Better Wings

The premises for Air Macau’s business model has been taken away, what should the airline do to survive a rapidly changing operating environment?

 

Air Macau is in trouble.

The net asset value of the airline stood at a negative 91.2 million Chinese Yuan (USD $13.3 million) at the end of last year, to avoid bankruptcy according to Macau laws, shareholders had to pump a 431.2 million Chinese Yuan emergency fund into the airline to keep it float. 

The situation is not likely to improve, if not deteriorate, as the Air Macau’s  main revenue source – cross Taiwan Strait traffic between Mainland China and Taiwan will no doubt shrink significantly, as direct air link between the two sides have been established since 2008 and continue to grow rapidly in 2009.

A little background

In 1949, after suffering defeat in the Chinese Civil War, the KMT party led by Chiang Kai-shek fled mainland China and retreated to Taiwan Island, where it continued its rule as the Republic of China, while the winning communist party established the People Republic of China on the mainland.

Fearing an invasion from the communist party, the KMT banned direct flight, mail and cargo transportation with the mainland. Passengers traveling to mainland will have to go through a third point, usually Hong Kong or Macau.

However, in the past 20 years, as the economy in the mainland takes off, traffic volume and frequency across Taiwan Strait grew exponentially. Since 1980, more than 53 million visits to the mainland by Taiwan residents have been recorded, more than 2 million Taiwanese live in Beijing, Shanghai and other mainland cities permanently for business and personal reasons. Further more, Taiwanese investment in the mainland has reached USD $100 billion since 1990, resulting in huge business travel demand between the two sides. But travelers between Taiwan and China have to stop in Hong Kong or Macau and change planes, a requirement that adds four hours to what could be a one-hour flight across the 100-mile-wide Taiwan Strait and is seen as a costly obstacle to further economic integration.

About Air Macau

Air Macau was established in 1994 to take advantage of the cross Taiwan Strait travel demand, if fact, more than 70% of its revenue comes from transporting passengers between Taiwan and Mainland China via Macau.  It offers a one-plane service for passengers travelling between the two sides, although they must complete a brief transfer procedure in the Macau International Airport and wait for about 30 minutes in the departure lobby, passengers can board the same plane once again and continue to their destinations. The airline will also assist Taiwanese passengers to obtain mainland entry permit if required.

Ownership info

Air Macau Route Network

Air Macau Fleet (Credit: Wikipedia)

 

Financials (Latest data available)

in patacas	2007	2006
Revenue	2,898,449,202	2,937,949,774
Expense	3,028,672,584	3,018,823,756
Profit /Loss	109,502,651	62,310,940
in US $	13,715,754	7,804,528

 

Reputation / Brand Equity

Air Macau is not an inspiring airline when it comes to its brand image, unfortunately.

Here are some passenger reviews found on airlinequality.com

“Economy class was full, seats were cramped but bearable for the 1.5 hr flight. Food was poor. MFM-TPE sector had no boarding bridge so has to take the bus to the aircraft.”

“Shanghai to Taipei The flight was delayed for more than 3 hours without explanation. Eventually, we were informed to board an A300. It was an awful and old aircraft and full of terrible smell, and the air conditioning was not functioning properly. This airline does not pay attention to flight safety – I consider Air Macau is the worst airline I have ever taken.”

“Macau-Shanghai. Business Class. Full cabin. Drinks, meal, tea and coffee all served and cleared away 45 minutes after take-off. Why the rush? I filled in a Customer Comment card requesting a reply but never received it. I definitely recommend avoiding Air Macau – it is worth going to HKG just to use DragonAir – 1,000 times better than Air Macau.”

The problem: Political landscape changed & the cash cow is dying

In spite of being a mediocre airline with few endearing attributes, Air Macau has survived so far by relying on the cross-strait traffic created by political barriers between Taiwan and the mainland. However, things are changing, trade and transit ties have improved quickly since Beijing-friendly Taiwan President Ma Ying-jeou took office in May 2008.

As of July 2009, seven mainland airlines, including China Southern, Xiamen Airlines, Hainan Airlines, Shenzhen Airlines, China Eastern Airlines and Shandong Airlines have set up offices in Taiwan and started direct flights between mainland China and Taiwan. At the same time, Taiwan based China Airlines, Uni Airways, TransAsia Airways have started their own direct flights to mainland China as well.

