates and Qantas who don’t offer Suites but do have exceptional first class experiences including cabins on their A380s that feature a Bar and bathrooms with showers, limousine transfers at departure and arrival (not available to SIA passengers, even those using Suites).

SIA reviews incentives
SIA scrambled to recover some marketshare. The first incentive was a free night’s accommodation at the Raffles Hotel in Singapore for all passengers flying Suite class. Neat, but hardly enough to justify a 50% premium over first class. Then SIA remembered the people who have made it such a success story in the past, first class passengers and lucrative members of Krisflyer. SIA relented on the bonus miles and began offering 300% bonus miles instead of 10%. Definately a step in the right direction but perhaps too little too late as it is rumoured that a significant number of key SIA customers have defected to Emirates and Qantas. If this is true you can be sure these airlines will make it harder for these premium passengers to leave than did SIA.

So what could SIA have done better? Here are 5 things I would have done although, if they had done number one the rest would have been redundant. What else would you have done?

1) Research. Your existing customers are your best source of information. Talk to them, find out what they are looking for and match attributes to their requirements for value. If SIA had talked to its premium passengers and its own government departments, it would have realised that the market could not support the suites product.
2) Mass market branding with a focus on the 4 Ps is no longer effective. Brands today are built on relationships, access, personalisation and relevance.
3) SIA should have focussed on developing more profitable relationships, not a more profitable product. Brands evolve when companies start buying for customers instead of selling to them.
4) Branding is an organisational not a departmental responsibility. And the organisation is the responsibility of the CEO. To expect a passenger to pay a 50% premium over the price of a first class ticket and not offer a limousine service on the ground when all competitors offer it to first class passengers shows a real lack of judgement.
5) Retention is key to brand building. Companies no longer sell a product, customers buy a product. And once they’ve bought the product, companies should do everything possible to hang onto those customers.

SIA is a great brand. As I write this, I am sure SIA is working out what to do with its Suites. If SIA aims to meet customer requirements for emotional, economic and experiential value, then the airline will bounce back stronger and better for the experience and the Suites can be written off as a victim of the recession. If they don’t the suites may become yet another branding blunder.

The organization is the brand

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Japan Airlines was established as the national flag carrier of Japan in 1953. The government was the largest shareholder and for over 30 years, JAL was the only Japanese domestic airline with the rights to fly international routes. In other words, as a government entity it had a monopoly on those prized international sectors.

Rather than employing professionals in the industry, the government tried to run the airline, creating bureaucratic inefficiencies that had little inclination to deliver the value customers are looking for.

Hope came in the late 1980s when the government sold it’s stock in the company and the airline was privatized. In 2002 Japan Airlines System was incorporated to manage JAL and by 2006 the airline’s daily operations had reached 192 international routes and 387 daily flights.

A new brand identity and aircraft livery themed around ‘the arc of the sun’ was created and it was hoped that ‘the identity would help JAL build a stronger global brand and position a JAL flight as a means to acclimatizing to Japanese culture, attempting to attract more international business people flying to Japan to choose JAL over other international carriers’.

In 2010, JAL is fighting off claims of imminent bankruptcy by multiple media organizations. According to etravelblackboardasia.com, JAL has experienced financial difficulties for quite some time and currently owes more than US$5.8 billion.

JAL shares plunged to a record low in Tokyo trading last week, however the airline is still positive that it will experience a turnaround with the support of the Japanese government. The site also quotes a JAL spokesperson as saying that reports that JAL was planning to cut all of its international routes to cut costs are 100% false.

Well, only time will tell but it is crystal clear that the airline is in big trouble and is surviving on bail outs from the ETIC (Enterprise Turnaround Initiative Corporation of Japan).

What lessons can other legacy carriers learn from this?

Using creativity to build a brand.
When Japan Airlines and Japan Air Systems merged, the idea was to provide the foundations for a more efficient organisation to compete both domestically and internationally. Nothing wrong so far.

Next came the development of the brand image. This was to clearly communicate the fact that the merger had created a new and improved organization. According to Landor, the JAL agency, “the JAL brandmark needed to express a new business philosophy and strategy and at the same time be flexible enough to apply at every touchpoint where travelers, airline employees, and travel advisors have exposure to the brand.”

Landor also says on it’s website, “The JAL mark reaches dynamically to the sky. It is derived from the motif of a rising sun, one of the best-known icons of Japan. The mark is drawn in a modern way and is reflected in the red sun on the tail of the aircraft. In 2002, the integrated holding company was established and the JAL mark was introduced. It is now visible in advertising, ticketing, airport environments, and the combined fleet of aircraft. Implementation of the design will be gradually executed through prioritized applications.”

Sounds good, but the problem is that consumers aren’t buying that stuff anymore. Positioning products belongs in a mass economy that no longers exists. There are too many airlines essentially positioning themselves in the same way. This is because positioning and the 4 ‘Ps’ are imprinted on the DNA of an entire generation of marketers. But the market conditions have changed and it is time to bury the concept otherwise we’ll see more companies in the same position as JAL.

JAL should have focussed it’s brand building efforts, not on reaching for the sky with a motive derived directly from the sun but on providing value to customers based on bespoke relationships with existing customers, access, relevant content to relevant segments, userbility, technology and more. Sure a slick identity is important but it will not build the brand on its own.

