Unisys Scorecard Observations and Insights of a Changing Industry

A Unisys Transportation Thought Leadership Publication

Volume 6 • Issue 5 • February 2008 Unisys Scorecard Observations and Insights of a Changing Industry

Volume 6 • Issue 5 • February 2008

Editor-in-Chief Editor’s Note Ron Kuhlmann Brands can be powerful. Decades after the original process introduction, many people still Xerox rather than photocopy. Editorial Board Olivier Houri Who asks for a facial tissue rather than a Kleenex? John L. Strain More recently, being Googled has wide recognition. All airlines, and even some airports, are branded. Managing Editor What exactly does that mean and how is the promise Susan Hunter of airline brands perceived and fulfilled?

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Publisher Coming Up Unisys Corporation • A Widening Gulf?

• Asian Carriers: Who Trusts Them?

The Unisys Scorecard is published monthly by Unisys Corporation. This report may be copied, in whole or in part, provided all legends, copyright, proprietary and other notices which appear herein are reproduced, and the following, prominent acknowledgement is added: “Reprinted with permission of Unisys Corporation.” This document is also available on the Unisys Global Transportation Web site, http://www.unisys.com/transportation

Address reader inquiries to Ronald Kuhlmann, Unisys Transportation Management Consultants, Unisys Corporation, Suite E1-107, Township Line Road, Blue Bell, Pennsylvania, 19424-0001, USA. mailto:[email protected]

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2 Branding in Century 21

brand 1 Etymology: akin to Old English boernan to burn. Selected definitions:

© • a mark made by burning with a hot iron to attest manufacture or quality or to designate ownership • a printed mark made for similar purposes • a class of goods identified by name as the product of a single firm or manufacturer

This title probably caused many of you to mentally flash on a real estate firm as opposed to a simple reference to the century in which we now live. Many who made that brand association may also conjure up a reasonable facsimile of the logo associated with the name. Such is the power of branding. As our definition states, the word has its origins in the Old English term for burning and merchandisers strive to, as we say idiomatically, © burn things into our brains.

These brand associations may have a powerful hold on us if we have had either favorable or unfavorable experiences with the product or service that carries the brand. Other brands that we might not have used, may still be easily recognized but have no particular ranking © in our personal hierarchy or preference. Most people probably recognize Royal Caribbean, Princess and Carnival as cruise lines but, unless they have specific experience with cruising,2

© they are all likely consigned to the same generic association of “folks with boats.” However, if one is a seasoned cruiser, not only are there brand preferences, but there are also preferred ships within that brand. Travel websites even allow for these preferences in their search programs.

Living in the information age, we find logos and ads splattered across virtually every available venue, from traditional glossy magazines to the risers of steps in the subway. In almost © every marketplace, there is no dispute about the inherent value of a brand image. Some have global resonance with brands like Coca-Cola visible practically anywhere on the planet, urban or rural. The same is true, according to studies, of names like Google and Starbucks. © Part of the familiarity of these brands is the nature of their products. It is far more likely that wide swaths of the population will know Google simply because it has such an enormous audience of computer users. And while people may have a sense of what a Bentley is, far more know Coke and Starbucks because they are a part of everyday life.

Aviation has a long history of powerful brands. In its day, Pan Am’s blue globe logo was © one of the world’s most recognizable trademarks. Even amongst populations unlikely to fly, it connoted a sense of glamour, freedom and global scope – long before we spoke of “the global marketplace.” One might even support the idea that the Pan Am brand and its core product were instrumental in actually creating the global marketplace. Surely today, aviation is a huge component in building and sustaining global business.

