BoB - Success, Failure or just head in the clouds?
Sep 3, 2018, 4:22 am
#137
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Ahah, well, believe it or not, I have friends, family and co-workers who fly once or twice a year too. 
While I would never interpret the behaviour of a few people as evidence of the vast majority, I certainly do not read their anecdotal behaviour the same way as yours, and indeed, I find many an occasional flyer typically choosing the legacy carrier over the low cost one when the legacy carrier costs £48 and the low cost £41 even when I precisely point out to them that I would go U2 myself. Maybe that is due to some assumptions about causality that you seem to make here? For example:
This is of course an extremely leading question, and simply not the way the choices are set in real life. BoB was never about transferring saved costs to the passengers, in fact, BA management was always very clear and honest about that (unlike the HBO model were that claim was made).
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While I would never interpret the behaviour of a few people as evidence of the vast majority, I certainly do not read their anecdotal behaviour the same way as yours, and indeed, I find many an occasional flyer typically choosing the legacy carrier over the low cost one when the legacy carrier costs £48 and the low cost £41 even when I precisely point out to them that I would go U2 myself. Maybe that is due to some assumptions about causality that you seem to make here? For example:This is of course an extremely leading question, and simply not the way the choices are set in real life. BoB was never about transferring saved costs to the passengers, in fact, BA management was always very clear and honest about that (unlike the HBO model were that claim was made).
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You may say that BA's brand proposition would be more attractive if it had free F&B, and probably that's the bet AF and Lufthansa are taking, but BA are clearly taking the view that taking cost out is a better strategy. Obviously if your friends are taking BA rather than Easyjet and paying a price premium then they're not all that bothered about BoB. There are a lot of people posting here (in the FT bubble) who aren't either. I'm not sitting in an airline boardroom, but I was being taken to task for claiming "the vast majority" aren't bothered by BoB, and I'm defending that statement rather than the overall strategy.
[Removal of sections of the original post don't mean I'm dismissing them, quite the contrary. Good points all, just that there's a lot to deal with, usually removal means I don't have an effective counter-argument]
Legacy carriers (BA included) cannot compete on cost alone. That is a bare fact. Their entire structure of operation is more expensive and that means that somehow they have three options: 1) fly different routes and customers (see below), 2) be more expensive and hope that people still book them based on inertia or prejudice alone, 3) be more expensive and retain some specific benefits which they hope will retain them some custom for a given price difference (in which case, a sense of hospitality based on free F&B is neither more nor less absurd than some of the ones that they are keeping now.
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PS: In terms of your answer to my counter-factual questions, I am missing the logic of your AF-KL answer. You invest a lot of time and energy in arguing that BoB is what people want, but you then say that AF and KL don't use it because they are in crisis and don't want to "rock the boat". Surely, if that is what the people want and they are in crisis that should be even more of a reason for them to introduce this urgently? As for the notion that Germany is just a more conservative country, I'll admit that I am just jealous of whatever means you've found to block the sounds of Mr Rees-Mogg, blue passports, and references to the good old days but let me not get OT
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One thing that I fully agree with you with is that low cost airlines represent a major challenge to European legacy carriers. What I think, however, is that what makes this really interesting is that this is not the only one. European legacy carriers are in fact embroiled in a triple competitive threat:
- from one another - that is the "classic" scenario of BA, LH, AF, and friends all fighting for the same passengers to a large extent and it is not going away;
- from low cost airlines - indeed, a major threat notably on point to point European traffic from their hubs and now increasingly on the - so far more protected - long haul network. The short haul thread is the 1990s one and now largely mature, the long haul one is the 2010s one and the newest of all;
- from ME3 and other major new international competitors. That may be the 2000s threat but has again matured in the meantime, and in many ways, EK, for instance has some of the same argument (in terms of an incredibly dense European network) for long haul to the South and East and low cost airlines to the West.
That means that European airlines can't afford to think of their competitive environment as unidimensional (as it would be if it was only about low cost airlines competing on fares on European point to point) but have to compete simultaneously on cost and quality, on p2p passengers and on connecting ones, on domestic market and on both European and international ones.
