Plane Conversations

There is a war brewing within the online travel agency space over Google’s recent move with Google Flights and Google Hotels.

Google began positioning its new flight-finding feature at the top of general search results for airline booking information earlier this month. And its new competitors in the $110 billion online travel industry aren’t happy about the search giant crashing the party, according to a recent Wall Street Journal report.

Chasing The Market To The Bottom

Travel is hot for 2012 and beyond.  An increasing number of people say they’ll do more leisure traveling in the coming year, and even more say they’ll fly if they can find good deals in 2012. Good deals are going to be hard to find. The airlines attempted to raise prices 22 times in 2011 (and nine of those attempts were successful).

Business travel spend is expected to have grown 6.9% in 2011 compared to 2010, hitting $250.2 billion.  The forecast for 2012 is 4.3% growth in business travel spend for 2012 (or $260.9 billion).

While revenue growth in the travel sector looks promising the user experience continues to decline. Flying today is like traveling by bus with few frills and even fewer fun times.  Consider some of the recent headlines:

1. Airline Technology Leading to Customer Alienation
2. Airlines Score Lowest In Customer Satisfaction
3. 92% of Executive Unhappy With Business Travel Experiences
4. Airline Delays, Cancellations and Complaints Rise

I could go on with an endless list but by now the picture should be obvious. Current market dynamics within air travel services is propelling a race to the bottom and Google knows this.  In other words air travel suppliers have boxed themselves into competing on price and thus air travel services have become a commodity. The meaning of the term commodity is used to describe a service for which there is demand, but which is supplied without qualitative differentiation across a market.

Google knows that search has the greatest influence over consumer choices for travel services. 93% of people who seek information on travel services use search. Consumers seek ratings and reviews, news articles, word of mouth and blog post which in the end influences their decisions. When there is little differential in a market then price becomes the initial decision factor followed by “social influences”, i.e. quality of the experience.

As a result, the present online travel bazaar is very competitive and the margins are shrinking . The  tight competition led the market to compete on price rather than experience. Google recognizes this and simply stepped in and made the shopping experience better. Google doesn’t care about the price of air service they care about providing the price to consumers seamlessly.

As fortunes are made by leveraging technology to become ever more efficient, there is yet far greater wealth to be had by unleashing the discovery of new experiences and creation of new opportunities. That is exactly why we created Social Flights. We are changing the direction of the race to the top.

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Airlines are taking a beating from on-line conversations.

In yesterday’s article titled “Four Strategic Social Experiences” we illustrated, using a word cloud, what a consumer might find if they were searching for shared experiences about a particular airline. Not good.

A new report from PhoCusWright finds that “Flyers are essentially giving airlines a grade of C+, which is barely above satisfactory,” said Carroll Rheem, director of research for PhoCusWright. “But even more concerning for airlines is that their most valuable customers — business travelers and those with higher annual household incomes — are even less happy than the average.” Airlines are stuck in a spiral to the bottom.  They all compete on price and subsequently as margins get squeezed so does service.

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The beginning of online travel created new business models that changed the dynamics and relationships with buyers.  Now with the advent of social technology the dynamics are changing again.

instead of the traditional travel site being the brand the brand has become the traveler.

As a result, the present online travel bazaar has become a race to become more social. Technology and savvy buyers have dramatically changed online travel over the past two years. The app market, for instance, has swelled from virtually nothing to billions of dollars in just a few years, and smartphone owners love their access to a gaggle of Wi-Fi finders, flight status updaters, local restaurant finders, budget booking assistants, translators and more.

Websites offering unique travel-oriented services have made a strong showing, too. They include Wanderfly, a personalized travel recommendation travel engine à la Hunch and Pandora; and GTrot, a site that allows travelers to share their itineraries with friends and get travel advice within their networks.

Applications like these will continue to grow, improving the efficiency of the overall industry by improving the connectivity of air travel information between flights and friends.

Chasing the Lowest Common Denominator

While on-line applications enable travelers to connect and collaborate, few if any do anything to improve the travel experience. Commercial airline travel experiences are abysmal and getting worse. While the efficiency of commercial air travel for consumers and businesses has diminished could there be a better alternative emerging?

Social technology will not enhance the value of on-line travel sites enough to improve pricing.  Social technology has become a “must be” rather than a differentiator and it, by itself, doesn’t change the lowest common denominator, price.  Finding “best” prices has become easy given the power of search and the recent introduction of Google Flights.  Finding the best experience and the highest value has become difficult but may change soon.

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An airplane moves people and connects them with other people and things.

The internet connects people and moves things.

Airplane operators know that using aircraft can be an expensive proposition. Use of the internet is free. If you combined something expensive with something free what happens?

Do Private Jet Operators Understand The Implications?