As a result, travellers now enjoy shorter travel time, lower ticket prices and more frequency than ever before to fly across Taiwan Strait.

Therefore, Air Macau is in a dire situation: 70% of its revenue comes from travellers between Taiwan and Mainland China, however, there is little, if any reason for most people to transfer through Macau after Aug 31, 2009, when airlines from both sides of the Taiwan Strait started or increased their own direct flights. The premises at the core of its business model has been taken away, how does this airline survive? or will it have no choice but fade away? 

 

In part II of this post, I will examine the obstacles and opportunities in Air Macau’s operating environment, and propose a few strategic directions that Air Macau might take to rethink and revitalize its business model. (… to be continued. )

 

It is interesting to see how airlines differentiate themselves on print ads, here are a few that I collected. I will continue to update this post as I collect more of them.

Continental Airlines

  

Now, I haven’t read the ZAGAT survey, but in my book, Continental takes the most creative ads award.

American Airlines

 

American Airlines’ ad is clearly targeting at the corporate trend of reducing travel by adopting new technology such as video conferencing, does it get the message across?

 

ANA

Singapore Airlines

 

 

Porter Airlines

JetBlue

Is it just me? This image and language feels so ordinary, unfitting for an airline with a reputation for renovation.

Emirate Airlines

Royal Jordanian

 

Qatar

 

Cathay Pacific

 

Korean Airlines

The small print says:

Your very private hideaway awaits you…

An oasis of pure luxury. Our exclusive Kosmo Suites features a fully flat bed seat, a wider touch-screen LCD monitor that features a host of multimedia on demand, and fully automated retractable walling. Consider it your very own utopia at the touch of a button.

British Airways

 

Totally uninspiring, British Airways should be able to do better than this!

Lufthansa

 

Air France

Sky Team

 

As always, I hope you enjoy these pictures. If you encounter other print ads for airlines in your readings, could you scan/photo and send them to me? Thanks!

1. Airline market penetration rates on Twitter are too low, the majority of airline customer base are not on Twitter.

I compared the follower numbers (as of 30 July, 2009) of top ten airlines in the Twitter universe against the number of passengers they carried in Year 2008.

Rank	Airline	Follower	Passenger 2008	Market Penetration%
1	JetBlue Airways	969,849	21,824,403	4.44
2	Southwest Airlines	389,495	101,921,552	0.38
3	Virgin America	25,474	2,564,629	0.99
4	Alaska Airlines	9,814	16,801,597	0.06
5	American Airlines	6,939	92,762,486	0.01
6	Air New Zealand	6,305	13,176,000*	0.05
7	Air Asia	6,278	11,808,058	0.05
8	Alleginat Air	5,741	4,292,432	0.13
9	Deutsche Lufthansa	5,730	70,543,000	0.01
10	WestJet Airlines	5,640	3,518,362	0.16

Most airlines are not reaching even 1% of their customer base. Most airlines have far more names and other information in their email database than their Twitter accounts.

2. As small as airline’s Twitter audience is, it is in fact even smaller than it looks.

At any given moment, there is only a fraction of an airline’s followers are actually online and receiving tweets.

3. There is a mismatch of supply and demand.

Twitter population is skewered towards well-educated, prius driving, iPhone toting high income young professionals, hardly the target market segment for all the deep discounted air fares with lots of restrictions airlines have been pushing through Twitter.

4. Tweets are not targeted.

Unlike email promotion campaigns which can be targeted, tweets are one size for all.

5. Tweets have a extremely short shelf-life, and the Twitterverse is very noisy.

Unlike emails which can be opened any time that is convenient to the consumer, airline’s sales tweets are usually flushed out of view quickly by newer tweets from other parties before the audience even have the chance to read it.

6. Twitter users are not always in a position to buy.

A lot of people access Twitter on their mobile phone, but few airline’s website can handle ticket transactions on a mobile phone, so even if they want to buy, they can’t.

7. An A/B testing can easily prove Email is far more effective in selling airline discount tickets than Twitter.

Send out the same promotion through email campaigns and tweets, but with different channel codes, it will give airlines some much needed insights.