I think that this is what makes the race so interesting but also so complex, and I suggest that any hope for a quick fix or obvious solutions, however embraced by any flyertalker, are actually not anything that airline leaders themselves would share so enthusiastically. In fact, in the secrecy of IAG meetings, I suspect that AC and WW are a lot less reassured and 'happy' about the situation than you are on their behalf and are still wondering which part of their current would map to navigate such a narrow straight will and will not prove right.
- from one another - that is the "classic" scenario of BA, LH, AF, and friends all fighting for the same passengers to a large extent and it is not going away;
- from low cost airlines - indeed, a major threat notably on point to point European traffic from their hubs and now increasingly on the - so far more protected - long haul network. The short haul thread is the 1990s one and now largely mature, the long haul one is the 2010s one and the newest of all;
- from ME3 and other major new international competitors. That may be the 2000s threat but has again matured in the meantime, and in many ways, EK, for instance has some of the same argument (in terms of an incredibly dense European network) for long haul to the South and East and low cost airlines to the West.
That means that European airlines can't afford to think of their competitive environment as unidimensional (as it would be if it was only about low cost airlines competing on fares on European point to point) but have to compete simultaneously on cost and quality, on p2p passengers and on connecting ones, on domestic market and on both European and international ones.
I think that this is what makes the race so interesting but also so complex, and I suggest that any hope for a quick fix or obvious solutions, however embraced by any flyertalker, are actually not anything that airline leaders themselves would share so enthusiastically. In fact, in the secrecy of IAG meetings, I suspect that AC and WW are a lot less reassured and 'happy' about the situation than you are on their behalf and are still wondering which part of their current would map to navigate such a narrow straight will and will not prove right.
I guess to conclude, I'd say that really my point here is that you can construct a logical path leading to BoB, and that its introduction hasn't led to a wave of dissatisfaction leading to market share loss which has been one of the suggestions from the more irate BoB opponents. In fact in both of our experience, it's a non-issue with infrequent flyers, and in your experience (which I can accept because I do it myself) people are irrationally still willing to pay a premium for BA. And there are at least schools of thought amongst frequent flyers.
Sep 3, 2018, 4:23 am
#138
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It’s common in the US on Alaska, JetBlue and Southwest for a soft drink and snack to be complimentary and other items are available for purchase.
Sep 3, 2018, 5:47 am
#139
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Well, I think that with your last answer, we actually agree on most things except the bit where you say that you think a vast majority of occasional flyers are not bothered by BoB and my saying that it must be a close call since BA are not reverting but others are not imitating for the rest, and thus in a way the overall conclusion where you feel BoB is a success and I say that I'm guessing it must be neither a resounding success nor a resounding failure.
I fully agree. "Do you dislike paying for food and drink on a flight" would be just as misleading, but you'll observe that I never suggested asking that either. As I mentioned, I'm deeply of the belief that most human action is largely subconscious anyway and that in practice decision making is a lot more complex than anything I've seen discussed on those threads. People don't just choose the cheapest, they don't just choose the best time or the most convenient, they just don't choose the best service, they don't just choose based on past experience, etc. I think our brain considers an enormous amount of information, some weighted heavily, some more marginally, some rationally and some emotionally or symbolically, and comes up with a decision that integrates all of it. The emphasis on the various ingredients will even vary a lot not only depending on the person but also depending on the trip, the circumstances, how they are travelling and with whom etc.
Now I do think there are ways of measuring the impact of something like BoB on purchasing behaviour. BA probably have some of the information but to my knowledge it is not public. Even in surveys, this would be quite possible to do using things such as implicit questions as well as some a number of survey experiments, but interestingly, commercial survey companies (let alone internal communication units, which typically handle customer feedback analysis for major airlines even though they are not scientifically trained to do this properly) are usually pretty poor at doing that so I wouldn't even bet that BA has evaluated that. In fairness, the impact on demand and yields is probably what matters most to them.
Similarly, I've never suggested that BoB would lead to a massive exodus of customers so I'm not in a position to explain or argue that argument (I've explained what made me think that the outcome is probably not super clear, and why I suspect that it is likely to be more positive with P2P and potentially more problematic with connecting pax).
