Opening Remarks – January, 28 2009

Opening Remarks – January, 28 2009

Does a New Year Require a Resolution?

After 27 years of frequent flyer programs, do you think that these programs sit around and list their resolutions? I wonder what their 2009 resolution list might look like. But there are hints being played out on the mileage landscape. For instance, over at United Airlines, what in their 2009 resolutions made them think that naming their new pay-as-you-go security line option “Premier Line” was a smart idea? To include the name of their most valuable asset, Premier (the base name of all their elite memberships), in this a la carte pricing is too much for me to ignore. Call it “Unclear,” call it “The Line Less Traveled” or even “Easy Street,” but don’t allude any more than necessary that the holy grail of frequent flyer programs–elite status–is up for sale on a one-way basis. Was the brand guru out to lunch the day that decision was made? United, I have to say, you are starting out 2009 with a resolution that might just turn into a revolution if this is your plan to water down the image and value of your airline’s most valuable asset. And I will not make a joke and draw parallels with the Governor of Illinois (same state as the headquarters of United) who was trying apparently to sell a Senate seat. Seems everyone now has an a la carte program, unfortunately.

In other resolutions, it seems that our friends in Frankfurt are very clear that their 2009 resolution includes creating the world’s fourth global airline alliance. Most travelers are familiar with SkyTeam, oneworld and of course the Star Alliance, but in its own way, Lufthansa has set the stage to declare themselves an alliance. Recent activity with bmi, Austrian Airlines, and rumors of dealings with SAS, and the introduction of Lufthansa Italia to fill the void left by Alitalia at Malpensa Airport in Milan, makes me think that this airline is a super power equal to a global alliance. With Lufthansa having lots of say in the actions of TAP and Spanair (and owning SWISS), it seems that the airline market in continental Europe is being eaten up by Lufthansa. Furthermore, it’s not just continental Europe with Lufthansa’s 19 percent stake in JetBlue, and who knows what in 2009. Given the talks between British Airways and Qantas, the German giant might be strategically thinking about really messing with British Airways should that airline resume an interest in Iberia.

In many respects, the actions of Lufthansa remind me of Swissair and their so-called “Hunter Strategy” which I think was originally conceived by Swissair’s then CEO Philippe Bruggisser and McKinsey & Company, a world renowned management and strategy consulting firm. The strategy consisted of acquiring stakes in smaller airlines and related businesses instead of forming alliances with larger rivals. At the time, Swissair wanted to build an alliance big enough to challenge Lufthansa by becoming the nucleus of its own alliance, the so-called Qualiflyer Group. Swissair acquired interest in Sabena, and significant stakes in carriers like Air Europe, Air Liberte, Air Littoral, AOM, LOT, LTU, Portugalia, South African Airways, TAP Portugal, Turkish Airlines and Volare. The buying spree created a major cash flow crisis for the parent company and we all know what happened.

Obviously, Lufthansa comes at this differently since they already belong to a global alliance, and while they have acquired interest in or actually acquired other airlines, their cash flow seems to be unchallenged by the types of situations that have done in previous users of the Hunter Strategy. My guess is that we will continue to see Lufthansa pursue this strategy and if there is any loosening of the rules for foreign ownership here in the U.S., and we see a single move by Lufthansa in the Chinese airline market, then call it what you will, but Lufthansa and more specifically, Miles & More, will definitely be the newest global airline alliance.

And it looks like the final resolution from the airline industry for 2009 is, “to thine own self be true.” An ad by Irish bookmaker Paddy Power, giving the odds of airlines including British Airways, Virgin Atlantic and Ryanair going bankrupt has been banned by the advertising regulator, Advertising Standards Authority (ASA). The action came about from a complaint (gee, any ideas who might have complained?) that the ad “denigrated” the airlines named because it implied each was at risk of going bankrupt. The Paddy Power ad campaign, which ran in national European newspapers, used the headline “Next airline to go bust?” It featured odds on 14 well-known airlines ranging from 4:1 odds for Spanair to British Airways, Easyjet, Ryanair and Virgin Atlantic at 100:1. Given that several European airlines did in fact go bankrupt in 2008, you’d think this was a public service. The bookmaker said that the gambling campaign was one of its most popular non-sports events in September, proving that indeed, even airlines can be subject to the over and under. But alas, the ASA concluded that the ad “unfairly discredited” the airlines and banned the Paddy Power commercial.

Enough about New Year’s resolutions that might cause regret. I’m all for New Year’s recognition–and it starts by saying just how grateful I am to our devoted readers. To you all, I wish a great New Year ahead.

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