Airlines are increasingly looking to harness the power of Twitter for business use, so far, the most successful of them are two low cost airlines: JetBlue and Southwest; full service airlines, with broader product offerings and a more complex clientele, are treading the water cautiously.

Although many major brands figured out their Twitter strategy by trial and “fire”, airlines don’t have to follow the same treacherous path, here are some suggestions that will make their journey a little smoother.

Phase I: Do your homework (Good planning is essential for successful airline tweets)

1. What is your brand positioning? Be aware of  your own business goals and strategies.

          

Your business goals determine your Twitter strategy. It is never a good idea to embark on a project just because it is a trendy thing to do. What worked for your competitors may not work for you.

While a low cost airline may only operate within one country and cater to the single segment of leisure and cost-conscious business travelers, a full service airline like Delta may have operations in several continents, multiple countries and offer both domestic and long-haul international flights to both premium business travelers and bargain hunting vacationers; while Southwest Airlines may conduct frequent seat sales to ensure maximum load factors on its flights, Delta might want to appeal to long haul, high yield first class and business class passengers with innovative new product features that maximize productivity for corporate travellers. Therefore, the two airlines’ Twitter conversation with their respective audience will be very different, further more, Delta may also want to have different conversations with passengers in different geographic regions, for example, tweets for customers in North America may not be effective or appropriate for customers in Asia.

2. Know your audience on Twitter – Demographics and size of user base.

First of all, what  are Twitter users like?

According to a Hitwise study done in April 2008 and updated in March 2009, these are the key demographics of Twitter users:

• Men make up 63% of Twitter users
• California residents account for more than 57% of Twitter’s visitors
• Twitter’s largest age demographic is 35-to-44-year-olds who make up 25.9% of its users
• 14.7% of Twitter visitors are the "Stable Career" type, comprising a "collection of young and ethnically diverse singles living in big-city metros like Los Angeles, Philadelphia and Miami." The Stable Career tends to work in the arts and entertainment industry, drive small cars and espouse very liberal political views.
  12.3% of Twitter’s visitors the so-called "Young Cosmopolitan," 40-something professionals likely to drive a Prius, earn household incomes over $250,000 per year and also identify with very liberal politics.

In summary, the majority of Twitter users are male, well-educated, affluent and liberal-minded city dwellers who drive Prius, use smart phones and tend to work in the tech and creative industry. When it comes to air travel, most of them are probably willing and able to pay more in fares in exchange for better services: priority check-in, lounge access, comfortable seats on board the aircraft and complimentary food. Is it wise to bombard them with seat sale tweets? Probably not.

Secondly, what  is the size of the Twitter user base for the airline industry?

To put things in perspective, I compared the follower numbers (as of 30 July, 2009) of top ten airlines in the Twitter universe against the number of passengers they carried in Year 2008.

Rank	Airline	Follower	Passenger 2008	Market Penetration%
1	JetBlue Airways	969,849	21,824,403	4.44
2	Southwest Airlines	389,495	101,921,552	0.38
3	Virgin America	25,474	2,564,629	0.99
4	Alaska Airlines	9,814	16,801,597	0.06
5	American Airlines	6,939	92,762,486	0.01
6	Air New Zealand	6,305	13,176,000*	0.05
7	Air Asia	6,278	11,808,058	0.05
8	Alleginat Air	5,741	4,292,432	0.13
9	Deutsche Lufthansa	5,730	70,543,000	0.01
10	WestJet Airlines	5,640	3,518,362	0.16

 

The is a rough calculation by all means, but it does allow us to see that most airlines are reaching far less than 1% of their customer base on Twitter, which indicates that Twitter is not an effective marketing and sales channel for airlines, at least not yet.

However, it would be unwise for airlines to ignore Twitter users solely based on these numbers; even though they constitute only a tiny portion of the whole airline clientele, Twitter users tend to be big influencers, many of them have a large following , and are active in other social media channels as well, they write blogs, reviews  and make You Tube videos. If they not pleased with an airline’s services, they can make their opinion known to a large audience quite effectively.

3. Rules of engagement: is your airline a Butterfly, a Wallflower or a Maven?

Not all companies need to engage consumers in all channels. Before jumping on the Twitter bandwagon, airlines should take a look at their existing communication channels, both offline and online, to determine if they have the need and resources to engage passengers on Twitter.

