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US Carriers Versus Asian, European, and Mid Eastern

US carriers: The complexities of making a profit

Nelson Alcantara  Nov 19, 2008

LONDON (eTN) - US carriers are charging customers for everything from luggage to pillows these days. Even so, they still manage to find themselves in the red, while their Asian, European, and Middle Eastern counterparts are going about business the other way around. Instead of charging customers for pillows and checked luggage, they are actually enhancing their products and, in doing so, are making a profit. Should US carriers take heed?

At the recently concluded Airline Strategy Summit, organized by Airline Weekly, Seth Kaplan, the publication’s managing partner, said: “I think you’ve got to be careful with cause and effect. Yes, US carriers, certainly in terms of the, what we call legacy carriers – the old-style carriers – are doing that more than their counterparts in other parts of the world. We see American Airlines doing more of that than Singapore Airlines, although even Singapore Airlines is now selling some preferred seating in economy for a fee. And Singapore Airlines is a very successful airline that’s now doing the chasing of more revenue. So I think you’ve got to be careful about saying well, they’re not successful because they’re doing this.”

According to him, the environment is certainly different. “The airlines in the US, quite simply the legacy carriers, compete more directly with low-cost carriers, and so their offerings, it’s just logical that they’re going to be a little bit more aligned, whereas for a carrier in Europe - British Airways, Lufthansa – a majority of their business is long-haul; they’re not competing against RyanAir. The majority of US Airways’ business by far is domestic; they are competing against Southwest, so that’s part of the answer for that.”

He added: “And I think a lot of these airlines have come to the conclusion that, well, again, there’s a reason we call them legacy airlines, right? There are legacy practices and obligations and so forth that they’ve accumulated over many years, and these airlines do many things very well, but for a lot of reasons, maybe in this industry more than most, there are a lot of things that we do, that we would not do if we were in that industry today. Forget a lot of technological issues, you know, a lot of things have to be backwards compatible, there are a lot of things.”

To prove his point, Kaplan said: “If you were starting an airline industry today, would you offer free food and drinks and all of those things? Now some airlines might, and then there are some airlines that probably do benefit from providing still that comprehensive service, but there are probably some that offer it, but perhaps would not. Just like if you go the supermarket – everybody takes home a different amount of food, everybody pays a different price - so a lot of airlines are saying well, we have different people, yes, they’re sitting in the same cabins but are taking advantage of very different services, taking different amounts of bags, some people want food, some people want better food, some people don’t want food. So why should somebody who wants good food be subsidized by somebody who doesn’t want any food at all? Let’s keep the fares down and provide everybody what they want; just to boil it down quite simply."

Kaplan added that he does not think it’s “as simple as airlines that are seeking ancillary revenue aren’t succeeding because of that.” He said: “I think it’s more complicated than that, but certainly there are airlines… even within, just to finish that thought, even within regions; I think part of it’s a regional thing. Certainly a long-haul versus short-haul [issue].

“The carriers in Asia, in particular, that have very long, average stage lengths, their customers, on average, might not be willing to put up with certain things that on a shorter-haul flight they might. Even if you look at the US, where all business is the most aggressive, and even within those legacy carriers that are very much the same business, you have a wide range from US Airways, for example, that’s now charging for water on board to Continental Airlines that’s still giving complimentary sandwiches and lunches to economy-class customers at meal time. So even there, there’s a wide range of viewpoints on that and certainly reasons to argue in favor of both sides."

US carriers:  The complexities of making a profit

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