Strategic relationships
JAL was late joining an airline alliance which meant it couldn’t offer the interconnectivity of competitors. This has had a profound impact on the airline. ANA, JAL’s competitor joined Star Alliance in 1999, eight years before JAL joined ONEWORLD.

Operations
Although once the airline was privatised, it did reduce costs by cutting staff levels and employing cheaper foreign staff, it still operated at high unit costs which had a negative impact on operating effectiveness.

The right technology
It is critical to invest in technology that is user friendly. JAL’s flight planning software is awkward and confusing.

Flexibility
Like many airlines, JAL focussed on attracting customers to the high yield spots at the front of the plane. There is a general theory (I don’t know how true it is) that if you fill business class on a 747, the flight is paid for and the rest is gravy. This is a common strategy but in the recent economic meltdown it’s not a very effective one.

Despite no longer being a government company, JAL was slow to adapt to the economic situation and suffered as a result. It is imperative therefore that airlines become more nimble and whilst a strategic plan is important, it has to be versatile enough to adapt quickly to challenging market situations. At the same time, it has to be adaptable to take advantage of opportunities.

I doubt very much that the Japanese government will let JAL fail. But what about other Asian legacy carrier established by governments to fly the flag globally? Many of them are already sucking funds out of already empty coffers. Will they be alowed to fail?

Retention is key. Low cost carriers must learn from the mistakes of legacy carriers

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The legendary Peter Drucker said it best: “The purpose of business is not to make a sale but to make and keep a customer”. This is what branding is about. It’s not about aquisition, it’s about retention. And the airline industry, and in particular, Low Cost Carriers (LCCs) need to realise this soon otherwise they will find it tough to build brands that can compete, long term with the mighty legacy carriers with their frequent flyer programmes, multiple classes, business lounges, inflight entertainment and gourmet food (well some of them).

Most of the LCCs have a price based offering. Being small, they are nimble and more efficient than their lumbering competitors. These young, brash and determined airlines, often helmed by charismatic individuals with little industry experience have ripped up the industry manuals and replaced them with revolutionary business models that charge consumers for peanuts, coffee, noodles, seats, luggage and most recently in the case of Air Asia, a ‘convenience fee’.

According to an official response from the airline to an indignant passenger, this ‘convenience fee’ is “meant to recover costs in implementing, upgrading and maintaining our online payment systems. It is also to enhance security features for credit card payments to give guests a comfortable and safe booking environment.”

You’d be forgiven for thinking that this response, available here in full on malaysiakini.com came from one of those stuffy legacy carriers mentioned earlier. You’d be forgiven too for scoffing at the line, “give guests a comfortable booking environment”. How does charging me more make me more comfortable? You’d also be forgiven for thinking that perhaps the online payment system wasn’t good in the first place and wondering what the implications of that might be.

In the past most airlines, including Air Asia, would have absorbed these costs. I quote again, “However, now that AirAsia is experiencing a rapidly growing number of online transactions, these costs have significantly increased.”

The official response to the complaint goes on to say, “This convenience fee is charged on a per way per guest basis because the costs of these systems are driven by the value of the transaction rather than by the number of transactions. As costs vary per country, the convenience fee also varies.”

The whole process has been dealt with in a manner more suited to one of the aging behemoths than such a young, aggressive and savvy carrier. To me it says that because you, the customer have helped us grow so fast, we’d like to reward you by charging you to use our online booking service. Even though it is automated and therefore doesn’t require the ongoing investment in real estate and talent that a booking office requires, we’re going to make you, the customer pay for it.

The danger here is that Air Asia is making a common legacy carrier, or perhaps I can call it legacy branding, mistake. It is treating passengers as if they are insignificant seat fillers and it is assuming that all passengers are the same, don’t have options and will put up with being treated badly. Irrespective of whether it is the first or fifty first time the passenger is using the airline.

Surely, if a passenger is a long time user of the airline, there will be significant personal data available (and Air Asia offers customers the opportunity to submit a lot of personal, travel and other information) and multiple transactions with that customer mean that the liklihood of fraud is low, should that passenger be treated, and charged, the same as a new customer? And anyway, the burden of fraud is with the Credit Card company and not the carrier, which is why it is the Credit Card company that sometimes calls after you use the card to make a booking.

Unfortunately, because the prevaling attitude in most agencies (and companies) is that acquisition is key, the typical response is yes. And it would seem, based on this episode, that Air Asia agrees with this attitude.

However, FusionBrand has long argued that retention is key to brand building. Although LCC’s have thrown some traditional branding theories out the window with their price driven strategies, you cannot build a long term profitable brand, on acquisition alone. Indeed, a low price strategy that aims to ‘buy’ loyalty can often encourage only disloyalty. That’s because a price driven customer is always looking for a cheaper alternative. And, in the LCC space, will often find it.

This is substantiated in a survey carried out by Sabre Airline Solutions, which found that 86% of airlines believe that customer loyalty and retention will have the most positive impact on their business in 2010.

So my advice to Air Asia and other LCCs is that if you want to become a brand, you must start treating customers with more respect, understand that a low price alone will not build relationships, think carefully about how you communicate with your passengers and remember that the purpose of business is not to make a sale but to make and keep a customer.