Hereâs some unsolicited advertising advice for United Airlinesâ parent, UAL Corp., as it struggles through its Chapter 11 proceedings: "Shut up," says Al Ries, chairman of branding consultancy Ries & Ries Inc.
Ries is referring specifically to a United print ad that ran in The New York Times and other major newspapers in the wake of UALâs bankruptcy filing on Dec. 9. The ad featured the headline, "Chapter 11" with one numeral crossed out to read "Chapter 1." Fallon Worldwide, Minneapolis, created the ad.
The ad served no purpose but to draw attention to Unitedâs struggles, many observers argue. "You might as well put a âkeep outâ sign on the airline," said Michael Boyd, president of Boyd Group Inc., an aviation consulting company.
United shouldnât advertise on a broad scale again until it has arrived at the strategy that will take it out of bankruptcy, Boyd and others said.
"Branding alone will do nothing unless something changes," said Robert Duboff, senior VP of DecisionQuest, a consulting firm. "You canât market your way out of no strategy."
Elk Grove Township, Ill.-based United is said to be mulling plans to launch a new branding campaign this spring. A lackluster campaign, coupled with no significant changes in the business other than the financial concessions that United is trying to extract from its unions, could doom the airline, some observers fear.
"If this company is going to survive in any form, itâs going to have to become a different company," said Larry McNaughton, COO of CoreBrand, a branding consultancy. "They have to do something dramatic, and quickly."
Cracks showed in 1999
As early as 1999, some cracks were showing in Unitedâs strategy. It failed in its merger attempts with America West and US Airways. Then, in the summer of 2000, the airline was hit with a debilitating labor action by its pilots, leaving many of its customers stranded and fuming.
But it wasnât until after the Sept 11, 2001, terrorist attacks that UALâs flaws became obvious. United was a company for which the growth of the airline industry was an article of faith. When that growth stoppedâpassenger traffic for the industry was down 5.9% in the first 11 months of 2002 compared with the same period of 2001âUnitedâs losses began spiraling out of control, approaching $20 million a day.
Beyond the devastating impact of Sept. 11 on the industry, United must grapple with several trends that have hurt the large traditional carriers. In particular, the rise of low-fare airlines such as Southwest Airlines and JetBlue has created several marketing problems for traditional carriers.
First, these discount airlines are taking away traffic, particularly lucrative business traffic. A survey conducted in November by the National Business Travel Association showed that 66% of corporate travel managers were considering using discount airlines, up from 22% in March 2002.
To compete with low-fare carriers, United and other major airlines have discounted prices, particularly for advance-purchase leisure travel tickets. Over the long term, the practice has eroded value.
"They really put themselves in a position where people donât know what a seat is worth," said Laura Ries, president of Ries & Ries. "Itâs just like in the fast food industry. After a while, people begin to think a Whopper must only be worth 99 cents. It takes a while to see the effects of discounting, but [those effects] absolutely are here."
Another fallout of discounting is that business travelers often sit next to leisure travelers who have paid 20% less for their tickets. "One of the things business customers have been screaming about for years is, âIâm your best customer, and youâre absolutely screwing me,â" said CoreBrandâs McNaughton.
Unitedâs options now
Observers differ about what steps United needs to take to counteract its marketing problems and to stem its losses. They also disagree about what new strategy is best. United didnât return several phone calls for this report, but the company has floated several possibilities in the media.
United has said it plans to create its own discount airline. But such a plan is an invitation to disaster, many observers said, pointing to recent high-profile failures such as US Airwaysâ MetroJet and Unitedâs own Shuttle on the West Coast. "Thatâs one of the very stupidest ideas they could do," Boyd said.
A key problem with starting a low-fare airline is finding low-cost employees to operate it. Even with salary concessions, Unitedâs pilots and other employees rank among the industryâs highest paid.
Another problem is that Unitedâs discount airline would have to take on Southwest, JetBlue and others that are already established brands.
"The analogy that Iâve been using is to relate Southwest Airlines as the Wal-Mart of the industry, and JetBlue is the Target of the industry," said Tim Claydon, JetBlueâs VP-sales and business development. "Iâll leave you to figure out who the rest of the players are."
Consultant Boyd said a recent move by United makes more sense than starting an airline within an airline. On Jan. 6, United announced it was discounting walk-up business fares at its hubs in Chicago and Denver by as much as 40%. "The fare thing was a good step in the right direction," Boyd said. A simplified, sensible fare structure is essential for the airlineâs survival, most observers agreed.
In a statement, Chris Bowers, United senior VP-sales and reservations, explained the move: "These new fares are a boon for customers because they can obtain more affordable fares. And United benefits from increased revenues by attracting additional business customers."
Business customers key
The business customers United hopes to attract hold the key to the airlineâs future, said Henry Harteveldt, a senior analyst with Forrester Research. Harteveldt, a former airline executive, said that while United must discount fares, it doesnât have to drop its fares as low as Southwestâs. At the same time, the airline must maintain its amenities, he said.
On the same day it announced its lower fares, United said it would no longer serve food in first class on certain short flights. Thatâs a mistake, Harteveldt said. United should focus on business customers and provide them with a higher level of service that differentiates the airline from Southwest, even if its fares have to remain higherâsometimes significantly higherâto support it, he said.
"They should do something like LâOreal, [which brags] âWe cost more but weâre worth it,â " Harteveldt said.
Forrester conducted research that showed that the economics of courting the business traveler over the leisure traveler make sense. For instance, 34% of leisure travelers also travel via air for business, while 99% of business travelers take pleasure trips via air. Business travelers have a higher household income than leisure travelersâ$86,000 vs. $53,000.
The bottom line, Harteveldt concluded, is that while JetBlue may claim to be Target, United could gain by presenting itself as Nordstromâs.
Bill Oliver, an analyst with Boyd Group, agreed that United should focus on the business customer. "The business customer is their bread and butter," he said. "Thatâs their mainstay. They have been reluctant to take better care of this group of people. They seem to have not been able to find the right formula to make a more streamlined price structure work for this group."
American Airlines is already focusing on the business customer. The Dallas-based airline has removed seats in coach class and is heavily promoting the fact that there is now more room in coach.
"Weâre viewed as a premium, full-service airline, but we also have lower fares that compete with low-cost carriers like JetBlue and Southwest," said Tim Kincaid, American manager-corporate communications. "Itâs the same price, but youâre getting more: more room in coach, boarding passes, assigned seating, airport clubs, all the different things youâd expect from a full-service airline."
Plus, American seems to be a step ahead of United in branding, according to some observers.
Whatever marketing strategy United decides on, itâs clear the clock is ticking. "Theyâve got to really formulate a marketing point of view," CoreBrandâs McNaughton said. "And theyâve got six months to make something happen."