BTW, the point you make on emotional responses to brands is - in my view - entirely correct, but that precisely has powerful impact on repeat purchase behaviour, especially where that emotional response is not based pure prejudice but on personal experience (hence my example earlier of the "hair that [can] break the camel's back" when you are asked to pay for a glass of sparkling water or a coffee after multiple travel incidents in your WT+ flight), and as others have mentioned, complimentary F&B can symbolically be part of that image an airline wants to project - in fact, that is very much why BA had organised its entire advertising strategy mere months before introducing BoB!
We are pretty close on that too. What I'm saying is that BA, AF and LH undoubtedly all agree that ending free F&B certainly has a cost on brand perception, in the same way they undoubtedly all agree it can lead to significant cost savings on short haul operations (airlines' margins are so small that even a £1 or 2 pp is not a negligible saving where it can be achieved). I also suspect that they would largely agree with me that the bigger risk is probably on high margin connecting pax such as WT+ and semi-flex and flex Y. Critically, those are very lucrative segments (a while ago, I had heard from a major BA competitor that W and full fare Y were actually their two most lucrative segments, well ahead of C/J).
What they seem to disagree on is how it evens out at the end. BA are clearly expecting that the overall result is positive and AF and LH that they are better off not following suit. If I were to make a very wild guess on that, by the way, I would probably look at a mix of 1) BA facing a harsher competition on short haul P2P because they face both U2 and FR from London at the same time and I think that it has affected their position more, 2) BA having recently been less dependent on the transfer market because of the strong economic situation in the UK in the past 20 years (but as I was mentioning, the medium term uncertainty is now higher for the UK than for Germany or France), and 3) AF and LH lagging behind BA in terms of connecting Premium Economy as well as high loyalty and hoping that maintaining free F&B will give them a chance to regaining shares from BA on those two critical segments. In particular, LH was very late in the PE game, and AF-KL lost a lot of strong loyalty to BA when FB took a significant turn for the worse a few years ago and have been very keen on trying to regain some of it in the past 2-3 years. In fact, LH is also pretty open about the fact that they are keeping free F&B (and some other goodies) essentially for connecting purposes hence their divergence between the mainline and Eurowings service propositions.
Incidentally, if I move on to an even wilder guess, I'd be almost ready to bet that BA were persuaded that their move to BoB would be trend-setting (in fact AC and WW almost said as much!) and that AF and LH would follow suit. I'm pretty certain that they would have preferred them to follow suit too! This hasn't happened at this stage. Maybe they still hope that they will, maybe they won't, but I am pretty sure that BA's original models on the impact of long haul considered and at least hoped that they would not be the only one of the "Big 3" going there.
In fact, in terms of "observation value", I think that the question of how long divergence on something that fundamental can survive is one of the questions I find most puzzling and interesting here! I'm genuinely wondering if we can have another 2 or 3 years with such a critical difference, ie without either AF and LH emulating BA and moving to BoB on mainline, or BA giving up and restoring some sort of free service, or something in between with a more "US model" type things with everyone offering soft drinks or so and meals going away on all but the longest routes. Of course, the European Big 3 are less integrated than the US Big 3, but still....
Option 4 is indeed the big question - can they align so closely that they lose the competitive disadvantage. It's an open bet and I agree that MF and changes to employees' contracts are the boldest move by any major European airline to date (if one I personally feel heartbroken about as I think that BA are treating some of their crew very unfairly but that is another debate). I'm pretty sure that neither AF nor KL would be able to do the same (KL maybe). Of course, to make things even more complicated, what Brexit will change to the competitive scene will also matter here and none of us can double guess it as yet.
In terms of how this works out. on your point 1, I actually tended to think that BA would choose to go low cost aggressively at LGW and remain full service at LHR. I'll admit that I was completely wrong and none of my predictions on that front have occurred. Maybe the fact is that LGW is too close to LHR (and still sufficiently convenient) for the sort of internal competition within the brand that this would provoke to be viable.
You may feel that it is disingenuous and that the argument was perfectly reasonable but I just actually disagree with it. I just don't think that Germany is a more conservative country than Britain on those fronts (though it is on some others such as family) so I was merely illustrating my actual belief that there are some expressions on conservatism that are seen as perfectly normal and acceptable in the UK that would never float in Germany or for that matter in any other Western European country (it might in Poland and a few other countries further east).
To be honest, I don't think that a particularly central question anyway so we can probably afford to disagree on whether German society is conservative or not without much impact on the rest of the discussion! I've spelt out my alternative explanations as to why the strategic choices of LH, AF, etc have differed from those of BA so far but again I'm the first to admit that mine are also only guesses anyway.