If an airline is already communicating and engaging  well with customers in other social media channels, for example, blogs on company website, online forum, wiki, travel review sites, Facebook and/or You Tube, then it should not feel pressured to add Twitter into the mix. The benefits of doing so maybe only marginal.

Generally speaking, brands fall into one of four engagement profiles in social media: Mavens, Selectives, Wallflowers or Butterflies.

Source: www.engagementdb.com

In the airline industry, few airlines engage in all social media channels, most of them choose to focus on a few channels; JetBlue is very successful in Twitter, but doesn’t have a company blog, Delta’s ‘under the wing’ blog draw a lot of attention from media and travellers, but the company keeps a low profile on Twitter. Both of them probably fall into the ‘Selective’ category.

Once an airline decides to take on the Twitter initiative, the Twitter team should talk to its customer relations department, operations department,  marketing department and  advertising agency to ensure consistent messages across all channels.

4.Determine the message mix: Marketing, Sales, Customer Services or Public Relations?

Even though most airlines active on Twitter tweets regularly about special seat sales and cheap tickets, sales should not be the focus of airline’s Twitter activities.  On one hand, special fares help airlines to draw customers to follow them on Twitter, on the other hand, airlines might be targeting wrong segment of potential customers with those cheap fares. As discussed before, most Twitter users are mostly affluent young professionals, who are willing and able to pay more for a richer flying experience, why bombard them regularly with lowest yield cheap ticket with lots of restrictions and no amenities?

Companies who are early adopters of Twitter increasingly find themselves shifting focus from marketing and sales to customer services and relationship management; and Twitter provides an excellent platform for those purposes:  It is instantaneous, it is interactive, it is casual and it costs less than a call center.

ComcastCares provided a good example on how businesses can provide excellent customer care through twitter. One Comcast customer was so pleased with his experience that he blogged about it. Here is what he said:

…the short version of the story is that last night I made a snide remark (on Twitter) about the lacklustre quality of my HD picture on Comcast during the Celtics game. Comcast saw that and tweeted me back minutes later. This morning I got a call from their service center. This afternoon someone came out. Now my HDTV rocks! THAT my friends is customer service and how it should work all the time.

By providing a beyond-expectation customer service experience through Twitter, Comcast converted a satisfied customer into a spontaneous brand advocate, and that is the best form of marketing a company can hope for.

In the airline industry, the trend is clear too: JetBlue routinely sends out travel tips on Tuesdays, alerts passengers about flight cancellations for weather reasons and answer questions posted by its followers. Alaska airlines advise passengers about which flights are equipped with WIFI everyday on Twitter and United let customers know by tweets which movie is playing on their flights.

5. Get management onboard and get cross-department support

Before participating in the twitter conversation, airlines must make sure that all internal stakeholders are aligned, and best way to make that happen is to get senior management to understand the potential of social media and support the project.

6. Get the resources, form a team with communications, marketing and customer relations department taking the lead

Morgan Johnston, the corporate communications manager in charge of JetBule’s Twitter account, not only assembled a team of 35 staffers who can post directly to the account, but also identified key people in departments across the company who can answer questions, quite a bit of which are customer services related.

7. Decide on a goal (goals) and how to measure success

As with any other marketing or customer services initiatives,  clear qualitative and quantitative goals must be established for airlines’ Twitter efforts.  Fortunately, it is much easier to measure the effectiveness of a digital channel such as Twitter than to measure traditional marketing and customer service channels in the offline world, and there are many low cost or even free tools available on the market to gauge the perception and manage the reputation of your brand. Further more, properly implemented analytics tools can also measure how effective your tweets are in converting followers into customers,  and how effective they are in engaging customers with the airline’s other sales and customer services channels such as your website or call center.

Phrase II: Execution of  your plan.

1. Claim your Twitter name, get it certified by Twitter if necessary, even if you are not tweeting in the near future.  

Learn from Ryanair’s mistake. According to New York Times, in March 2009, someone set up a Twitter profile purporting to be an official Ryanair channel. Several tweets made abusive remarks about the airline’s customers, describing them as “mostly stupid” and “a bit dense.” Ryanair complained to Twitter and had the rogue feed shut down, but the airline also had to shut down several official feeds setup by its marketing department.

