I've been involved in the travel industry for about a year, so don’t have the evolution of airlines, GDSs and travel intermediaries that others have running through their veins.
But I do have 20 years of business and marketing acumen working in other segments of technology and, as a result, have noticed a few elements of the AA-GDS battle that seem peculiar.
It’s about differentiation
One of the main arguments I hear about why American wants to pursue direct-connect is that its want to compete less on price and use the different fare bundles and ancillary fees as a point of differentiation.
I completely agree that brands ought to try to differentiate their offerings. Differentiation drives preference. Differentiation can lead to brand loyalty. Brand loyalty can lead to outsized margins and reduce real competition.
Unfortunately, what American seems to be pursuing is obfuscation, not differentiation.
The numerous brand families and ancillary fees, for amenities like "extra leg room" seats or the right to board an airline first, which are being pursued by American and many other airlines, simply makes it more difficult to compare one airfare versus another.
But is there inherently anything different between an extra-leg room seat on American Airlines or US Airways?
If many airlines are pursuing the same fare packaging and ancillary fee strategies, is there anything truly differentiated about the tactic? Does this tactic create preference in the mind of the consumer I would venture to say no.
Yet they are betting a lot that this strategy will work. A recent Compete Pulse blog post lays out the gamble that AA is taking:
"…American’s brand loyalty is clearly being put to the test. Will consumers know enough, or care enough, to find their way to AA.com as the airline’s product becomes increasingly difficult to find?
"Will AA bookings on Expedia and Orbitz migrate to other suppliers on the same site, or will these shoppers actively seek out American Airlines in channels where they remain available?"
But is brand loyalty the reason that people will seek out American? To answer that question, I think we need to clarify what brand loyalty is and what it is not. I think that many people confuse brand loyalty with repeat purchase. They are absolutely NOT the same thing.
Loyalty versus repeat purchase
In Simon Sinek’s excellent book, Start with Why, he clearly described the difference:
"There is a big difference between repeat business and loyalty. Repeat business is when people do business with you multiple times. Loyalty is when people are willing to turn down a better product or a better price to continue doing business with you.
"Loyal customers often don’t even bother to research the competition or entertain other options. Loyalty is not easily won. Repeat business, however is. All it takes is more manipulations."
Let’s move out of the airline industry for a moment. The number one example that Sinek, and many branding experts, point to as the leading example of a company that has nailed brand loyalty is Apple.
Apple has developed an amazing level of brand loyalty. People actively seek out Apple products and happily pay a premium for them. Did the iPod offer more memory than other MP3 players? Not really.
Are Macs and MacBooks more expensive than similarly equipped PCs? Absolutely. And yet people buy them in droves (Apple is the fastest growing "PC" maker).
Look at the iPhone. Yes it completely changed the game for the mobile phone industry, on many levels. But up until next week it has only been available on one network in the United States, AT&T. A network that people despised. And many claimed it wasn’t even that great of a phone.
Yet people lined up around the block each time a new one was released. Waited hours, even camped out overnight. They overcame obstacles to be customers and were willing to pay a hefty price for the privilege.
Most "Apple fanboys" don’t even consider other alternatives. And best of all, Apple makes more profit on the phone itself - not to mention the profits from the AppStore - than any other handset maker on the planet.
So, back to the airline business...
The airline business strikes me, more often than not, to be about repeat business, rather than loyalty. Let me tell you why I think so:
- Gates, Gates, Gates. In real estate they say it’s all about location. It seems very similar in air travel. If you want to go to DFW or MIA, pretty much American Airlines wins. They have the most flights. Going to SFO? United becomes the most likely choice. So while other options exist at different airports, certain airlines have built in advantages. And as such, airlines are guaranteed a certain level of repeat purchase based on their market power, not any level of differentiation or brand loyalty.
- Consumer Travel is still very transactional. How many times do most families travel for pleasure? Once a year? Twice? So it’s rare for a family to earn status on a single airline (unless a parent has for business, but I cover that next). So as mentioned above, the destination has a major impact on the airline choices that are presented.
- Corporate travel policy works against airline loyalty, not loyalty programs. Loyalty programs and the promise of better treatment or free flights is a common mechanism that airlines use to try to lock in customers. For those that do travel for business, many absolutely try to work their airfare choices around the frequent flyer programs that they affiliated with. I fly a modest amount, say twice a month. But not often to the same city. So the airlines that I fly are not all that consistent. Further my choices are sometimes restricted by corporate policy. So often I may choose an airline within policy because they are a member of alliances that enable me to earn miles on a single airline. But that makes me loyal to the program, but not necessarily to the airline itself…until it’s time to redeem the miles.
But there are airlines that have done a good job in differentiating their service and engendering loyalty: Southwest, JetBlue, Virgin (all flavors) and Singapore Airlines.
These airlines each provide ancillary services and different classes of service as other airlines do. But they have each staked out a strong positioning and deliver a unique experience that has helped them drive demand and strong financial performance.
Personally I believe that it’s the traveling experience more than their direct-connect/direct-to-consumer strategy that has enabled their success. But that’s a topic for another post.