And glad you agree on the 'complex' competitive scene. To me, that is really the crux of the matter and possibly the most important contextual element here. It's almost like a game of communicating vases: you need to change x to gain/regain type A passengers from competitor type 1, but the moment you do it, you'll lose (or re-lose) type B passengers to competitor type B, etc. What is more, you think that those passenger groups are discreet but they are not, so your business passengers also happen to be leisure family crowd once a year with their wife and three kids, and if you lose them on this then you might lose their high contribution business travel too! It's all complex and inter-twined, and of course, the three key types of competitors are not merely idle whilst you decide on your changes, so you may even explore a change route for 6 months and decide what you think is best, and in the meantime, competitor x have announced a change of their own which completely challenges your understanding of the competitive scene.
I guess in a way, I'm just trying to propose that we restore some of that complexity in a discussion which has perhaps simplified things a bit too much to my taste, though I accept that this invariably results in unduly long and boring and complicated posts on my part.
I fully agree. "Do you dislike paying for food and drink on a flight" would be just as misleading, but you'll observe that I never suggested asking that either. As I mentioned, I'm deeply of the belief that most human action is largely subconscious anyway and that in practice decision making is a lot more complex than anything I've seen discussed on those threads. People don't just choose the cheapest, they don't just choose the best time or the most convenient, they just don't choose the best service, they don't just choose based on past experience, etc. I think our brain considers an enormous amount of information, some weighted heavily, some more marginally, some rationally and some emotionally or symbolically, and comes up with a decision that integrates all of it. The emphasis on the various ingredients will even vary a lot not only depending on the person but also depending on the trip, the circumstances, how they are travelling and with whom etc.
Now I do think there are ways of measuring the impact of something like BoB on purchasing behaviour. BA probably have some of the information but to my knowledge it is not public. Even in surveys, this would be quite possible to do using things such as implicit questions as well as some a number of survey experiments, but interestingly, commercial survey companies (let alone internal communication units, which typically handle customer feedback analysis for major airlines even though they are not scientifically trained to do this properly) are usually pretty poor at doing that so I wouldn't even bet that BA has evaluated that. In fairness, the impact on demand and yields is probably what matters most to them.
Similarly, I've never suggested that BoB would lead to a massive exodus of customers so I'm not in a position to explain or argue that argument (I've explained what made me think that the outcome is probably not super clear, and why I suspect that it is likely to be more positive with P2P and potentially more problematic with connecting pax).
BTW, the point you make on emotional responses to brands is - in my view - entirely correct, but that precisely has powerful impact on repeat purchase behaviour, especially where that emotional response is not based pure prejudice but on personal experience (hence my example earlier of the "hair that [can] break the camel's back" when you are asked to pay for a glass of sparkling water or a coffee after multiple travel incidents in your WT+ flight), and as others have mentioned, complimentary F&B can symbolically be part of that image an airline wants to project - in fact, that is very much why BA had organised its entire advertising strategy mere months before introducing BoB!
We are pretty close on that too. What I'm saying is that BA, AF and LH undoubtedly all agree that ending free F&B certainly has a cost on brand perception, in the same way they undoubtedly all agree it can lead to significant cost savings on short haul operations (airlines' margins are so small that even a £1 or 2 pp is not a negligible saving where it can be achieved). I also suspect that they would largely agree with me that the bigger risk is probably on high margin connecting pax such as WT+ and semi-flex and flex Y. Critically, those are very lucrative segments (a while ago, I had heard from a major BA competitor that W and full fare Y were actually their two most lucrative segments, well ahead of C/J).
What they seem to disagree on is how it evens out at the end. BA are clearly expecting that the overall result is positive and AF and LH that they are better off not following suit. If I were to make a very wild guess on that, by the way, I would probably look at a mix of 1) BA facing a harsher competition on short haul P2P because they face both U2 and FR from London at the same time and I think that it has affected their position more, 2) BA having recently been less dependent on the transfer market because of the strong economic situation in the UK in the past 20 years (but as I was mentioning, the medium term uncertainty is now higher for the UK than for Germany or France), and 3) AF and LH lagging behind BA in terms of connecting Premium Economy as well as high loyalty and hoping that maintaining free F&B will give them a chance to regaining shares from BA on those two critical segments. In particular, LH was very late in the PE game, and AF-KL lost a lot of strong loyalty to BA when FB took a significant turn for the worse a few years ago and have been very keen on trying to regain some of it in the past 2-3 years. In fact, LH is also pretty open about the fact that they are keeping free F&B (and some other goodies) essentially for connecting purposes hence their divergence between the mainline and Eurowings service propositions.