Don’t miss a great branding opportunity for your airline: after grabbing your company name on Twitter, put down some information about the airline in the bio, including your main website address; customize your Twitter background with company name, logo and/or other distinctive images of  your airline.

2. Listen.

Listen regularly for comments about your airline, brand and products – and be prepared to address concerns, offer customer service or thank people for praise.

In addition to keeping an eye on your @messages, you can search for tweets about your airline, your brand and your product on twitter.com, you can also save this search on your twitter homepage for easy access next time you visit the site.

Twitter is also an excellent tool to keep an eye on your competitors, follow them to find out what they are doing in the market and how customers respond to them, learn from their successes and mistakes.

3. Segment your markets.

Most low cost airlines operate in one country or one “Single Aviation Market” like the EU, and they cater to the cost conscious market segment only, one Twitter profile might be sufficient for them.

For full service airlines, it is a different matter. Many of them serve several continents and many countries, providing services to not only cost sensitive leisure travellers, but also business travellers and frequent flyers who usually have very different needs for air travel. In this case, an airline should create different Twitter profile for different purposes, for example, Air France has Twitter profiles for the European market, the USA and Asian market respectively. Airlines should also create separate Twitter profiles for their elite level frequent flyers and passengers who travel only one or two times a year and only book on-sale tickets.

3. Be responsive.

Airlines who are on Twitter but are non-responsive when problems arise do more harm to its brand than being non-existent in the channel.

When Andy Azula, a creative director at the Martin Agency and an actor for UPS TV commercials, was kept at an airport for 13 hours with his family and missed several important business meetings because  Delta Airlines delayed his flight, he tweeted about his frustration and complaints, but received no tweets back from the airline.  He later wrote a letter to Delta and posted those tweets on a blog, which was reposted numerous times around the web with many negative comments about the airline from others being added.

Many people feel that Delta just doesn’t “get it”, and may not “get it” in a lot of other areas either.

4. Create a social media content repertoire on company websites, blogs,  You Tube, Wiki, and Forums

In order to respond to comments, complaints and inquiries coming in the form of tweets quickly and proactively, airlines should have information and company policies readily available in digital format on company website, airline You Tube Channel, Podcasts, Wikis, forums and/or blogs.

Agents should be able to reference them easily, with shortened web links  to fit Twitter’s 140- character limit.

For example, if United Airlines had a video about proper music instrument packaging posted in its official You Tube channel, or blog posts about proper damage claim procedures, or information about travelling with guitar and other delicate objects on its website,  they would have been able to link to those information on Twitter quickly when the Dave Carroll “United breaks guitars” story just broke out on Twitter. United would at least have a chance to get its side of the story out, therefore mitigating the influence of Dave Carroll’s video.

Remember, all web pages, audio files and You Tube videos  should be properly tagged with tracking tools such as Google Analytics so their effectiveness can be measured quantitatively.

 5. Be conversational. Be Real. Be Social.

Use a casual, friendly tone in your messages. Don’t treat every tweet as a mini press release, that will turn people off really quick. Humour and creativity go a long way in social media.

Identify team members by their names in the short company bio on your airline’ Twitter page, take followers behind the scenes of your company, post pictures of your offices, pictures of crew preparing for flights, photos of your newly delivered aircrafts if company policy permits; provide sneak peeks of projects or events in development.

Be social, if you like a particular message, recommend it to others by retweeting it.

Like Morgan Johnston of JetBlue said:

“That’s a clichéd phrase, but Twitter really is about tearing down the artificial walls between customers and the individuals who work at companies.”

 

6. Focus more on relations building with your passengers, less on selling cheap airline tickets.

Float ideas, ask questions, seek comments and feedbacks on your marketing campaigns,  latest product offering and service qualities both in-flight and on the ground.

Engage your followers by holding contest, quiz about your airline and services.

Provide relevant links to your company’s website depending on customer needs, where you can engage customers with much more content and depth, and measure their engagement level more accurately.

Respond to most of your @messages, address negative comments and service issues immediately, put out any “flames” before they spread.

Deep discounted tickets are a good way to attract followers, but don’t count on it to generate significant amount of sales. Your email campaign will be more successful.

Your tweets have a very short shelf life in most cases, and at any given time, only a fraction of your followers are active. If you offer discounted tickets on Twitter, do it at a fixed time of the day, and a fixed day of the week, so people who are interested can tune in.

