Mainline carriers are offering low fares through a variety of different branding channels
With United's Ted making its debut in Denver in February; Qantas set to bring Jetstar to market in May; and Singapore Airlines looking to unleash Tiger Airways in mid-year; the enthusiasm of mainline carriers to create low-fare brands is undiminished.
In the battle against low-cost carriers, most mainline majors see little choice but to join the fray. But the issue is not simply one of how to match fares, but also of how to position two potentially different company brands. Claude Salzberger, president and chief creative officer at the New York office of global branding consultancy Futurebrand, points to three options: separate, link or stretch. In the first choice, the brand is completely separated from the mainline product; the second includes some linkage; the third option, the ability to stretch the airline master brand to encompass a low-fare product, is the more attractive, he believes.
Market segmentation
The launch of a low-fare brand is "classic market segmentation philosophy" says Andrew Milligan, managing director at the Singapore office of branding experts Interbrand. "The brand represents a specific offer that people expect. Once it gets to the stage where the airline cannot justify a price for that experience you have to create a separate brand," he says.
In North America that is just what United is doing with Ted, what Delta Air Lines has already done with Song, and Air Canada with Tango and Zip. United and Delta are quick to add that their latest low-fare offerings are far removed from earlier, failed, attempts at entering this market - Shuttle by United and Delta Express. These, and others like Continental's Lite and Metrojet from US Airways, failed to combine low-fares with correspondingly low costs.
Second time around, Delta is putting more distance between itself and Song. "For a low-fare unit to be successful a major has to separate it. In terms of branding, the Song model has the best chance of success," says Salzberger. "It is a distinct experience. There is no spillover of the Delta experience and Delta brand into Song." If there is not a clear separation there is a danger of confusing passengers, he adds. The only indication that Song is a Delta offshoot is seen on the tag line - "Song is operated by Delta Air Lines" - which appears in small letters on the low-fare carrier's website.
The question of parentage is an important one for carriers in deciding how to position their low-fare brands. From a customer reassurance point of view this is critical, stresses Peter Knapp, executive creative director at the London office of branding consultancy Landor Associates. Landor helped bmi - the former British Midland - develop its low-fare brand bmibaby and worked with Delta on creating Song. The connection between bmi and bmibaby is not only that the low-fare offshoot shares part of its name with its parent: the branding of the two airlines is also closely aligned. The main difference is that bmibaby uses a cartoon image of a baby to give a feeling of fun to the brand, whereas bmi is more traditional.
Brand endorsement
"Low-cost carriers are seen as easy-come, easy-go, and to be endorsed by one of the main brands does gives a necessary assurance," says Knapp. This endorsement can give customers a feeling of safety and security, of not being likely to be "ripped off" and of being treated professionally, says Knapp.
For Interbrand's Milligan, there is a case for a degree of linkage in brand terms, but this should not be too overt. "Anything more than parental reassurance is in danger of diluting the main brand," he says.
Carriers face a balancing act in trying to create a new brand, while simultaneously lending it some of the reassuring strengths of the parent. Ted, for example, is branded as being part of United. It uses the airline's "U" logo design, albeit in Ted orange, on its aircraft tailfins, and the name literally comes from the last three letters of the mainline carrier's name.
Detailed customer research tells United that Ted has to accomplish two things, says Sean Donohue, Ted vice-president. "The Ted brand must have a level of distinction and uniqueness from United," he says, offering low and simplified fares in a "less formal environment". In addition, he says that United's customers were "very clear" that they wanted the carriers to maintain the strengths of the mainline brand, the number one being Mileage Plus (United's frequent flyer programme).
"What we are trying to do is hit the sweetspot," says Donohue, in terms of creating a distinct product that has the right associations with United. As they built Ted, the team continually addressed the question of how the low-fare brand would sit alongside United, he adds.
"It is important that Ted is not seen as superior to United," says Donohue. For this reason, unlike other carriers, in markets "where we fly, Ted we will not fly United as well". This avoids confusing passenger expectations, he says. Furthermore, Ted has decided not to bring in live television as other low-fare carriers have.
SAS Scandinavian Airlines is grappling with all of these issues as it tests the low-fare brand waters with its Snowflake offering, which launched services in March 2003. It created Snowflake to distribute a product at a very low cost on routes that were not core SAS markets. One of its main questions has been how to position Snowflake.
"We wanted to make sure it was differentiated enough to balance customer expectations," says Jens Willumsen, SAS senior vice-president marketing and product development. "At the same time we decided to put SAS on it to make it a premium brand in the low-fare market." Snowflake's identity is clearly associated with its parent.
SAS is at a crossroads with Snowflake after a year of testing the product. It has not yet decided how it will be developed, but the options are to incorporate Snowflake as a business unit within SAS, or to make it a subsidiary or sister company to SAS. "It is part of the question of our total strategy for the leisure low-cost market," says Willumsen.
Within Scandinavia, SAS will take a different route. "Travel in Scandinavia is becoming a commodity," he says, and the market has moved quickly away from wanting a business-class option. With this in mind SAS launched its single-class Scandinavian Direct sub-brand in 2002 to address this change. "We use it as a campaign brand to show consumers that when they travel short-haul in Scandinavia to expect a different product," he explains.
