SABENA and the Dinosaurs: the pitfalls of low-cost strategies in the airline industry

A few years ago a friend and his family were flying to Geneva to host a ski party of 4 families over New Year in Zermatt. We were one of the families. 

Deciding to keep costs down he bought cheap tickets with a low cost airline. On arrival at the airport they were informed that their flight had been cancelled due to snow in UK, (!) and they were refunded the ￡200 for their 4 tickets. 

Then their problems really began. 

No other flights to Geneva were available that day, only the next, and they had to book into a hotel. Worse still the only flights were to Zurich, business class, and then they had a longish journey to Zermatt by train. 

The low cost option suddenly became a very expensive false economy; and they had lost a day’s skiing and had to pay for the night in the expensive Swiss hotel that they did not use. 

The total extra cost was well into 4 figures.

So let’s look at the strategy of low cost airlines: we all know the model. 

You get a very cheap flight cost for which you trade off on airports that are miles from where you want to go, no inter-lined bags, no allocated seats and no free food and drink. There are many constraints, you do all the work and they charge you heavily if you get it wrong. 

Recently, I was told of one colleague who was charged ￡300 for printing out his boarding pass.

They all copied the first low-cost airline: South West Airlines, the creator of the model. This is sometimes called a “me-too” strategy. 

Or did they? Well no, not exactly. 

The stuff I put in the model above is all true for South West too, but South West did one thing that none of them copied.

South West was founded by Herb Kelleher, a charismatic, extrovert, fun-loving lawyer.   He realised that their model would not survive on a low cost strategy alone. The model could lead to a “race to the bottom” price war; this was to be avoided at all costs. 

There had to be something else. What he came up with is the vital third ingredient, one that none of the emulators have copied. 

It is FUN. 

Make the customer experience enjoyable, different and memorable. Herb was the leader of this himself, riding his Harley Davidson down the corridors of South West’s large low rise HQ in Texas, singing Happy Birthday to employees, and challenging a fellow CEO to an arm-wrestle (it is on YouTube under “The Malice in Dallas”). 

On his 60th birthday all South West’s employees paid for a 1-page advert in the Wall Street Journal to thank him for being what he is.

So what does fun mean? Prospective employees are not interviewed, they are auditioned, the cabin crew sing the safety briefings (also to be found on YouTube), the captains make hilarious announcements and there is a Frequent Flyer “Love” group with Love Points.  Every experience is different, enjoyable and memorable. The customers love it and flock back.

Please don’t mistake this as some quirky act; it is dead serious. Kelleher understood what it was that made South West the airline with the longest recorded run of profits in US aviation history, when all the old dinosaur airlines were losing money at astonishing speed. 

South West is not perfect either, and has its detractors just like all the airlines do. My skiing friend had a particularly bad experience with them too.

Although low cost airlines pay employees less, South West paid industry highest for those that could turn an aircraft round at the gate in 15 minutes (amazing: 15 minutes to get all passengers off, refuel, clean and restock the plane and get the next passengers on!) as that is the most business critical part of their model. He understood strategy better than most; he decided where they would play and how they would win, and he was 100% right.  

Vital to the fun customer experience was selection of the right staff; the auditions require candidates to change into Brown Shorts and carry out a number of tests. If you would like to find out more about how they do it, read “Hiring for Attitude” Mark Murphy’s excellent book.

So what about the emulators? 

They do it all as South West except the fun bit; in fact, some of them make the experience horrible treating their customers like dirt. 

They use the ultimate Such-A-Bloody-Experience-Never-Again (SABENA) strategy. 

They do the same to their staff (read Glassdoor), they have been known to run their planes with a cupful of fuel in the tank and one has had the employees try to take the airline to court over the (minimal) maintenance schedule of the engines. Their pilots are the lowest paid; a relative of mine flies for one of them and the only major investment that was made in him was in the lawyers to draft his employment contract. Some of the airports they use are so far away from where passengers want to get to, it is joke. 

Put all this together it all makes you wonder why the false economy of these airlines makes sense to customers, to say nothing of the fear one might have of a mid-flight failure of some sort. Their me-too strategies are in a race to the bottom, and soon one will go bankrupt, just as SABENA, the Belgian airline did.

In contrast South West has not tried to expand rapidly; it only flies those routes where it can win, not everywhere, an intentional part of its strategy. 

It avoids head on competition with the dinosaurs.

The clones are competing with the dinosaurs now and I know exactly what I prefer. I want allocated seats, a decent meal, inter-lined baggage, a decent customer experience and an airport close to where I am going. 

I also like fun and sadly that is where most of the full-service dinosaurs have got it wrong. Very few make the customer experience the heart of their strategy, and those that are trying to do that are plagued by inconsistency. Why? They haven’t yet got the right people on the bus. 

In the end it is all about selecting the right people, then your strategy will fly.

South West’s strategy is used by many in the strategy consulting world as an excellent example.  It appears simple, under the surface it is not. It is still profitable and many of the dinosaurs are not.

Best wishes

Rowan


PS: Pilots are known for their humour, RAF ones their sardonic variety. Recently a RAF fast jet pilot was sent to the USAF’s Top Gun combat school. He was informed he needed a training call-sign, like Maverick, or some other macho moniker. Let me think about it he said before you paint it on my aircraft. Two days later he told them his name was “Chumley”. His USAF colleagues were mystified; it just did not sound Top Gun enough. He instructed the ground crew to paint it on his plane. When they saw “Cholmondeley” on the plane they didn’t get it at all.