Need for Innovations in the Flying World

by Jörgen Eriksson on November 24, 2013

Strike noticeI arrived at Charles de Gaulle at 13.00 today, well ahead for my 18.30 flight to Zagreb with the intent to spend the afternoon working at the airport.

As I checked in the Lufthansa staff informed me that no Lufthansa flights were operating today and that they technically were on strike to protest that the Lufthansa service staff in France would all be laid off in February 2014. Also Lufthansa in France, they told me, will rely on automated check-in at the French airports, just like the low cost carriers have for some time.

The trouble with this is that Lufthansa is not a low cost carrier. I cannot buy tickets with them at the same price as I can with Easyjet or Ryanair, and therefore I do expect a minimum of level of personal service. I expect to meet service people at the airlines. People who can help when I need to rebook, people who can give premium service to me, being a frequent flyer and reliable customers. People who give the airline a personal and human face.

CDG business loungeLuckily I am travelling to Zagreb with Croatian Airways and once I got through the inconvenience of the strike at check-in I was the only person walking through x-ray and passport check. I found some people who could let me into the officially closed lounge, despite no other passengers around, so I have a quite relaxing afternoon, being alone in the big Star Alliance lounge at CDG 1 for close to four hours. Plenty of time to work and reflect.

While airports, and the lounges at airports, have increased the service offering over the past decade, most airlines have got less convenient, less confortable and less flexible. The problem I have with Lufthansa reducing their service is that I think it is the completely wrong way to go for a quality carrier in the hyper competitive environment of air transport. It is what everyone else does to deal with lower margins, and business success does not come from doing what everyone else do.

In the airline industry, we can identify three clear segments of carriers. We have the legacy airlines, which have high cost structures and have reduced service levels step by step for more than two decades by now, as they have lost passengers to the low cost carriers and compete intensively with other legacy carriers. With the advent of the internet, consumers now have a wide choice of air carriers. Since airlines have trouble distinguishing themselves, the business has become commoditized, and profits are difficult to obtain.

Then we have the low cost carriers, who by definition runs air transport as a bus service, with low ticket price and basic level or no service, appealing to passengers travelling for holiday or business travellers buying tickets in the last minute.

The third segment, which is increasing in volume, are the private charter airlines, but they are not for modest business people like me who usually travel on economy tickets. They are for the corporate elite and top executives who can justify high costs to pay for personal or small group usage of small aircrafts to get where they want, when they want.

Airline map

Lufthansa, being a legacy carrier, does what everyone else in their segment does. They seek to gain profitability by reducing costs, by being increasingly lean.

imageThe problem with this approach is that they make the same efforts as everyone else in the legacy carrier niche. They compete in a “red ocean”. If you do what everyone else  does in a hyper competitive market, then you will get a low margin business, and that is not where you want to be.

That will not make them more appealing to customers. It will not increase customer loyalty, and customer loyalty is the strongest competitive advantage in the hyper competitive business of air travel. According to research at the Wharton School of Business At the University of Pennsylvania, 80% of travellers prefer to stay loyal with airlines, if this makes economic sense.

As the frequent reader of this blog knows, we strongly support the approach to develop successful strategy that was pioneered in a Harvard Business Review article by W. Chan Kim and Renée Mauborgne in 2004, titled “Blue Ocean Strategy”.

Therefor, it would make sense if Lufthansa (and their subsidiary Swiss) would focus on developing a “blue ocean” by focusing on innovations that would increase their competitive value to their target market customers and thereby increase customer loyalty.

The loyal customer base has historically been the airlines strength and it does make sense to continue to build stronger competitive advantages in this direction.

imageBy adapting a “blue ocean” strategy, airlines could reconstruct market boundaries. The only way to beat the competition is to stop trying to beat the competition.

In existing “red oceans”, the industry boundaries are defined and accepted, and the competitive rules of the game are known. In “blue oceans”, competition is irrelevant because the rules of the game are waiting to be set. The carriers caught in a red ocean follow a conventional approach, racing to beat the competition by building a defensible position within the existing industry order, by lean, by cost savings, by doing what everyone else does.