1 Merriam Webster. 2 Which one has the “Fun Ships”? 3 Brands Wax and Wane did not create successful outcomes for any of the four start-ups that paid to use the iconic name and logo: all failed. Go into any shopping mall in any country and ask visitors to The same was true of a resurrected Braniff some years ago, the phone store or kiosk if they know the name Nokia. Most which failed despite its name association with one of respondents will recognize it, as Nokia has emerged as one America’s best-known carriers. of those well-known global brands. The same question, asked a decade ago, would have likely shown much less awareness And there are cases where the brand name survives but of the name. Even now, asking where they are headquartered has very little in common with its heritage. AT&T was, for (Finland) or how long they have been decades, the only authorized source around (1967) will stump most of Brand is not what we want it to be – of telephone service in the U.S. those questioned – including perhaps but what it is perceived to be: As deregulation of the industry was those who own the product. This • Over 80% of companies implemented, AT&T was broken up disconnect between knowing the believe they deliver a superior into regional service purveyors. Over the next 10-20 years, these brand and knowing about the brand customer experience is the reason why so many surveys companies merged and morphed • Only 8% of their customers agree ask participants first if they recognize until one of the descendent a name and then follow up by asking Acknowledgements to Bain & Company companies once again adopted the The Gilford Group Limited November 2006 for impressions or perceptions of AT&T name, despite the fact that little, that name or brand. It is not uncommon to find that while aside from the name, was recognizable as the original firm. brand names may be recognized, that knowledge has little or no And recent years have seen a brand backlash as retailers context. Even more likely, despite valiant efforts on the part of increasingly promote generic products, which are touted to be marketers, is the inability to cite differences between competing equal to the brand equivalent without the cost of paying for brands: probably few could delineate clear differentiators between the name. However, while alternatives may resonate for some brands like Nike and New Balance, or Hilton and Sheraton. consumers, the huge increase in pirated and fake “named” Furthermore, while brand identities may remain strong, they merchandise shows that brand names continue to have often fail to support new ventures. Pan Am’s brand recognition cachet and customer appeal, especially for luxury goods.

You’re Invited!

Building customer value and trust Unisys Travel and Transportation Solutions that fly Conference 21-23 April, 2008 Shangri-La Hotel Beijing, China

4 Branding and Aviation Enterprise Index revealed that an airline’s longevity had little effect on consumer trust, indicating that Pan Am’s claim to For much of aviation’s history the regulatory environment being “the world’s most experienced airline” would today fare kept incumbents secure and challengers few and far poorly against a carrier claiming to be the world’s cheapest. between. Consequently, many of those legacy names, like Pan Am, TWA and Eastern, continue to be recognizable long Despite the fact that every airline, including the new entrants, after their demise. Airlines generally have the additional strives to create a brand identity, the shift to price as a advantage of lots of clues in their naming. It would be hard pre-eminent selection criterion has made the whole equation to mistake the core business far more complicated. In the of Air India or South African Kulula, the low cost airline, has delivered on early 2000s when the industry Airways. But names like its brand promise of air travel for ordinary fell into steep decline, legacy Lufthansa, Cathay Pacific, and people – and every aspect of the customer carriers tried, unsuccessfully, Qantas also invoke immediate experience matches the promise. From staff to charge fare premiums for recognition as airlines – uniform (jeans and takkies) to the approach their more recognizable brands. certainly from those who travel. However, faced with a new to customers (friendly, efficient and low key), consumer ethos, they had The past decade has seen the Kulula’s actions are highly defined. little choice but to lower prices rise of numerous new airlines The art of marrying brand promise and delivery. and revamp service in ways in every geography. Almost all Issued by: Idea Engineers by Janice Spark. that reduced operating costs. have been established with an In that process, they eliminated most of the differentiators alternative business plan that stresses simplicity of product that had actually defined their brands. Brand loyalty may and operations, as well as lower fares. Once this business indeed continue to exist, but is now far more often related model spread, making air transport more affordable, consumers to corporate policy or the perks attributable to status rather quickly reordered their selection criteria, basing most and/or mileage programs than to pure brand preference. purchases on price with brand loyalty much less important. As we reported in a previous issue3, the Unisys Trusted

3 Unisys Scorecard, July 2007, Volume 5, Issue 10

Dear Colleagues, Our industry has come a long way in recent years. Ticketless travel is here. Join us in the most rapidly expanding market in the world – China – as Safety has never been better. E-freight is fast-becoming a reality. RFID is poised we examine an international marketplace that is ripe with opportunity, to revolutionize baggage handling. Airlines are using bar-coded boarding passes. yet uncertain about successful strategies and technologies. We invite Common use self-service kiosks are used in 59 airports. Self service is defining you to join industry experts, analysts and your colleagues in air trans- a new age for travel. And airlines are beginning to show profits. portation to create and share a vision of the future. But despite positive fiscal results and transformation initiatives, this good news As your host, Unisys provides complimentary registration to all programs is overshadowed by stories of poor service, poor customer satisfaction and a and events, meals, and the spouse tour. lack of trust in our industry. Qualitatively, aviation is falling behind. Delays, can- Visit the conference website for additional detail: cellations and passenger outrage coupled with cargo security vulnerabilities are evident around the world. And this dissatisfaction is being fueled by today’s www.unisys.com/go/uaua major media outlets and a consumer-driven environment. Our 2008 conference will focus on new ideas and new ways to heighten consumers’ and shippers’ perceived value of services, including: Best regards, • Customer-centric solutions that build customer satisfaction and loyalty • Next-generation loyalty solutions for passengers and logistics operations • Reducing cost while increasing satisfaction and trust • Customer value: know it and use it – or lose it Olivier Houri • Trust: how to measure it and increase it President and General Manager, Unisys Global Transportation

5 The evolution of the industry has not made branding any easier. For instance:

• For most of their histories, Air France and KLM were fierce competitors – rival brands. The same was true of Lufthansa and Swissair. Now, however, they act as partners, actively promoting the partner’s brand and service.

