You read that right: none. And, the air transportation industry did not fall apart. It did not fail to operate. Flights took off and landed … and passengers didn’t have to spend absurd amounts breathing stale cabin air while hanging out with the hope that Godot would finally show up.
This represents a drop from 11 in October 2009. In case you were wondering if airlines canceled flights rather than risk a fine of $27,500 per passenger for airport delays, note that the cancellation rate actually fell slightly year over year.
The largest airlines canceled 0.97 percent of scheduled domestic flights in October 2010, down from 0.99 the previous year. Even if you call this no change … well, that’s the point. With the stricter rules in place, there was virtually no change in cancellations.
October 2010 was the first month there were no tarmac delays of greater than three hours since the DOT started keeping score in October 2008. And, from May to October, according to the Bureau of Transportation Statistics, there were only 12 tarmac delays of more than three hours, based on data for 18 airlines. For the same period in 2009, there were 546.
Meanwhile, on-time performance improved rather dramatically from October 2009 to 2010, from 77.3 percent to 83.8 percent. That’s off a bit from 85.1 percent in September 2010, but still an indication that the industry is getting significantly better.
At the end of October, there was only one flight that was chronically delayed – more than 30 minutes late more than 50 percent of the time – for three consecutive months. There were no other flights chronically delayed for two consecutive months and no chronically delayed flights for four consecutive months or more.
Just shy of 5 percent of flight delays were caused by aviation system delays, with 5.54 percent caused by aircraft arriving late. The number of delays within the airlines’ control (e.g., because of maintenance or crew problems) increased to 4.44 percent from 3.99 percent in September.
So, where can you see the real implications of all this? Well, let’s take a look at the number of complaints about airline service. It seems the threat of heavy fines is making these companies more responsive to their customers. The 749 complaints the DOT received from passengers represents a 16.5 percent decline year over year.
I know nobody wants to admit that the system works, but I guess it made air travel a bit more tolerable.
Are the days of bargain pricing over? There’s a lot of pessimism around this issue. After getting smacked around in 2008 and 2009, this year has been a good one for air carriers, and USA Today reports: “Airfares are on the rise again and unlikely to fall again anytime soon.” Yet, a travel industry recovery comes with advantages, as more people want to fly, and they tend to be willing to stomach higher prices. So, what’s the deal? Are we going to pay more (happily), or will 2011 means continued a continued prowl for cheap tickets, particularly online?
There’s no doubt that the airlines are getting more of our wallets. The U.S. Department of Transportation says that the average domestic ticket surged 13 percent – from $301 to $341 – from the second quarter of 2009 to the second quarter of 2010. That’s the fourth quarter in a row domestic fares rose.
Now, airlines are price-takers, not price-setters. What does this mean? They respond to what consumers are willing to pay … they don’t set the tone for the market (e.g., the way a luxury goods manufacturer would). So, if fares are shooting up year over year, a consumer willingness to pay is certainly implied.
Individual airline fare increases are pretty interesting, with United Airlines up 25 percent on average for is period and discounter Southwest adding 15 percent, on average, to every ticket.
According to USA Today, airfares are climbing for three reasons:1. Tension between capacity and demand: during the recession, airlines cut capacity in an effort to lower operating expenses and keep their margins from getting throttled. Available seat miles plunged more than 12 percent from the fourth quarter of 2007 through the end of 2009, according to the Air Transport Association. But, travelers are coming back. Demand is up, and there isn’t as much supply on hand. That pushes prices higher, even as airlines scramble to add capacity. Yet, available seat miles are up only 1.5 percent over the past year.
Why?
Airlines have been burned by market forces before when adding capacity too quickly. USA Today explains:
Having learned a bitter lesson by adding back too much capacity, airlines are exercising greater caution and restraint this time around. Additionally, bankruptcies and consolidations during the past few years helped contain capacity. Brands like Aloha, EOS, MAXjet, Midwest, Northwest, Skybus and ATA Airlines have disappeared as a result of consolidation or financial calamity and AirTran and Continental Airlines will soon follow suit.
