The airline industry has felt the economic downturn particularly keenly, making British Airways' decision to launch subsidiary airline OpenSkies last June look at best ambitious and at worst foolhardy.
Given the turmoil the industry is facing - international passenger sales were down 4.6% in December and only 73.8% of available seats on aircraft are being sold, according to the International Air Transport Association - it perhaps comes as little surprise that BA has announced plans to postpone the fleet's expansion and put aircraft it had earmarked for OpenSkies up for sale.
The subsidiary, the name of which derives from the agreement that allows carriers to operate services between leading airports in continental Europe and the US, bypassing BA's Heathrow hub, was to have seven 757s in service by the end of this year. The sell-off will restrict it to its four existing aircraft.
With no end in sight to the tough economic climate, which has led to weak business and premium economy ticket sales, OpenSkies could face a tough time establishing itself.
So where does the brand go now? Does it have a future, or should BA quietly kill it off? We asked James Murphy, founding partner at Adam & Eve, who has previously worked on the Virgin Atlantic account, and Simon Carter, former marketing director at Thomas Cook.
Timeline
April 2007 'Open Skies' agreement is announced; it will allow EU and US carriers to fly from anywhere in Europe to the US.
January 2008 BA reveals plans for OpenSkies brand with the goal of operating seven Boeing 757s between Europe and the US by the end of 2009.
March 2008 'Open Skies' takes effect.
June 2008 First OpenSkies route comes into operation, flying between Paris-Orly and New York's JFK airport.
October 2008 Second route comes into operation between Amsterdam and JFK. Plan to transfer a fifth aircraft to the fleet is postponed.
January 2009 BA postpones plans for expansion of OpenSkies and sells aircraft earmarked for subsidiary; four remain.
James Murphy founding partner, Adam & Eve
Like marketing services, airlines are among the first to feel the squeeze. Lucrative business travellers are under pressure to avoid unnecessary journeys, and leisure passengers are staying closer to home or delaying commitment to holidays, while it remains to be seen whether we are in a temporary recession or a full-blown depression.
As the market stalls, only operators with a clearly differentiated offer will hold ground or thrive. This seems to be at the heart of OpenSkies' problem. It launched with a bold new name taking advantage of a bold liberalisation of EU-US air travel; however, it was a piecemeal refit of existing aircraft and an offer that was originally two-cabin, then three, and then only one: business class.
Was it designed to answer a customer need - in which case, which customer? Or take advantage of the demise of business-only operators Eos, Silverjet and Maxjet? Was it about grabbing slots as the transatlantic market opened, or guinea-pigging a lower-cost model free of the union restrictions that blight BA's main operations? The absence of a clear offer in a shrinking market is the key.
Remedy
- Use the pause in expansion to define the customer and the offer, then communicate it clearly.
- Make the bold name OpenSkies stand for something.
- Adopt a 'new leisure' positioning for canny travellers looking to travel long-haul in a recession and prepared to add a leg to the journey - and avoid the Eurozone currency nightmare.
- This focus will not exclude savvy business bookers; their use of existing low-cost carriers shows that SMEs in particular will sniff out leisure deals that suit their needs.
Simon Carter former marketing director, Thomas Cook
The failings are less to do with the brand itself, than the economy. While travel companies perform strongly, claiming to be largely recession-proof (are you going to be the dad who tells your kids they aren't going on holiday this year?), it is a different story for airlines - especially those like OpenSkies, with a low-density proposition (just 64 seats a flight).
This exposes them to high fixed costs such as fuel, staffing, maintenance and landing fees, and a necessity for high load factors, as demonstrated by the collapse of Zoom, Maxjet and Silverjet last year.
The driver is, no doubt, the fall in demand from business travellers, as exemplified by easyJet's recent announcement of record numbers of business-people switching to its (albeit short-haul) low-cost offering.
But it is also a double whammy, with increased competition from those left in the market, with the brilliant Virgin Atlantic campaign and the likes of Emirates and Qantas advertising heavily, putting them high on the shopping list for those travelling, making it even harder for entrants such as OpenSkies to be heard.
Remedy
- Build on the heritage of the British Airways brand, regaining the territory Virgin Atlantic has taken. If the furore in the oil refineries is anything to go by, could we see a return to 'Buy British'?
- Use the slowdown as an opportunity to experiment with product development - set OpenSkies apart from the competition and tell people about it.
- Target segments that may also be downsizing - such as the private jet fraternity - as shareholders put pressure on all indications of profligacy.