industry Choosing a Model Today, a successful airline can take many different forms, but there are many factors to consider when choosing the right business model. By Lauren Lovelady | Ascend Staff undreds of airlines around the globe par- safe service has helped establish low- be offered complimentary or for a price — ticipate in online travel sites such as cost airlines as viable competitors for such as entertainment, Internet connectiv- HTravelocity, LastMinute.com, Expedia today’s traveler dollars. In general, no ity and meals. Some hybrid carriers offer and Orbitz, displaying their fares, destinations frills — pillows, blankets, movies or “buy-on-board” shopping, an emerging and services to approximately half a billion peo- meals — are offered and none are trend in air travel today. ple worldwide with Internet access. Even air- expected. Overhead costs are kept to a A number of airlines are now experi- lines that don’t subscribe to these travel sites minimum, and air travel is moved in the menting with and attempting to replicate usually have their own Web sites. With the pro- direction of mass transportation. the hybrid carrier formula, particularly liferation of information, it’s no wonder today’s Full-service carriers — Demand for busi- onboard shopping. It’s important to remem- consumers are more savvy and knowledgeable ness travel is once again on the rise. And ber, though, that trends are usually cyclical. than ever before. They know what kind of ser- travelers who spend countless hours in What may seem to be a good idea now may vice they want and expect, which airlines offer airports and airplanes are often more than not be such a good idea two years down it, and what it will cost. The question is: Do air- willing to pay for upgraded service, includ- the road. The challenge for airlines, then, is lines know what their customers want and how ing meals, onboard entertainment and to know their brand — their service reputa- to provide it to them at a reasonable price? technology, and larger, more comfortable tion, what their customers expect, and the Based on amenities offered to travelers, seating on aircraft as well as the privacy of initial and long-term investments needed to today’s airlines generally fall into three service- airport lounges. either maintain or change service levels as level categories: Hybrid carriers — Growing in popularity, well as passenger expectations. Once an Low-cost carriers — A surge in passen- these airlines offer lower fares combined airline has decided its true mission, it can ger demand for inexpensive, reliable and with services and amenities — which may select the appropriate business model. Runway Models More airlines are focusing on customer service whether they are low cost, hybrid or full service. Three leading airlines model how customer service can be a key differentiator. By Lauren Lovelady | Ascend Staff Low-Cost Carrier: Ryanair Ryanair's Web site says it all — “FLY CHEAPER.” Known for its In addition to being Europe’s low-cost leader, Ryanair also scrappy, unconventional and sometimes controversial style, Europe’s takes pride in its on-time performance, customer service and bag- star low-cost airline books a whopping 98 percent of its reservations gage-handling records. On average, the airline misplaces less than through this site. Ryanair’s service focuses on frequency and reliabil- one bag per 1,000 passengers — the lowest number of incidents in ity at the lowest possible cost. The homepage of its Web site clearly the European airline industry. Its passengers and the media have displays lists of destinations and fares that can be viewed in 19 lan- taken notice as well. In 1998, Ryanair was voted “Airline of the Year” guages. In addition, travelers can obtain substantially reduced rates by the Irish Air Transport Users Committee and the “Best Managed on rental cars, hotel accommodations, travel services and rail ser- National Airline” by International Aviation Week. And most recently, vices through the site. If a competitor offers a lower fare on one of Airline Business cited the carrier as the world’s top airline for opera- its routes, Ryanair will automatically lower its fare in response. tional efficiency, punctuality and customer service. Runway Models | continued on page 11 ascend 9 industry When the decision is made, airlines should Is it conducive to the airline’s fleet types and great deal of time and investment. There’s strive to maintain that business model as the length of each flight? Some older aircraft the issue of inventory control. A process consistently as possible. types simply cannot be retrofitted with personal must be put in place to account for all food So before deciding to remove the pil- DVD players and Internet connectivity with- and beverages sold by cabin crews and lows and blankets from aircraft, begin charging out spending millions of dollars. And while replenished by vendors at various airports. In passengers for snacks and meals, and retro- passengers