 

Phrase III: Measure, analyze and improve

1. Benchmark against yourself and others.

Take a snap shot of your brand when you just started. Do a search on Twitter, what are people saying about your brand? Are they positive or negative? What are the percentages?

Keep a log of questions answered, customer problems solved and positive exchanges with customers on Twitter.

Do a search on your competitors as well, notice what people are saying about their brands.

After a month or a year, do the same search again, check to see if there is any changes of attitude towards your brand and your competitors.

2. Utilize analytics tools, integrate social media analytics and your website analytics.

All the twitter fares should link to a specially designed landing page on an airline’s website, so the marketing department knows how many people responded to the Twitter message. (the click-through rate).

All these fares should also come with a special promo code, so an airline can measure how many passengers actually bought the tickets after arriving on the special landing page.

A different promo code and landing page can be assigned to email messages for the same promotion, so the effectiveness between Tweets and Emails can be compared.

All other links provided on airline tweets should also be coded with special identifier so the airline can figure how much traffic on its website are driven by Twitter.

All pages on airline website should be properly tagged with tools like Google Analytics or Omniture, so airline can gauge how effective they are in providing information and assistance required by its Twitter followers.

3. Integrate and improve.

Twitter will be most effective when it is integrated into an airlines existing customer service and marketing channels, both online and offline. Based on data collected through Twitter and dedicated analytical tools, airlines should be able to find the most suitable role Twitter can play to maximize its word-of-mouth marketing effectiveness.

 

 

Anyone who has watched reality TV show ‘Survivor’ knows how important it is for a competitor to form an alliance with other players to ensure one’s survival on the show; therefore, it is not surprising to see that, in the latest airline fight for survival on the very lucrative yet increasingly crowded Sydney to Los Angeles route, airline alliance might be the deciding factor that determines who stays and who goes.

Qantas is the dominant airline on the SYD-LAX route with about 70% market share up until now and the route generated 30% of its pre-tax earnings last year.  United is the other airline that served this route with 30% market share;  the numbers are going to change however, with V Australia started operation on this route this past February, and Delta early July.

With the arrival of V and Delta, the total capacity is estimated to have grown by more than 35%, while yield level has slumped more than 25%. In fighting to keep its market share, Qantas put A380 on the route, allow children to fly for free and put out a 2 for 1 sale for its business class seats. Other three responded with their own fare discounting and promotion. All these during an economical downturn when the demand is already depressed.

No wonder analysts are predicting that at least one of the airlines will have to pack up and leave soon. “It is unlikely that all of the carriers will continue to serve on the route. There’s simply too many seats on the route and you can’t fill them,” says one airline analyst.

However, almost all airlines involved have expressed their determination in staying put on the route, so what gives? At the end of the day, the airlines’ staying power depends on their ability to attract enough business travellers and frequent flyers who are willing and able to pay for fares that can sustain long-term flight operations on the route, and in this regard, Qantas, United and Delta clearly have an advantage over V Australia.

Business travellers and frequent flyers, especially those paid to travel by their employers, clearly prefer airlines that can offer an expansive network in which they can collect and redeem frequent flyer miles, have access to lounges at most airports worldwide, easily transfer to domestic flights beyond international gateway cities.

United is the founding member of the largest airline alliance the Star Alliance, which includes Lufthansa, SAS, Air China, Singapore Airlines and South African Airways, just to name a few. Qantas belongs to another big airline alliance “One World”, which includes American Airlines, British Airways, Cathay Pacific, JAL and a few other airlines. Delta, on the other hand, belongs to Sky Team, with team mates like Air France, Korean Air, China Southern and others. Frequent flyers on Qantas, United and Delta can collect and redeem miles on any member airlines’ flights, have access to airport lounges of any alliance member airlines all around the world, they also enjoy a more extensive flight network within the US to get to their final destinations .

V, on the other hand, doesn’t belong to any influential airline alliances, doesn’t have an extensive domestic network within the United States, even though they have a partnership with Virgin America. V has some good measures to attract business travellers, for example, free limo pick up to its business class passengers, however, in the fierce competition on the Sydney to Los Angeles route, I believe it is the weakest player and probably will have to withdraw operations before end of the year.

What do you think? Feel free to leave a comment!