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NiceJet
Airlines: Expansion Pains
___________________________________________
Arvind
Sahay
Assistant Professor, London Business School, London.
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Alistair
Buckle, Head of Marketing at NiceJet, a low cost European
airline, has a challenge on his hands that many of his
counterparts in the airline industry would give an arm
and a leg to have at this point in time. With most airlines
hemorrhaging cash, NiceJet is in the happy position
with increasing customers and profits and with the expansion,
Alistair has started thinking about how the NiceJet
brand is going to evolve and how he should manage the
evolution. |
“I have had an easy job so far… the majors
had left a huge hole in the market – and with their
existing operating structures, it was very difficult
for them to compete with us,” says Alistair. This
was corroborated by a senior manager in a competing
major airline – “we left ourselves completely
exposed at the bottom end of the market.”
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With
a per seat km cost of seven cents (half that
of some full service competitors), NiceJet had
positioned itself as a low cost carrier for
both business and leisure travelers
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NICEJET |
CHEAPAIR |
BEAIR |
BRITISH
AIRWAYS |
|
#
of airplanes operated
|
37
|
45
|
18
|
280
|
|
#
of planes one order or about to be ordered
|
120
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100(+another
50 on option)
|
-
|
-
|
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#
of passengers carried annually (millions to
june 2002)
|
8.9
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11.1
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3.8
|
57
|
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Cost
per seat Km (C cent)
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7
|
5
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6.5
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10.5
|
|
Averages
Fare (C)
|
68
|
50
|
75
|
305
(162 for intra-European routes )
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NiceJet
is a low cost airline operating out of the UK that was
launched after the deregulation in the airline industry
in Europe. Christos Ravanelli launched NiceJet with
London to Edinburgh flights for the same price as a
pair of jeans. Deregulation soon allowed carriers to
fly from any airport to any airport in the European
Union. With a per seat km cost of seven cents (half
that of some full service competitors), NiceJet had
positioned itself as a low cost carrier for both business
and leisure travelers (though the not the lowest cost
– CheapAir was the lowest cost with a per seat-km
cost of five cents).
Research showed that NiceJet was perceived to be in
the same category as CheapAir and BeAir (other low cost
carriers) and very different from full service carriers
like British Airways and British Midland. NiceJet was
perceived to have low costs (true relative to BA; not
true relative to CheapAir), not very convenient airports
(not true when compared to BA or CheapAir) and was thought
not to be very punctual. NiceJet was the ‘David’
fighting the ‘Goliaths’ of the industry in
Europe (BA, British Midland, SwissAir, Luftansa, KLM).
Figure 1 shows comparative figures for different airlines.
The personality of NiceJet’s founder, Christos
(irreverent, outgoing, unconventional, informal, high
level of self promotional activity, egalitarian), was
reflected in the service offered to customers and the
brand perception. NiceJet planes had only one class
of seating and seat numbers were not assigned. When
the Swiss government refused to permit NiceJet to fly
from Geneva to Barcelona as a scheduled commercial flight,
Christos, who had already sold tickets to passengers,
famously gave refunds to passengers personally on the
plane (to make it a non-commercial flight) and then
went around hat in hand on the plane asking for donations
to support the NiceJet campaign to liberalize the airline
industry in Europe. He got back 80 percent of the money
that he had returned
to passengers. These activities generated disproportionately
large and positive PR for NiceJet and reinforced the
David vs. Goliath image. NiceJet used very little conventional
advertising and much of its marketing activity was done
by inhouse personnel. Alistair estimated that Christos’s
actions contributed about 50 percent of the total awareness
creation and maintenance of the NiceJet brand name in
the mind of the consumer.
However, Christos was leaving the company management
– cashing out in effect. And NiceJet had grown
very quickly to be larger than the European operations
of some of the major airlines in terms of planes and
passengers. Recently, NiceJet had acquired BeAir –
another low cost carrier and was also about to order
100 airplanes for a Europe wide expansion; with these
planes in service NiceJet would be comparable to BA
in terms of number of planes.
Post 9/11, the full service airlines were struggling
due to the reluctance of passengers to pay ‘full’
fares. Low cost airlines were taking advantage and expanding.
SouthWest Airlines, the largest low cost carrier in
the US, had expanded its share of the US market to 11
percent in 2002 in terms of passengers carried. NiceJet
was carrying an increasing number of business passengers
while BA and other European majors were suffering flat
or falling passenger numbers on their European flights.
NiceJet had strong competition from CheapAir, Bubba
Airlines and Nigriv Express in Europe. However, in a
sign of the times, the major airlines had begun attacking
their costs in their short haul European operations.
The ‘market’ and the ‘customer’
for whom the NiceJet brand was developed had, thus,
changed dramatically. Things were getting more challenging
for Alistair Buckle. NiceJet was no longer the newcomer,
but an incumbent airline operator with a prompted awareness
of 99 percent - next only to BA. Rapid expansion had
put strains on the operational capability of the airline
to provide the promised services to customers.
What should be the nature of the ‘new’ NiceJet
brand? Should there be a change in the positioning of
the NiceJet brand? As Alistair said, what should we
be doing now? Integrating the BeAir acquisition was
also a major issue over the next twelve months. Can
Nicejet command a price premium over CheapAir if the
NiceJet brand is a more powerful brand? According to
Alistair Buckle, NiceJet’s average fare level was
about 30 percent higher than that of CheapAir but about
50 percent lower than that of BA. Unlike CheapAir, NiceJet
flew into the main airports in most of its destinations
– like the major airlines. For example, CheapAir
flew into Charleroi that was more than 30 km from Brussels,
while NiceJet flew into the main Brussels airport.
So far, NiceJet has been market driving in its approach.
It has educated the customer on the nature of pricing
– low prices overall, but rising as the day of
departure nears; prices quoted separately for every
flight leg – not on a return basis. Figure 2 shows
recent fares obtained, the percentage of seats sold
at each fare class and the number of days in advance
that the particular fare class was available. Figure
3 shows the cumulative number of seats sold in different
fare classes upto June 10, 2002 on a new route to the
Charles de Gaulle airport in Paris. NiceJet has also
educated customers to book and buy tickets only over
the internet or telephone (90 percent of its tickets
are sold through the internet), and had influenced governments
to change their policies (getting the Swiss government
to let them fly from Geneva despite pressure from SwissAir).
Going forward, would this approach still work in the
future as NiceJet became a ‘mainstream’ airline
in different European countries?
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NiceJet
was no longer the newcomer, but an incumbent
airline operator with a prompted awareness of
99 percent - next only to BA
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Alistair called a meeting of his managers to try and
set the ball rolling on different possible alternative
paths to the future. What should Alistair do?
Questions to Ponder
Should NiceJet continue to behave as if it were still
the underdog? Should it try to change the brand image
to a more ‘mainstream’ pan-european brand?
If so, what should the brand represent? The Marks&
Spencer brand, for example, represented “aspirational
quality accessible to all.” British Airways projected
itself as the “World’s Favorite Airline.”
Should NiceJet have an umbrella brand with the services
and branding in different countries having a local flavor?
Or should it continue to use the BeAir brand together
with the NiceJet brand? Or should it use the BeAir brand
and consign the NiceJet brand to the dustbin? Or should
it do something else altogether? |
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