may not miss pillows and blan- addition to their other duties, cabin crews fitting the fleet with personal seatback DVD kets on hour-long flights, they’ll certainly be are now responsible for collecting money players, consider some issues and challenges. looking for them during trans-Atlantic flights. and ensuring it is handled properly, which means additional training. While an airline In General Food and Beverage Service may pat itself on the back for generating an How will adding, reducing or eliminating a With more and more airlines eliminating tradi- extra half a million dollars last year in rev- service or amenity impact the airline’s brand, tional food and beverage service in favor of enue by selling on-board products, it may cost and fare structure? Will it draw more offering buy-on-board snacks and meals, sev- not realize that it costs an additional passengers to the airline or drive business to eral issues must be considered: US$750,000 to make it work. other carriers? Will the airline’s employees Is the airline looking for a way to dramatical- Can the airline offer passengers good quali- and passengers perceive it as an upgrade in ly reduce costs, while still offering service to ty, healthy snacks, meals and beverages at customer service or a reduction? those customers willing to pay for it? If so, reasonable prices? Armed with the knowl- Is this type of change appropriate for the charging for meals and snacks may not be edge that many airlines have eliminated free countries and cultures in which the airline the best solution. Establishing and maintain- food and beverage service in flight, a num- operates? ing an in-flight retail operation requires a ber of passengers now choose to purchase A strong focus on customer service, on-time performance and low fares has earned Ireland-based low-cost carrier Ryanair several prestigious industry awards during the last few years. Most recently, the airline was referred to by Airline Business as the world’s top airline for operational efficiency, punctuality and customer service. 10 ascend industry food in the terminal to bring onboard. Many Runway Models continued from page 9 popular food and beverage outlets now | operate franchises in airports worldwide. If passengers can obtain meals and snacks How does an airline that has the lowest fares from 14 bases to 249 routes through- they know they like from a reliable establish- out 20 European countries also rank No. 1 in customer service while generating a profit? It ment, why chance paying almost the same is not by providing free gourmet food and beverage service, extravagant business-class amount for questionable items onboard? seating or frequent flyer perks to its customers, as some might think. Although Ryanair did provide these services and amenities in the 1980s, when it initially began flying, it decided Entertainment and Technology change was necessary. After three years of rapid aircraft and route expansion coupled with Traditionally, in-flight entertainment has consist- intense pricing competition, Ryanair was dealing with substantial losses. Following ed of movies and recorded television programs Southwest Airlines’ low-fares model, Ryanair restructured and re-launched its operations made available to passengers via headsets that in 1991, becoming Europe’s first low-cost carrier. Free drinks and meals were scrapped; plug into seat arms — sometimes for a small however, passengers may now purchase them onboard. Business class and the frequent fee. Advances in technology are now enabling flyer program were eliminated. airlines to customize entertainment for passen- Ryanair simplified its fleet so that it consisted of a single aircraft type designed to gers using seatback DVD players, satellite tele- streamline and lower the cost of crew training and maintenance. Its current fleet comprises vision programming, power ports for Internet more than 100 Boeing 737-800s, with firm orders for 125 more. These next-generation air- access, and handheld systems that play movies, craft will enable Ryanair to double in size, carrying more than 70 million passengers by 2012, music videos, TV shows, local and national and will reduce fuel usage by 45 percent per seat. This is especially important because news, and video games on small screens. Ryanair recently guaranteed travelers that it will never apply a fuel surcharge to its low fares. At the time of its restructuring, Ryanair also changed its operational strategy. The carrier began frequent point-to-point service on short-haul routes to secondary and region- al airports with convenient transportation to nearby population centers and travel destina- tions. This transformation continues to benefit Ryanair’s business in numerous ways. Point-to-point operations reduce the opportunities for passengers’ luggage to be lost and their connections missed while at the same time, the airline avoids the costs of providing Photo courtesy of Boeing connecting service for “through” passengers and their luggage.