2. Oil won’t go down: oil has been on the rise for a decade, moving from below $20 a barrel to above $90 a barrel, some of which came from the 2008 market shock. Someone has to pay for this of course … and it isn’t necessarily you. That’s the problem with being a price-taker: you can’t pass along all your expected or unexpected price increases to consumers. Now that market pressures are being eased, airlines can start to recapture some of these expenses.
3. The business is changing: according to USA Today, “so called ‘low-cost’ airlines look more like network airlines every day” – as a result of carrier merger activity. And, the increase in maturity comes with higher expenses. For example, these airlines are “rapidly expanding into larger hub airports or building their own”: that cost cash. It has to come from somewhere. It can also come with long-term costs that aren’t always easy to forecast:
Hub airports are often plagued with congestion, resulting in increased flight delays which can wreak havoc on aircraft turnaround times and utilization schedules, further raising operating costs. In recent years, Southwest has expanded into some of the most congested airports in the country, like Boston Logan, New York LaGuardia and Washington Reagan National.
4. There’s more to spend: the fact that there are expense pressures on airlines doesn’t mean that you’re going to have to foot the bill. The oil price factor, for example, has been around for a while, and it wasn’t enough to protect carriers from price declines. The fact that you probably have more discretionary income – or at least less perceived employment risk – means that you aren’t going to wince when you see a higher price. You’ll book with less lead time. It’s easier for you to spend.
What will be interesting to see is the extent to which consumers will be more willing to open their wallets. Even though having more cash comes with a bit of comfort in using it, memories may not be as short following this recession as they were in previous economic downturns. The recession kicked off by the global financial crisis in 2008 hurt. A lot. Unemployment was severe – and continues to be. People may not be as willing to pay big fares as they were in the past. Does this leave more market opportunities for online discounts – such as those offered by online travel agencies? That remains to be seen.
What do you think? Leave a comment to let us know! There’s no crystal ball on this one, and I’d love to get your thoughts.
Online travel agencies have had a solid run over the past two years. They picked up some market share as would-be travelers were willing to poke around a little more to score cheap tickets. High rates of unemployment and under-employment and general economic uncertainty, of course, were enough to make consumers value every dollar a little more. This opened an opportunity for online travel agencies to advance in the marketplace, and chip away at the dominance of their suppliers (i.e., the airlines) on the web.
Yet, the market is turning. Next year is expected to be a strong one for the air travel industry relative to 2010, and 2010 was a vast improvement over 2009. For online travel agencies, this provides some benefit as a rising tide, but it’s likely to favor their suppliers, as customers are more likely to go with what they know over putting in some effort to find the largest discounts.
Online travel agencies will have to overcome this tendency by investing smartly and substantially in their own brands. This is what we’re seeing in the latest move by CheapOair, the one of the 10 largest online travel agencies in the sector, in its recent announcement of a marketing mix change, which teases a broader strategic shift given changing market conditions.
A Changing Travel Market
From 2008 to 2010, online travel agencies were able to chip away at the online market share of their suppliers, reducing the suppliers from owning 62 percent of the online business in 2008 to 59 percent in 2010, according to travel industry research firm PhoCusWright. Bargain hunters drove the market, which eroded the importance of brand loyalty.
From 2009 to 2010, PhoCusWright notes a “strong countercyclical performance for the OTA category.” In 2009, sales fell only 1 percent for the sector, compared to 5 percent for the total online leisure/unmanaged business travel market. And, online travel agencies have posted double-digit gains in 2010.
Stronger industry conditions, however, are better for the suppliers, and PhoCusWright observes, “With the rebound continuing, supplier websites will likely regain momentum as the OTA fight to hold on to their share gains.”
In regards to the actual travel experience, ostensibly, the airline’s brand matters most. When a passenger books through an online travel agency, the brand associated with the transaction lasts for a few minutes – or a few hours, depending on the diligence of the buyer’s search. Meanwhile, interaction with the airline’s brand starts during the search for a ticket, persists through the flight and ends sometime after the passenger hops into a town car to get to his ultimate destination. To register in the customer consciousness, online travel agencies need to develop the sort of presences that will keep them top of mind.