There has been a saying in the private jet business: If you have to ask the price, you can’t afford it. People who use private jets generally haven’t hunted for the best prices because it’s a status thing. These two statements used to be foundational truths in the private aviation business. But things are changing.

There are a finite number of wealthy people and/or corporations who desire to own or use a private jet regardless of the cost. Most charter operators have chased all the wealthy people for a sale so operators end up chasing the same customer over and over. Even the wealthy are feeling the economic pitch and shareholders are questioning the cost of and need for private aircraft.  Now charter operators are being pressured to justify and lower their cost. Cost has become transparent thanks to the internet.  Yet most operators do not fully understand the implications of transparency and social technology on old business models and methods.

What Are The Implications?

Business travelers and affluent individuals are becoming disenchanted with commercial flights, crowded airports, flight delays, and inconvenient schedules. These travelers are looking for alternatives to save time and reduce the hassles of commercial air travel. So they go to the internet to examine private aviation alternatives. What do they find and see?  At most, Web.1.0!

When you do a search for “private jets” or “private aviation” what comes up on the first page are listings of jet brokers (those that don’t operate or own any jets). You also see lots of references to “cost per hour, fractional jets and a host of other terms that are foreign to buyers”.

So let’s say someone decides to click on any of the links. They end up on a static web page with pretty pictures of expensive jets and self- proclaimed accolades of how great this company is then an 800 number to call for a quote.

So if someone looking for an alternative to commercial air travel hasn’t already lost interest in their search then the next step is to actually make a call. Then someone answers the call and begins asking questions to the caller of which the caller has no idea what they are talking about. Not wanting to sound stupid the caller fakes their way through the dialog expecting to get a quote at the end of the call. Instead the broker/operator says “can I have your email or number so I can get back to you?”

If the buyer agrees it then takes the broker/operator at least half a dozen phone calls, faxes, or emails, before you can get a charter estimate which may or may not be correct. Then the operator/broker emails you the quote of which has so many disclaimers and its format doesn’t make any sense to the buyer. All this, and you have not boarded the plane yet.   Besides that all he buyer wanted to know is what is my seat cost and what I get for it.

By now operators are reading this saying “You don’t understand our business model, we don’t sell seats we sell jets”.  To which I would say “I know but every jet has a certain number of seats and the total cost is represented by a cost per seat, full or not.”

Broken Business Models

According to a Forrester’s recent report, there are about 53.8 Million socially engaged eBusiness travelers in the United States alone. A new market opportunity for private aviation. It’s all about the passenger – they have the money.

Certainly not all 53.8 million business travelers would consider private aviation as an alternative travel option. But let’s say 1% would which means 53,000 potentially new customers.

The private aviation industry couldn’t imagine having 53 thousand new customers because their mindsets are frozen in old business models and expensive archaic operating processes.  Today’s charter revenues barely cover the aircraft management and operational costs, and almost never reach levels necessary to cover an aircraft’s cost of ownership. At the same time in the charter world an aircraft flies empty 40% to 60% of the time.  What a waste!

It is time for a revolution in innovative private aviation business models if the industry wants to capture the significant growth opportunity fueled by demand from disgruntled business travelers looking for viable alternatives.

Old mindsets are saying “You don’t understand how we operate”. My response is “You don’t understand how to change the way you operate”.

-Ralph Waldo Emerson “Who you are speaks so loudly I can’t hear what you‘re saying.”

Stay tuned for “What Would Jet 3.0 Look Like?”

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When commercial airlines do not optimize seat sales they loose money. Historically airlines have looked for “lanes” that have high demand thus insuring increased sales of seat capacity. Now they are using social media to fill seats.

Some airlines say that social-media outlets, such as Twitter and Facebook, are beginning to disrupt the traditional sales cycle. Some airlines are sending sales out directly to customers at all hours, making pricing far less predictable each day.

Social-media sales of  airline seats has just begun and it will change the way airlines have traditionally sold seats. After all empty seats represent leaving revenue in the air.

What About Private Jet Charters?

Private jet charter operators seek buyers who will pay for the entire plane regardless of how many seats are full. Those who charter jets pay the round trip cost of a jet whether they use it round trip or not.  The process creates what is known as “empty legs”. Empty legs are usually one way trips flying empty and yet already paid for by somebody.  Most Private operators try and sell the empty leg at full charter prices and thus few ever sell an empty leg.  Empty legs represent seats unused leaving revenue in the air.

A recent New York Times Article titled “Fly a Private Jet at Public Prices” states “The dirty little secret of the industry is, about a third of our flights are empty,” said Alex Wilcox, chief executive of JetSuite, based in Southern California, which recently began posting last-minute $499 deals on Facebook for empty legs on the company’s four-passenger Embraer Phenom aircraft. “Say a Gulfstream pulls into San Francisco and is going back to Vegas empty,” he said. “A few years ago, if you were to say, ‘if I give you $500 will you take me and my family?’ you would get laughed at.” But the recession changed such attitudes, Mr. Wilcox said. Now, he said, more companies are saying, “Sure, it’ll help pay for the gas.”