• TWA was the hometown airline in St. Louis, supported through many difficult years by the city. Once purchased by American, St. Louis lost its hub status and the brand loyalty did not transfer.

• The British Airways low-cost entrant, GO Fly, a brand carefully created to make BA a player in the European low-cost market, was bought by easyJet and immediately subsumed into the new owner’s brand.

• Brazil’s VARIG died a slow death only to be purchased and reincarnated by its upstart competitor, GOL, making the previous national flag carrier a sub-brand of a new entrant. Meanwhile rival TAM was assuming the role of Brazil’s primary long-haul carrier.

• Finally, here is a brief history of US Airways. What exactly is the brand?

These are only a few examples of the rearranged chessboard that is now the face of global aviation. Not only is it ever more difficult to remain brand loyal, but it is also true that many of those brands are manifestly different than in the past, perhaps having shed or changed some of the attributes that inspired loyalty in the first place.

6 To Complicate Things a Bit More… How We Know What We Know The distribution system, as we all know, has been completely A study was done in 2005 by Salient Marketing 5 of brand revamped, becoming ever more web-based and democratic. awareness of the Fortune 1000, the 1000 largest public In a closed distribution environment it was much easier companies in the US. To ascertain the “mindshare” of to create and sustain loyalty as the options were being consumer awareness, monthly statistics of consumer presented by agents with 1) the traveler’s preferences demand were kept as registered by search engine hits. known and 2) their own loyalties at work, often bought This approach has some obvious pitfalls as it favors those with override payments. Southwest, which did not provide companies with a strong web presence. Predictably, the sufficient monetary agency rewards and was therefore rarely winners, by a large margin, in positions one, two and three promoted by the agency community, generally was patronized were Google, Yahoo and eBay as these are points of entry of those who knew of its presence and its lower fares and to the Internet often first clicked for any search. In the top were willing to circumvent traditional channels. thirty, all the firms dealt in popular consumer goods and services, again a logical outcome. In that top 30 resided Not so on the net. First, web-agency searches generally five airlines at the following positions: present a far greater range of carriers and fares than was the case in a closed system. Not too long ago, a flight from London to Prague would have been assumed to be on either 9 Southwest British Airways or Czech airlines – the two national carriers. 14 American Airlines However, a quick check on Kayak.com for a random date offered me not only those two carriers but also nonstops 16 United Airlines on SkyEurope, easyJet and Hahn, all at prices below the Northwest Airlines incumbent national carriers. Without this comprehensive 20 display, the brand and competitive offers of SkyEurope 22 Continental Airlines (the cheapest) or the others would not have come into play, certainly for travelers far removed from the carriers’ What this reveals is a powerful affirmation of Southwest’s operational area. Given the fact that the SkyEurope fare is early decision to utilize non-traditional distribution channels, a third less than that charged by BA, this egalitarian display priming it for Internet marketing. Three years later, we leads consumers to new choices and brand awareness. might find a difference in the carrier rankings as well as The same holds true elsewhere. Five years ago the route the inclusion of additional airline sites, but the mere fact between Sao Paulo and Santiago had non-stop service that airlines garnered so many of the top positions further only on the two national carriers, VARIG and LAN. Now reinforces the profound marketing shift that has taken place, the choice has expanded to include TAM, GOL and Swiss 4 as customers readily adopted this new access channel. with all three of the newcomers underselling the previous operators. While GOL’s fares were not displayed on Kayak, the ease with which anyone, anywhere can access their web offer, again makes them a viable alternative to a much larger audience of consumers.

Furthermore, since web displays are poor communicators of differentiation other than price, brand loyalty is likely to suffer unless a preferred brand offers pricing that is competitive with the alternative offers.

4 Another one of those fifth freedom routes, tagged onto 5 An Internet marketing firm based in Ottawa, Canada. the South Atlantic routing from Zurich.