"We have looked at this project several times, but it is not part of our mission or our strategy," explains Patrick Roux, vice-president marketing and quality at Air France. He says that the French market has for the past decade been facing a threat from low-fare competition in the shape of the country's highly developed high-speed rail network. It has been offering low fares for years to rival the train, he adds. To launch a separate low-fare brand would upset the "balance" of the Air France product and risk cannibalising its current network. "If we went into low-cost we will lose this balance," he adds.
While it seems certain that more mainline carriers will launch low-fare brands, there are plenty of others that are either resisting the idea or moving to the next phase of developing an existing low-fare product. American Airlines and Air France, for example, have so far ruled out the creation of separate low-fare brands.
Balancing brand strategy
For carriers that launch low-fare brands, there may be serious repercussions for their existing products. "The pressure point actually goes back on to the short-haul economy product for the mainline carrier," says Knapp. "What passengers see are two versions of an economy product - one costs more, but they don't see much difference between them."
There are also internal difficulties that airlines may experience in launching a low-fares brand. It is possible that the incentive to lower costs at the mainline carrier could be reduced, with staff believing that the low-cost part of the business takes place in a separate brand. This is one of the reasons that British Airways sold its low-fare airline Go in 2002. It believed that it would be harder to convince staff of the need for radical cost cutting on the existing unprofitable short-haul operation if Go was still part of the group.
The route that BA, and others like Aer Lingus, Air France and American, are taking, is to cover the low-fares market with their main brand. Roux of Air France admits that this is not always easy in branding terms. "It is getting hard to brand with the same name a first-class ticket to Tokyo and a shuttle ticket on a domestic flight for €40," he says. "There is some difficulty in stretching this brand, but it is rich asset we have and we want to keep investing within the value of our brand."
"If the experience is very different and it takes place under the same brand it tends to leave a negative impression on the minds of consumers in the long-term," believes Interbrand's Milligan. "On the one hand you have got a brand claiming to compete with the best in the air and on the other saying it can match the cheapest price in the marketplace. I wonder how credible it is to stretch the brand in that way?"
This is a challenge, agrees Futurebrand's Salzberger, but not an impossible one. "Ultimately it is all about value for money," he says. If a full service carrier can change the perception of their full service brand to encompass a value for money proposition then this strategy can work, he argues. Consultancy Dragon Brands International takes a similar view: "Low-cost has practically become the norm, and the BA brand, for example, can offer low fares, special offers, and make a virtue of those - all without damaging the core brand," says Keith Wells, head of corporate consulting, Dragon Brands.
One of the tactics carriers use to differentiate their low-fare product within the masterbrand is to create a brand solely for these fares. Air Canada's low-cost start-up Tango, for instance, has disappeared as a standalone airline operation and it now offers "Tango fares" on its regular services.
According to Air Canada chief executive Robert Milton, now that the group has succeeded in lowering labour costs at the main airline through its court-supervised restructuring process: "We don't need Tango anymore as we now know it. Tango will become a brand offering. On our internet site the cheapie fare will always be Tango."
Air Canada has become the first North American carrier to roll out its simplified fare structure right across the continent, says Montie Brewer, executive vice-president commercial. It offers five fare levels, with Tango as the cheapest and most basic. These fares "have to fight for customers against Tango", he says, and it is the job of the airline's marketing team to sell the benefits of the other fares to consumers.
Communication effort
Accordingly, Air Canada is making a big effort to tell customers about the new brand approach. "The tricky bit is transferring to a fare brand as opposed to an operating brand," says Brewer of Tango. "So far we've been quite successful in that ballet exercise." While Tango becomes solely a brand, Air Canada will still retain, and expand, its discount unit Zip that operates, for the time being, mainly in western Canada.
In November, Austrian Airlines took the sub-brand route. "Austrian decided not to found our own low-cost carrier but to use the Red Ticket sub-brand to communicate our best prices," says vice-president Johannes Davoras. "We need the awareness of the customer that as a traditional network carrier we are capable of offering really competitive fares."
Red Ticket prices will be available on 10-15% of Austrian's capacity on every European flight and will be about a third cheaper than normal economy fares. At the same time, the airline is upgrading its business-class product to create more differentiation between the two classes, says Davoras.
Willumsen of SAS is more cautious about the sub-brand product. "In the early 1990s SAS launched a product called Jackpot for our lowest fares - it was an overwhelming success. But what happened was that the whole industry took on the brand. It then became generic and diluted because it did not drive any passenger loyalty." SAS dropped Jackpot five years ago.
There are other challenges with bringing in such sub-brands, says Willumsen. "If you brand your lowest fares on the main airline then there is a risk that you lose an opportunity for creating a perception that your main airline is also price attractive."
The low-cost revolution has already spawned a plethora of new brands and more will surely follow. The picture will continue to change rapidly, with brands coming and going, and mainline carriers reinventing their low-fare brand strategy as the market matures. As Willumsen of SAS notes: "We are definitely in a transition phase."
REPORT BY MARK PILLING IN LONDON
Source: Airline Business