Revenue Is Revenue to Some

Allen Howell, CEO of Corporate Flight Management, looks at empty legs as an opportunity to expand his market of consumers and gain incremental revenue. Allen Howell says ” If I have a plane flying empty from one city to another I am a fool if I don’t open the seats on that leg to paying customers.”  ”Think about it, the value we create by selling the seats on empty legs is five fold:”

1. We increase the potential of building relations with future charter prospects
2. We provide consumers with an experience that exceeds all expectations
3. We create incremental revenue streams that go right to bottom line profits
4. We increase and expand our circles of influence by leveraging the power of social media
5. We begin to create repeat customers that are common to travel circles we service

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Alfie Kohn, author of  No Contest:The Case Against Competition writes:

Noncooperative approaches . . . almost always involve duplication of effort, since someone working independently must spend time and skills on problems that already have been encountered and overcome by someone else.

Sound familiar?  Look around and in almost every industry you see competitors beating each other into the ground while reducing the end value to the customer and increasing cost.

Julie Browser, of IBM writes “The traditional concept of business as a “winner takes all” contest is giving way to a realization that in the networked economy, companies must both co-operate and compete. Termed “co-opetition,” this new perspective requires companies to create business strategies that capitalize on relationships in order to create maximum value in the marketplace.

“Co-opetition”– a model in which a network of stakeholders co-operate and compete to create maximum value — is one of the most important business perspectives of recent years. Internet and mobile technologies have made it even more necessary for companies to both co-operate and compete, by enabling relationships through information sharing as well as integrating and streamlining processes.

In today’s networked economy, co-opetition is a powerful means of identifying new market opportunities and developing business strategy.

Take the private aviation industry.  Everyday thousands of private jets fly empty. Those who charter jets pay the round trip cost of a jet whether they use it round trip or not.  The process creates what is known as “empty legs”. Empty legs are usually one way trips flying empty and yet already paid for by somebody.  Most Private operators try and sell the empty leg at full charter prices and thus few ever sell an empty leg.  Empty legs represent seats unused leaving revenue in the air.

What if these private jet operators shared all their empty legs with the public and sold seats on those legs?  By cooperating they would expand their markets, create value for consumers and generate more revenue.  But many won’t do that because they view themselves as competing with each other rather than cooperating.  In the meantime revenue is lost to the air. In this case they end up doing less alone rather than more together.

Business is both competition and co-operation

In the past, people saw business as a “winner takes all” or “zero-sum” game. The networked economy moves away from these purely competitive plays to recognize cooperative relationships that leverage value created by those in the network. Competition — the other aspect of co-opetition — occurs after businesses have created new value in the market and expand the value proposition through quality and creativity.

Social Flights business model is about creating cooperation with private jet operators with the aim of expanding the market and creating new value for all parties involved. For it to work the suppliers must cooperate in order to gain increased market share through new value offered to travelers who in turn create new revenue.

So, will you consider cooperating?

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Social Marketing has revolutionized business.  The ability to reach, communicate, and build relationships with customers has never been more accessible (at little or no cost) than it is today.  Far from a “flash in the pan” gimmick, social media marketing using tools such as Twitter and Facebook are here to stay, at least for the foreseeable future or until the next generation of marketing emerges.  The company that engages in intentional social media marketing is vastly extending its reach and its potential client base.

Today consumers research and engage businesses online long before they click “Order” on a product or darken the door of a business.  A 2009 study by Pew Research showed that people with higher income and/or education levels were the most likely to research online –87% of college graduates and 88% of those earning more than $75,000.1  This demographic is very much in line with the income and educational levels of those likely to involve themselves in flight training and other aviation related products and services.   Specifically in regards to social media, the same Pew study demonstrated that nearly half of Americans use social media sites such as Facebook and LinkedIn.2   Additionally , a recent Nielson survey reported in Entreprenuer magazine found that almost of quarter of consumer’s online time is spent on social networks.3

If our goal is to raise visibility and awareness of our products and services, then it follows that social media should not be neglected.  Simply put, if we want to be where the customers are and then we should be in the social media marketplace.

Are you ready to engage?

1.  http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=136747

2.  Ibid, mediapost.com #1

3.  “Baking, Listening & Selling” Entrepreneur Magazine, February 2011, page 61

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During training at the American Airlines Learning Center in Dallas, new agents were given a specific protocol for checking passengers and their bags in at the ticket counter.  We were to greet the customer by name as it was printed on the ticket.  Ask them what their final destination was – just to make sure the ticket was right - and ask them how many bags they would be checking.  This was long before that silly question of “have your bags been out of your possession since you packed them,” like anyone would actually admit to that.