This runs counter to the traditional online customer acquisition models associated with the online travel agency business, which involve a combination of search engine optimization, online ads, affiliate programs and social media. These are transaction-oriented tactics, which speak directly to the brand-barrenness of big discounting.
More Than the Transaction
The largest online travel agencies have already moved past transaction myopia: everybody knows the Travelocity gnome, Priceline‘s William Shatner and the likes of “Cooper” from Expedia. For all but the top players, however, investments in mass media brand development (such as television) have generally been eschewed in favor of what’s been known to work. Speaking at Business Insider’s IGNITION conference last week, Buddy Media CEO Michael Lazerow noted that Travelocity grew to $4 billion in revenue through online means before it moved to television to get to the next level.
Yet, for the online travel agency sector to hold its ground – and even grow – in 2011, brand has to matter more, and this means casting a wider media net. This, plus the size of CheapOair relative to its competitors, is what caught my attention about its recent media diversification. The company is launching its first television ad campaign, “Get More for Less,” in an aggressive move to get out in front of the imminent online travel market shift.
The move to television is an aggressive one, and it comes a bit ahead of “schedule” for CheapOair, if you use the Travelocity number as a reference point. Expedia pulled in close to $3 billion in revenue last year, for example, and Priceline at $2.3 billion. Travelong/CheapOair generated $825 million in revenue in 2009 and has grown at a year-over-year rate of 45 percent this year, resulting in forecasted 2010 revenues of $1.2 billion.
The company’s CEO, Sam Jain, says, “TV is a new strategy for CheapOair and as we head into our 6th year we believe this is the right time to expand our marketing efforts. TV is a natural evolution from our current digital marketing and will help build awareness among a larger audience and introduce more people to the brand.” The countercyclical tendencies of the online travel agency market relative to travel as a whole reinforce this point.
Pointing to the potential for a virtuous cycle, CheapOair’s Sr. Vice President of Strategic Partnerships, Bill Miller, adds, “This new TV campaign should draw in more customers for us which in turn will bring more value to our supplier partners. Our suppliers — airlines, hotels, car rentals —- want valuable and efficient distribution partners. I believe we are all that and more and this TV campaign is just another example of how we can extend our marketing reach on the behalf of our supplier partners.”
Fashion versus Reality
It’s been fashionable among the digerati to claim the death of other forms of media, and I’m as guilty as the rest. But, the reality is that SEO and online ads (a la Google’s pay-per-click model) are becoming increasingly crowded and competitive. Since they are focused on the transaction rather than the brand, they don’t provide for a relationship with the customer that results in a gradual reduction in cost per revenue over time. It’s strictly “pay by the drink,” and that can get pricey.
With the travel market starting to tip in favor of the travel suppliers over the online travel agencies, the costs associated with traditional online marketing will become even higher, as brand brings customers back to the suppliers and online travel agencies chase a shrinking share of bargain hunters. For online travel agencies to compete effectively, they have to make their own investments in branding – a commitment that lacks the predictability of other forms of marketing.
Strangely, television may become the key to winning on the web in the travel industry in 2011. A better market translates to the amplification of the importance of brand, and commercials are still a critical aspect of this in the consumer world.
A battle of the brands is about to break out. The good news is that it’s for your benefit … and you’ll get to watch it on TV!
Lately, it seems like the easiest way to lose weight is to fly regularly. There isn’t much to munch on in the skies, as airlines have cut back on just about anything that looks like an amenity. Fatty foods have been replaced by none at all, which is great for your waistline, right?
It turns out that you can still pork up on a plane, even if you think the dismal state of customer service leaves you with a barf bag and nothing to expel into it. DietDetective.com has done a bit of digging and rated the airlines with “Health Scores” to reflect the quality of their high-flying fare.
