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Marketing the future of air travel

Working for an agency that focuses on transatlantic clients, anything that’s new in how I cross “the pond” is always of interest. A slight change in the service – good or bad – stands out a mile. I was truly awestruck then, to watch a video of the construction of the forthcoming Airbus A380. Watching this massive machine being built, its size truly becomes apparent. There’s no doubt about it, this beast is going to change the face of flying.

(Click here to see the video on Google Video. Whatever your opinion on the A380, you’d have to agree that it’s a marvel of engineering. It’s also a rare but impressive statement of the power of European cooperation.)

Just how the A380 will change flying is open to debate. The hype has been as big as the aircraft  itself. With 50% more floor space than Boeing’s 747-400, some airlines talk about the tantalising prospect of an airborne hotel. Virgin Atlantic says it plans to fit its A380s with gyms, shops and stand-up bars and may even install double beds and cabins for business-class couples. Of course, the more prosaic alternative is row upon row of extra seats.

It appears as though the market is working in both of these directions already. The phenomenal rise of the no-frills carriers has seen prices plummet on short and medium haul journeys. The transatlantic route has added luxury choices with the introduction of all premium class flights, first from Lufthansa in 2002 and last year from newcomers Eos and MAXjet. The crucial difference is that these services all use much smaller aircraft that the A380. When Airbus announced its plans, its American archrival rejected the need for anything larger than the 747, which has had the market for very large commercial jets entirely to itself for 35 years. With the A380 only able to operate between major international hubs, Boeing saw the future in smaller, point-to-point aircraft and focused on developing the 787 Dreamliner, which has around 250 seats.

With interest in the A380 looking strong, Boeing was forced to reconsider. It announced a stretched version of the 747 – the 747-8 – in November last year. Yet the European company also conceded that Boeing’s original vision was valid, confirming plans to develop the A350 – similar in size to the 787 – only weeks before. Neither firm seems willing to bet its future on whether the point-to-point or hubs model of intercontinental air travel will win out. Indeed, the number of point-to-point airlines has grown alongside the prevailing hub models of the major flag carriers.

How different airlines will configure their routes and individual aircraft remains to be seen, but cheaper travel due to economies of scale at bottom end, and hitherto unseen luxury at the upper end, are both realistic prospects – whether on separate or the same aircraft. What does seem certain is that an industry that had been experiencing a radical shake up will continue to be in a state of transition for several years to come.

A lesson from the old country

As I write, BBC Radio 4’s Today programme is reporting on criticism of the UK Government concerning a £6.5m ($11.3m) bridging loan given to failed carmaker, MG Rover, prior to its collapse. Ministers maintain that it was to give essential breathing space to see if a deal with a potential Chinese suitor could be salvaged. The critics claim it was a bad deal for taxpayers and that the money was only released in a cynical attempt to stave off disaster before the looming general election. In the event, Britain’s last major carmaker went into administration with debts of £1.4bn ($2.43) and the loss of around 6,000 jobs. It was, it seems, the final chapter in the long demise of the Britain's automotive industry. The sorry tale contains, SwelledHead believes, a warning to today’s ailing car manufacturers in the US.

First, some history. At the end of its days, MG Rover sold two brands: MG and Rover, but at one time its originator had been far more prolific. In 1952, when the British Motor Corporation was created as an effective takeover of Morris by Austin, the stable ran to seven marques. The firm’s director, Leonard Lord, now in control of the UK’s bigger car manufacturer, famously commented, “You know what BMC stands for, don’t you? Bugger My Competitors!”

The company’s share of the UK market grew further with acquisitions and mergers. In 1966 BMC bought Jaguar to become British Motor Holdings. Meanwhile, truck and bus manufacturer Leyland Motors had purchased Standard-Triumph and Rover. BMC and Leyland came together in 1968 to form The British Leyland Motor Company. The combined brand portfolio was staggering: Rover, Land Rover, Jaguar, Daimler, Morris, Austin, Wolseley, Riley, Triumph, Austin-Healey, MG and Vanden Plas.

Cost control and marketing at BMC were very poor. The firm’s biggest selling model, the Mini, was calculated by Ford to be losing the company £30 for every one sold. After the Leyland merger some rationalisation followed, but the company had too many factories producing too many inter-competing brands. Quality suffered, especially due to turbulent industrial relations that saw many damaging strikes, and ‘badge-engineering’ – attaching a different nameplate to only slightly dissimilar iterations of the same model – was rife. By 1974 finances were in a perilous position and the Government prepared to take ownership.

