EDITORIAL

Handling the bad news

Economists are beginning to think that the US is turning the corner and pulling away from a recession. It is not surprising that America is ahead of Europe in this, because it was ahead going into the downturn as well. However, there are suggestions that the Americans are simply better at handling economic problems than the Europeans because they tackle the issue quickly and decisively.

This comes through very clearly in the way airlines handle cuts to their routes. No airline wants to boast about cutting flights or laying off staff but the Americans treat this in a very direct manner and do not seek to hide the facts. I have just read a very clear statement from Continental detailing its reduction of 11% in overall capacity from mid-September. There was no attempt to dress up the issue as good news or divert attention from the problem. There are probably two reasons for this. The Americans are much more used to the direct approach and expect companies to be candid and many of the airlines’ customers are also shareholders so they want their airlines to be run aggressively.

In Europe, companies try harder to avoid the ‘boom and bust’ mentality of the States but, when they are forced to cut, often seek to hide what they are doing. One of my pet hates is airline press releases boasting of ‘new routes’ that are not new at all. Ryanair has recently been trumpeting its “unprecedented growth” with a launch of new routes from some UK airports, including a number from Luton. It somehow forgot to mention that most of the ‘new’ routes from Luton are simply being transferred from Stansted. While it is good to see Virgin making a success of its route to Hong Kong and adding extra services from the autumn, since the extra flights will have to be flown with the existing fleet, do you think it will be making such a fuss about the flights it drops to accommodate the extra flights?

Which airline would you respect more? The one that tells you about a new route without mentioning the ones it is dropping or the one that tells you it is confident of its ability to handle the economic downturn by repositioning its capacity and is therefore dropping one route and opening another?

Airlines may find they have something to gain by treating their customers as intelligent adults. The next six months will show if they have learnt anything from their American colleagues.

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Spotting the casualties – Silverjet

The hardest part of Inside Traveller to write is the section where we comment on an airline’s finances and express our doubts about its viability. We do not want to libel anyone, nor do we want to put people off booking with airlines that may well remain in business for a long time. On the other hand, we have enough knowledge of the airline business to be able to spot likely failures and we certainly do not want our readers getting stranded by booking on airlines about which we have grave doubts. Nor can we be right all the time – the occasional basket case will get lucky and keep flying. Fortunately, our track record has been pretty good. To the best of my knowledge, we were the only publication to warn of Swissair’s problems before it disappeared and, since then, our warnings (sometimes rather veiled) should have steered readers clear of most of the airline collapses.

It was no surprise that Silverjet went bankrupt and even less of a surprise that the promised relaunch failed. The warning signs were clear from the beginning.

First, we have always thought that the concept of Business-only airlines was flawed. As we said, it would only take a puff of bad economic news to blow them away. In my opinion, Silverjet was the weakest, partly because of its business plan and partly because of the way it was managed. The business plan was weak because Silverjet’s product was expensive to operate and meant it could only shave a fairly small amount off the traditional airlines’ lowest fares. MAXjet, on the other hand, had a more basic product (but one which was still well ahead of any Premium Economy cabin) and at a price that was attractive. The only other Business airline still in operation, L’Avion in France, has something much closer to MAXjet and has the advantage of operating in a much tighter market. However, the real weakness of Silverjet seemed to be its management. There is an old story that when a company moves into a new headquarters and installs a fountain in a palatial lobby you should sell the shares because it is heading for a fall. Well, I have a similar test for new airlines, and Silverjet ticked all the wrong boxes. Here are some of the reasons why I had written off the airline by last autumn:

• The CEO was forever giving glib, bullish interviews on television, always without a tie. This is too much of a copy of Branson/Stelios and others: they succeeded, but that was twenty years ago. Promising to ‘reinvent’ travel is very old hat. Passengers are not impressed by a ‘Customer Experience Director’: good service will impress them more.
• The CEO did not seem to mind causing unnecessary offence. The company bought a small charter airline (to gain its operating licence), closed it and declined to hire the staff on the basis that it did “not want taxi drivers”. Why go out of your way to offend for cheap publicity?
• On the other hand, Silverjet was extremely sensitive to criticism. When Ken Livingstone flew with the airline and said it was “the worst flight of my life”, the CEO banned him for ever, even though he later pointed out that the main reason for the criticism was a delay not caused by the airline. Silverjet also reacted badly to any form of press criticism.
• It made a lot of airy comments about “thirty per cent less than our competitors” without really being able to back them up and continued to advertise ‘flat beds’ long after it had been told its angled seats should not be described as such.
• The best place to find what was happening with seat sales, load factors and delays in delivery with aircraft was Internet chat rooms. Shareholders seemed to be informed rather later of any problems.
• The share price had a rocky history but it did have a number of notable spikes upwards, often brought about by unsubstantiated rumours (no doubt, not emanating from the airline itself). Nonetheless, it seemed some people did do rather well from the airline’s shares at certain times.

As soon as the airline ran into more serious trouble, it seemed to throw any remaining credibility out of the window. Some of the names allegedly approached and a few of the newspaper stories that were triggered looked rather strange, to say the least. No newspaper bothered to look at the record or whereabouts of the Dubai investor involved in the original bail-out and it was not surprising that his money failed to arrive. It would have been a miracle if the airline could have been saved once in bankruptcy but even this did not stop the Silverjet machine. Yet another mysterious investor was lined up to buy the airline and, just as predictably, failed to come up with the money.

Airline entrepreneurs need to remember that copying the personal style of Branson and Stelios is too obvious. It looks like a cheap gimmick. Underneath the personal razzmatazz of these two gentlemen, there was serious management with a sensible business plan. You will be able to raise funds with ‘personal style’, but if there is no substance beneath it the airline will not last.

At least Ken Livingston will be happy: he can now choose whichever airline he wants to fly with to New York.

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Cheating websites

Commercial companies can be amazingly inept in their marketing. How many times do you go to a website and look at prices and then see a box saying “Enter Promotional Code Here”? I was looking at the site of BA’s new OpenSkies subsidiary and, as soon as I started to look at fares, I got the offending message. What these messages are really saying is, “Look, this is the full price for the mugs but some lucky people will pay less.”

Basically, how to offend a customer in one easy step.

It can be worth just Googling to see if anything comes up. Last year, I spotted the promotional code box on the site of the Gatwick Express. I Googled “Gatwick Express Discount” and got a link to the GB Airways site, where it was offering a discount on tickets booked on the site, without the need to prove you were flying with that specific airline. Of course, if Gatwick Express had not advertised the fact that it was giving discounts to some people, I would probably not have thought to check.

David Stone
Editor

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