I once had a woman tell me that her final destination was her mother’s house.  While I agreed that a visit to her mother was surely a wonderful thing, I could not check her bags to her mother’s house.  She gave me her final airport, I checked her bags through and all was right with the world.

This woman’s trip raises a question in my mind.  I know the city-pair on her ticket; however, that citypair didn’t really  match her real travel intentions.  She might have departed from Columbus, Mississippi, but might actually have lived Macon, Mississippi.  She might have traveled to Charleston, West Virginia, but might actually have needed to go to Parkersburg, West Virginia.  Because of limited choices in scheduled airline service, she ended up with a drive on both ends of her trip.  Now, until we have personal jet packs, we’re not going to be able to leave our homes and fly to exactly where we want to go.  Can you imagine the air traffic nightmares that personal plane a la George Jetson would bring?  Yikes! 

Still, we know that general aviation can reduce our drives simply by virtue of the fact that there are more general aviation airports.  Put new and better technology with new and better aircraft and you have a few people with similar intentions sharing flights.  Vancouver has over 60,000 fans on two Facebook pages and a population of over a half million people in the city, not taking suburbs into account.  Surely a few of those people could agree on a time to go from the Abbortsford airport to the Blatchford Field in a Cessna Mustang.  Wouldn’t you think?

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Maybe this most recent economic crisis wasn’t Armageddon, but I think I saw a Guernsey or two fall somewhere over central Mississippi.

The technology and practices of our industrial world are changing at a mind-boggling pace.  Since we started blogging just over a year ago, the advancements have been staggering, allowing us to begin developing a “wouldn’t-it-be-cool-if” idea into a “isn’t-it-be-incredible-that” reality.  However, if we had kept believing that we already knew it all, we would still be sitting on the porch, whittling, rocking in our chairs and wishing for a brighter reality. 

This Big Idea is a gamble, to be sure; Big Ideas always are.  But, to take our industry into its next great phase, we must accept that, “There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy.” We must reject bad managerial habits that keep us trapped in a paradigm which ceased to be profitable years ago.  Aircraft operators are frustrated by rising fuel prices, rising training costs, rising salary and benefits costs.  Equipment is getting older.  Remaining competitive means newer equipment, higher standards and better practices.  Meanwhile, many charter brokers insist on lower pricing, sometimes to the point of incorrectly educating the end-user on the actual cost of operating aircraft to the highest standards.  Sadly, even some operators have been willing to operate below cost just to produce the cash flow.  Reputable operators know what it costs to run a quality operation.  Reputable brokers also know this and are willing to support the operators’ reasonable pricing structures to their own clients.  But I digress.  My point is this: charter operators are frustrated with rates which are not keeping pace with rising costs.  Even with this frustration, we hamstring ourselves by acting conservatively out of fear of making mistakes and by avoiding anything new until it’s better understood.  Neither habit is bad altogether, but the over-application of either of them can be deadly. 

As I discussed the Big Idea with a few operators this week, I was discouraged at the response of many of them.  If the Idea is flawed, I would expect rejection and would hope that someone would point out the fatal flaw; but, that’s not why it was rejected.  Their rejection of the Idea stemmed from “I’ve never thought of that” and “We’ve never done it that way before,” not from the Idea’s merits or demerits.  It’s one thing for an industry to suffer or fail due to catastrophic and unforeseen market changes, but that isn’t the case here.  The market has been changing for at least the last 10 years.  As operators and brokers began aggressively selling one-way trips, introducing our product to a wider audience, the market has been changing.  As the global economy was reeling, our market changed further with more aggressive pricing, air taxi services, and ride sharing.  I often here people lamenting the loss of the “good old days.”  Let’s face it: the good old days weren’t all that great either.  We still struggled.  We still worked on narrow margins.  I don’t think we worked any less hard, but maybe we worked a little less creatively.

While we’ve gotten more creative, it’s time for us to make a big creative leap now.  Sharing flights is a creative way to broaden our market.  Using social technology to share those flights is a creative way to work smarter.  It’s the next Big Idea.

So, yes, 150 years ago, everybody knew man couldn’t fly.  70 years ago, everybody knew that supersonic flight was deadly.  And 15 minutes ago, you knew that shared flights would never work.   Once we accept that we don’t know our market as well as we think we do, we allow ourselves to adapt our industry to the new marketplace.  When we use social innovations like Social Flights to tap into that new marketplace, we broaden our reach.

If we can learn all of that today, embrace the Big Idea of flying socially, imagine what we’ll know tomorrow.

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