Even at 35,000 feet, the mighty have fallen. According to Charles Stuart Platkin, PhD, MPH, public health advocate, editor of DietDetective.com and visiting assistant professor at CUNY School of Public Health at Hunter College, “This year United provided the ‘healthiest” choices in the sky, while Continental had a fall from grace, US Airways received the lowest rating, and Virgin America and Delta were the least cooperative (and also received a low health rating).”
So, let’s take a look at five airlines and what makes them good for you … or not:1. United Airlines United Airlines finally has something to celebrate: its grub. According to DietDetective.com, you can score a Tapas snack box on flights of two hours or longer – in fact, it’s the top seller. If your flight stretches to more than three hours, “United has a plethora of choices, but I really like the Turkey sandwich at 600 calories including the sauce and chips — skip those if you want to save the calories,” notes Platkin.
Finally, a reason to fly United!
2. JetBlue
It isn’t surprising to see JetBlue on the list, as it’s a perpetual high scorer in terms of customer service. The airline that treats you like a human being, it seems, also believes in feeding you like one. But, DietDetective.com warns you not to take advantage of the largess the airline provides: “Try to stick with no more than one snack. Just because they offer more doesn’t mean you have to take them, especially if you’re not hungry.”
Moral of the story: don’t let kindness turn you tubby.
3. American Airlines
The service may suck – the American Airlines flight attendants were singled out in a recent study of the worst airlines in the United States – but the “Boston Market Chicken Caesar Salad with chips and dressing is a pretty good meal choice.” If you go with the Cheese & Cracker Snack Tray, DietDetective.com advises, “[j]ust skip the cracker packages.
Oh, and steer clear of the beverage cart!
4. Delta Air Lines
Is it any shock that the worst airline in the United States was also the least cooperative with DietDetective.com? The company notes that Delta wasn’t helpful at all in providing nutritional information, adding, “I had to contact them repeatedly – they are back to their old ways.” You can do pretty well with the food, though: “Delta’s individual snack choices are not very good, but their meal choices on longer flights are reasonably healthy. Still, they can do much better.”
Warning: “Skip the turkey, egg salad and Canadian bacon croissant at all costs.”
5. Continental Airlines
There isn’t much here to celebrate, according to DietDetective.com. Go with the almonds, as “it’s really the only snack choice that has any nutritional value.” If you’re at a loss for other options, Platkin says that “if I had to choose, the Savory is probably the best — just watch that fruit-and-nut mix. In terms of meals, for breakfast, the yogurt is not too bad. For lunch or dinner, the Grilled Chicken Spinach Salad is the obvious best choice so long as you watch the dressing — that could put it over the top.”
Who cares? This is moot, of course, as a result of the merger with United.
If you want to grab a beer at 5 AM, go to your nearest airport or board a flight. More airports are letting vendors sell liquor at dawn, or in some cases 24 hours a day. The move isn’t intended to keep you happy, of course, that’s really irrelevant to the aviation industry. Rather, the goal is to pump up revenues by getting you to dig a little deeper into your wallet while you’re traveling. Further, it reflects a bit of “marketing savvy,” USA Today reports, as airports and airlines are figuring out that they can sell just about everything, “from meals to day passes to their premium lounges.”
USA Today continues:
“What’s happening is airlines are becoming better retailers of products,” says Jay Sorensen, a consultant, who says the cocktail push by U.S. airlines began during the last year. “They’re doing things to highlight the fact that, ‘Yes, indeed, we do sell alcohol on the airplane.’ They’re trying to mimic what occurs on the ground in terms of consumer promotions.”
Of course, some corners of the airline industry aren’t happy about the prospect of bringing new revenue into businesses that often struggle to perform well. The concerns are legitimate, with “some union leaders, local officials and frequent fliers fear[ing] that the increased access to alcohol raises the risk of more drunken travelers, particularly at a time when many passengers find a travel experience that involves enhanced screening and crowded planes more stressful than ever,” USA Today reports.The decision to serve liquor around the clock is expected to have tangible results, however, with an extra $500,000 to $1 million in revenues for O’Hare alone, up from the current level of approximately $20 million a year.
There’s good money in liquor, and if you drink enough, maybe the airlines and airports will be able to invest in a little customer service training …