The creators of “blue oceans”, do not use the competition as their benchmark. Instead of focusing on beating the competition, they focus on making the competition irrelevant by creating a leap in value for buyers and the company, thereby opening up new and uncontested market space. This can be done also in aviation and also for legacy carriers.

Economist - Innovations in the flying worldAs I had breakfast this morning, I read a blog article from the Economist, titled Innovations in the flying world. The article presents two recent airline innovations, one on the service side, and another on the technology side, that shows just how much better air travel could be. These two innovations are not disruptive but they show some unconventional thinking and can maybe be inspirational.

The service innovation is to allow for not only airport luggage but also coat check-in. It is getting cold in the Northern Hemisphere, and that means we are about to enter the Winter Campaign in the overhead bin wars. With passengers stowing all those coats on jam-packed airplanes, it’s more difficult than ever to claim space in the overhead bins for carry-on bags, slowing the boarding and off-boarding procedure and increasing the already unpleasant queuing experience of getting on and off aircrafts.

coat hangerLufthansa has started to check in winter coats at Frankfurt airport, charging 50 cents a piece. This seasonal service demonstrates a value of innovation at airports. Travelers can now travel without a jacket in hand or a care in mind, and the overhead bins will have more space left.

The technology innovation is called Morph, and it is a new kind of aircraft seat where the space for each passenger can be adjusted, depending on how much that passenger pays.

Option-based travel, in which flyers pay vastly different amounts for significantly different experiences, is already here, and it’s only going to expand. I believe it is a much better option to increasing revenue, than lowering costs by slicing of service levels as Lufthansa intends to do.

Morph seatAir travel on a budget is not often pleasant. Despite huge leaps forward in comfort for first and business class (and the more recent “premium economy” class), the economy section of a cabin is more often than not cramped, packed, and charmless. British design firm Seymour Powell has developed the Morph seating concept that it believes will change that. The pitch is simple. The Morph seat can, quite literally, morph to best serve those who are using it.

image

About Jörgen Eriksson :

Jörgen Eriksson is the founder of Bearing and is the Chairman of the firm since it was created. He has successfully expanded Bearing into covering projects on four continents. He is also Adjunct Professor of Innovation Management at the International University of Monaco and at Universitat Politècnica de Catalunya in Barcelona and he is an active member of the Founders Alliance organisation.

Working with consulting engagements across Bearings practices, he has over the past fifteen years participated in and supervised a large number of client projects, from innovation system development and place development and branding, to merger and acquisition assignments and leading edge research and business development activities for key clients.

His new book, Branding for Hooligans, will be published in 2015. It is about how innovation and branding are key survival factors in our modern times of hyper competitive markets.

Prior to Bearing, he was Director of Europe, Middle East, and Africa for Trema Treasury Management, a technology and consulting services provider, supplying financial software solutions for the global financial industry, Clients included The European Central Bank, Citibank, SEB, South African reserve Bank, Deutsche Bank, Abu Dhabi Investment Authority (ADIA), as well as many other large financial institutions and Fortune 500 companies.

Early in his career Eriksson was educated at the Stockholm School of Economics, where he studied economics, financial economics and philosophy. He then worked in Scandinavian investment banks and also for the Swedish Institute of National Defense Research.

You can contact Jörgen on e-mail jorgen.eriksson@bearing-consulting.com, connect on LinkedIn on http://fr.linkedin.com/pub/jörgen-eriksson/0/38/8a0/ and follow him on twitter on joreri508.

{ 2 comments… read them below or add one }

Nigel Hurst Nigel Hurst November 26, 2013 at 15:35

Copenhagen airport is constantly innovating, and now has self-service bag drop facilities using unmanned check-in desks, following the self-service check-in machines. This is the first time I have seen this.

Jörgen Eriksson Jörgen Eriksson November 26, 2013 at 15:55

Yes, ingenuity and innovation are words that resonate throughout the airport industry, where new concepts are entering into every aspect of the passenger and airfield process. For passengers, the airport experience is often viewed as a stressful necessity but many airports are now going beyond the call of duty to ensure that time spent in the terminal before or after a flight can be both efficient and put to good use.

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