Ensuing years saw some brands sold off, and others killed off, while the company itself was renamed several times as it shuffled and reshuffled into various new divisions. By 1988, the company now known as Rover Group was sold to British Aerospace, but financial pressures continued and the firm came into the hands of BMW in 1994. Unable to rein in massive losses, the firm was about to be closed down, but was rescued by the Phoenix Consortium in 2000 and re-launched as MG Rover. Too small to compete in the modern auto industry and unsuccessful in forming joint ventures with other manufacturers, MG Rover foundered five years later.

An excess of brands, badge-engineering, massive financial losses and difficult industrial relations: conditions for failure that are now being seen again, but this time on the other side of the Atlantic. There has been much in the press recently about the woes of the world’s biggest carmaker, General Motors. In the US it sells eight brands (eleven worldwide), but has been highly criticised for its inability to maintain clear and unique identities for each. While quality has improved in recent years, its products are seen as lacklustre and several steps behind more innovative and nimble foreign competitors such as Toyota, Honda and Hyundai. The other US auto giant, Ford, is in slightly better health, but it too is suffering similar problems.

The analogy with the British motor industry is compelling – leviathan organisations unable to break from the shackles of their own bureaucracy to compete successfully against a tide of foreign pretenders. Government intervention meant that the British industry was able to soldier on for an incredible forty years before it eventually succumbed to its inherent failings. It’s unlikely the US Government could, or would be able to do the same for its own automakers.

What future?

Many see the potential collapse of GM as a good thing. Its leaders have come in for condemnation over inaction that will lead to the firm becoming bankrupt. However, Chapter 11 protection would be instated and GM would be freed of the legal responsibilities that make it difficult to force the radical changes that are so very necessary. Leading auto blog, The Truth About Cars, predicts that the end of GM could also signal the end of Ford due to the large number of shared parts suppliers. However events unfold, as with the British motor industry they’re likely to be dramatic and painful, although not so long-lived.

What may emerge from Chapter 11 is unlikely to be the US auto industry in its present form. Hopefully it will create a leaner organisation, perhaps several, that can better compete in a market that has moved on from the days when GM was originally formed. Like Lord’s British Motor Corporation, GM and (to a lesser extent) Ford’s brand-bagging strategies made sense at a time when buyers patriotically bought cars from native manufacturers. Both have seen their market share fall to foreign rivals, and like BMC, GM in particular looks to have failed to restructure adequately to turn this situation around.

The remnants of MG Rover were eventually sold off to Nanging Automotive Corporation, a Chinese car manufacturer keen to gain brands and technology to expand beyond its home market. Such an outcome would be far from palatable to the US public, so herein lies a warning to which GM and Ford must heed if they wish to survive as American companies.

Is all not well with Dell?

There’s an anti-Dell bandwagon that seems to be picking up speed, and it goes right to the heart of the computer manufacturer’s business model. The firm has built its success on providing decent quality at rock bottom prices, but a complex buying process, difficulties with support services and question marks over about veracity of those prices are tainting the brand. Chatter in the media, the blogosphere, and at the water cooler, has come to the attention of rivals. Born of the tech boom, is Dell’s approach now out of date?

SwelledHead first looked at this subject in December last year: PC World makes a “strippo” of Dell. We’d noticed a small, in-store campaign by a UK retailer that had done a rare thing in British marketing and drawn a direct comparison with a competitor. Clearly aware of the complaints that consumers have about Dell (read this piece in The New York Times Circuits newsletter), PC World has felt ready to take the next step. Recent TV ads from the firm (see the downloads below) highlight the benefits of being able to buy both online and in-store – something Dell cannot offer.

Download packard_bell_laptop_wk21.mpg, Download toshiba_qosmio_wk27_211005.mpg

PC World’s point of sale material hammers home the other benefits of its approach. First, the price is all inclusive. For consumers baffled by the range of options given when buying online from Dell, this is refreshingly simple. Second, if the machine develops a fault, you can bring it back to the store. That’s not quite the same as Dell’s on-site support service, but that’s a cost option and for most consumers it will seem like less hassle to go and see a real person at the store.

Though competitor comparisons are a regular feature of American marketing, it’s somewhat counter-cultural to UK audience. However, when dealing with commodities, it makes perfect sense. And to the majority of consumers, that’s what the computer has become – a commodity. Dell’s customised approach suits the tech-savvy buyer, but for Mom and Pop/Mum and Dad, it’s too much. Click a few of the options and the advertised price is no longer. It may be that Dell still works out cheaper than its competitors, but as in the analogy we drew with the US motor industry, what’s on offer is the “strippo” base model, so pared down that it’s a bit of a con.

Dell’s online business gives it the advantage of lower overheads and greater automation, but how it presents its products to consumers needs a rethink. PC World and other retailers may be a little more expensive, but they’re easier to understand and interact with. If you’ve experienced any difficulties with Dell, either with buying or accessing support, then those are extras worth paying for.