When an airline tries to meet the demands of all market segments, it will fail. Apple focuses on the higher end of their markets and are very successful. Can legacy airlines do the same?

On the same day (July 22, 2009) Delta Airlines reported a $257 million loss for the second quarter while Continental Airlines announced a 1,700 jobs cuts, Apple Inc, the iPhone and Mac maker, posted a quarterly profit of $1.23 billion that blew past Wall Street forecasts thanks to strong sales and improved profit margins. In fact, this iconic company has consistently returned strong sales performance and profit levels bucking the trend of this unprecedented recession that seems to be depressing all other companies around the world. How did they do this?

Apparently, whatever Apple is doing, it is working out very well for them.  Can the airline industry, especially those so-called “legacy airlines’”, learn a thing or two from Apple? Can Apple’s business principles work their magic in the airline industry? I believe yes.

Target the market segment where you can compete profitably

Apple has been very careful about which segment of the market they participate in, they steadfastly refused to compete in market segment where the profit margin is too thin.

Take the netbook market as an example, since invented by Asus Computer about a year ago, this low cost, yet underpowered, stripped-of-all-bells-and-whistles small computer category has taken the consumers by storm; because of the growing demand, almost all PC manufacturers, from HP, Dell to Acer and Gateway have joined the market, churning out a large variety of netbooks, albeit all with cut-throat thin profit margins, furthermore, the netbook sales is threatening to cannibalize their more profitable traditional laptop sales.

A clear parallel can be drawn here with the airline industry. The product provided by low cost airlines such as Ryanair is not unlike the netbook of airline industry: they get you from point A to point B for a low fare, but that is pretty much all they offer. Forget all the comforts and amenities people used to associate with air travel: there is no complimentary food and drinks onboard a Ryanair flight, the seat pitch is small, seat back does not recline and a boarding pass will cost you 40GBP extra at the airport. In spite of these bare bone product offerings, the low cost airline sector has grown tremendously both in Europe and the US. Many legacy airlines (such as Delta and United) responded by lowering their fares to compete, yet couldn’t get their operating costs low enough to be competitive, as a result, they not only lost market share to companies like Southwest and AirTran, but also drove their own system profit margin too low to be profitable.

When confronted by reporters about Apple’s plan on the netbook market, Apple COO Tim Cook responded: “Our goal is not to build the most computers, it’s to build the best. Whatever price point we can build the best in, we will play there. At this point, we don’t see a way to build a great product at that price point, $399, $499.” Apple is clearly targeting the medium to high end computer market, and refuse to be entrenched in a mud war with all the other manufacturers in a low margin market segment.

In the same spirit, an airline’s goal should not be providing travel solutions for all the segments of the market, but the “best” segment for their product offering and cost structure.

Legacy airlines should concentrate their resources and efforts on the long haul international markets and the corporate travel markets where product features and services are valued by travellers and the profit margin is much higher. Usually, low cost carriers can’t compete in this segment effectively either. Passengers might forgo food and drinks on a one to two-hour flight, but on a flight last more than 5 hours, they will value food, comfortable chair and blankets much more. For business travellers, they are usually willing to pay a higher ticket price to be able to fly with an airline where they can continue to work during their journey or rest well before arriving for a meeting. Most low cost airlines will not be able to satisfy these needs.

Provide the most innovative products and best customer services in the market you choose to play

Apple products are expensive, they command at least 30% premium over competing product in the same category, yet people line up for them, because Apple products are innovative, provide excellent user experience and come with good customer care. Take the iPhone as an example, within two years of debut, it has grabbed nearly 50% of smart phone market and changed the Smartphone landscape with its revolutionary multi-touch screen and Apps store. The company’s profit surged with the release of new iPhones.

Legacy airlines like Delta, Continental or United should strive hard to find their own hit product like the iPhone. Instead of waiting for customers to tell them what to do, they should research their core customer base thoroughly, anticipate the needs of modern day corporate travellers before they realize those needs themselves and find a way to satisfy them. It could come in the form of a teleconference room in the airline’s lounge, free onboard WIFI, gourmet food or excellent frequent flyer services, it could also come in a package that include everything a business traveller needs to stay productive during his/her journey. The airline which can successfully do so will no doubt be able to charge a premium for its product and commend the loyalty of its most valuable customers.

Be creative in marketing and leverage social media!

Another reason Apple products enjoy such an loyal following has to be attributed to the company’s marketing prowess: it turns regular consumers, reporters and bloggers into not only loyal customers, but also vigorous brand advocates.

 Apple’s advertising campaign is always creative and memorable, Mac vs. PC, is a big hit on TV, as well as on You Tube, and Apple’s ability to generate buzz and free publicity for new product launch is unrivalled in any industry. Usually speculations begin months before Mac Expo and Apple’s developers conference in San Francisco, where Steve Jobs’ presentation was the highlight of the event for the past few years, and his famous catch phrase: “oh, one more thing…” will send all the traditional and new media into overdrive for weeks or months about whatever product Apple was launching.

For the airline industry though, we haven’t experienced anything remotely like that for a long long time, what happened? Airlines used to be such a sexy industry! Nowadays, when people talk about airlines, they are usually complaining about delays, poor customer services, or their broken guitar!

Airline industry in general needs a image make over, however, if an airline can manage to stand out from the pack and give passengers something positive to talk about its brand, it will build a tremendous competitive advantage; one way to achieve that is to have a well planned and executed social media strategy. Blogs, online communities and Twitter are powerful tools for airline to build a relationship with customers and engage brand advocates, increasingly, goodwill generated online will crossover into traditional media as well. One the other hand, negative stories about your brand in the social media universe can do serious damage, United Airline learned that in a hard way recently.

In summary, what airlines can learn from apple is: participate in the market where you are the strongest, for low cost airlines, that is the domestic leisure market, for legacy airlines, that is long haul international market and corporate travel market; airlines should invest in research and development to provide innovative travel products for their targeted markets, and they should put more efforts in launching effective marketing campaigns, social media is powerful tool that can help them achieve that goal.

Dear readers, any thoughts? Feel free to leave a comment!