7 The Brand Connection One of the results of increased automation in airline processing is the stark reduction, for most passengers, of “face time” with staff. It is now possible to research, book, and check-in without any human contact. Except for a brief interaction at the gate, it is increasingly probable that the only sustained contact will occur with the flight attendant assigned to one’s section, making that interface the primary service evaluation point. Consequently, Chart 1. Charting Employee Impact. the fulfillment of any “brand promise” can Impact of service elements on repurchase: airline brand. depend on a very limited exposure. Chart 1 displays the results of a study done by Lippincott in 2001, showing the importance, even in that pre-bankruptcy and staff-rich time, of cabin crew interface.

Finally, the emergence of alliances, code-shares, and joint ventures further diminishes the brand experience on many trips. One of my recent European journeys was booked on a U.S. carrier, which provided the trans atlantic flights. However, connecting flights, lounges, check-in services and ground staff were provided exclusively by alliance partners. While the experience was positive, it Source: Lippincott, 2001. would be hard to assign that successful outcome solely to my U.S. carrier. Rather, the trip was a joint effort among all the carriers involved and my “brand association” was much more aligned with the Star Alliance brand as opposed to any one of the component operators. Current merger discussions could have significant repercussions for alliances, further blurring brand identity and linkages.

Summing Up Branding is not going away. If anything, the drive for brand identity may intensify in the face of increased competition. But consumers will likely find it ever more difficult to differentiate and determine specific brand promises as automation reduces personal interaction and pricing continues to be a primary arbiter of choice. For a service provider, brand identity is defined by the sum of consecutive experiences across each encounter. Each component has the ability to enhance or diminish the brand perception and, as we have noted many times in the past, it is not the promise, but the delivery of that promise, that creates the final Southwest Airlines, for example, has the highest impression. It has long been assumed that for customer satisfaction score of any U.S. airline on airlines the livery displayed on their aircraft is a crucial part of brand identity. Of the U.S. airlines the ACSI because it sets low expectations and that have entered and exited bankruptcy in this exceeds them. decade, all have repainted their planes and yet Gartner, November 2007 the industry continues to get poor marks for service and operational integrity. Perhaps, like beauty, the brand must be more than skin deep.

8 Around the Industry

Just last month, our January issue focused on the possibilities presented by a new year. Faster than expected, many of the predicted woes are surfacing. First, of course, is the weakening financial outlook, which began in the U.S. but appears to have spread itself out rather successfully across the global economy. While the reality of a full-blown recession remains a question, there is little doubt that consumers in many nations feel that disposable income has declined.

And they feel that way because it is true. Increased energy costs are working through every economy, raising the price not only for obvious expenditures like utilities and gasoline, but also incrementally influencing the price of everything from food to plastic buckets.

In response, airlines are seeking ways to supplement and enhance revenues. Baggage is now not only weight restricted but United has also announced a charge for a second checked bag. Other operators will doubtless find similar creative or alternative revenue sources to offset the inability to consistently increase fares. This pricing weakness is evident in the winter fare deals that make it possible to fly round-trip from California to many points in Europe for under $450.

U.S. domestic capacity remains in check for now but there is rampant expansion in other markets leading even Ryanair’s spokesperson to note the possibility of a “perfect storm” to demolish profitability.

The decade thus far has provided industry players with numerous harsh, yet beneficial, lessons. Just how effectively they have been understood may become clear in the months to come. Will it be possible to resist damaging price competition in the face of shrinking demand? Will the pell-mell rush into international markets continue to produce higher yields? Watch this space.

News at Unisys There is a strong possibility that 2008 will be the year of airline Unisys Application Modernization allows clients to consolidation in the U.S. While similar discussions have arisen discover, preserve, and leverage priceless knowledge before, there is a new willingness between airlines to reach about their business, enabling them to modernize merger agreement. And while not everyone is crazy about the processes, applications and technology while minimizing idea, there is a grudging recognition that once the process risk, reducing cost and increasing organizational agility. begins, all the big carriers will be forced to play. The core solution services include:

This will bring some interesting branding challenges as companies • Application Advisory Services with compatible route structures combine corporate philosophies • Application Portfolio Management that may not be as closely aligned. There is a long and complex history of airline mergers that leads us to believe that the • System Integration Services process will not be, as airlines like to say, seamless. • Application Development

Part of the merger process involves guaranteed compatibility of • Customer Program Management IT – or even the complete replacement of one system for another. So if you or someone you know is contemplating With new entities working in a changed environment, change a merger, give the folks at Unisys a call or visit our must also entail modernization. Unisys has created a packaged website for further information. Your brand will be Application Modernization suite that addresses the following areas: happier for it. • Database • Middleware • Operating Systems • Platform

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