Incidentally, if I move on to an even wilder guess, I'd be almost ready to bet that BA were persuaded that their move to BoB would be trend-setting (in fact AC and WW almost said as much!) and that AF and LH would follow suit. I'm pretty certain that they would have preferred them to follow suit too! This hasn't happened at this stage. Maybe they still hope that they will, maybe they won't, but I am pretty sure that BA's original models on the impact of long haul considered and at least hoped that they would not be the only one of the "Big 3" going there.
In fact, in terms of "observation value", I think that the question of how long divergence on something that fundamental can survive is one of the questions I find most puzzling and interesting here! I'm genuinely wondering if we can have another 2 or 3 years with such a critical difference, ie without either AF and LH emulating BA and moving to BoB on mainline, or BA giving up and restoring some sort of free service, or something in between with a more "US model" type things with everyone offering soft drinks or so and meals going away on all but the longest routes. Of course, the European Big 3 are less integrated than the US Big 3, but still....
Option 4 is to align cost structure with LCC. In fact these are not mutually exclusive, and BA are (1) flying different routes and expanding Gatwick operations, they are (2) maintaining some level of price premium on low cost fares even though these are effectively unbundled in the same way as a LCC, the fact I can justify a like for like comparison as lower cost is entirely because I have status, which is anachronistic in the model, (3) having CE available for those who value it. And they are addressing (4) in various ways, the most obvious being mixed fleet operation, but also to the extent where cost cutting is an internal priority.
Option 4 is indeed the big question - can they align so closely that they lose the competitive disadvantage. It's an open bet and I agree that MF and changes to employees' contracts are the boldest move by any major European airline to date (if one I personally feel heartbroken about as I think that BA are treating some of their crew very unfairly but that is another debate). I'm pretty sure that neither AF nor KL would be able to do the same (KL maybe). Of course, to make things even more complicated, what Brexit will change to the competitive scene will also matter here and none of us can double guess it as yet.
In terms of how this works out. on your point 1, I actually tended to think that BA would choose to go low cost aggressively at LGW and remain full service at LHR. I'll admit that I was completely wrong and none of my predictions on that front have occurred. Maybe the fact is that LGW is too close to LHR (and still sufficiently convenient) for the sort of internal competition within the brand that this would provoke to be viable.
You may feel that it is disingenuous and that the argument was perfectly reasonable but I just actually disagree with it. I just don't think that Germany is a more conservative country than Britain on those fronts (though it is on some others such as family) so I was merely illustrating my actual belief that there are some expressions on conservatism that are seen as perfectly normal and acceptable in the UK that would never float in Germany or for that matter in any other Western European country (it might in Poland and a few other countries further east).
To be honest, I don't think that a particularly central question anyway so we can probably afford to disagree on whether German society is conservative or not without much impact on the rest of the discussion!
I've spelt out my alternative explanations as to why the strategic choices of LH, AF, etc have differed from those of BA so far but again I'm the first to admit that mine are also only guesses anyway.And glad you agree on the 'complex' competitive scene. To me, that is really the crux of the matter and possibly the most important contextual element here. It's almost like a game of communicating vases: you need to change x to gain/regain type A passengers from competitor type 1, but the moment you do it, you'll lose (or re-lose) type B passengers to competitor type B, etc. What is more, you think that those passenger groups are discreet but they are not, so your business passengers also happen to be leisure family crowd once a year with their wife and three kids, and if you lose them on this then you might lose their high contribution business travel too! It's all complex and inter-twined, and of course, the three key types of competitors are not merely idle whilst you decide on your changes, so you may even explore a change route for 6 months and decide what you think is best, and in the meantime, competitor x have announced a change of their own which completely challenges your understanding of the competitive scene.
I guess in a way, I'm just trying to propose that we restore some of that complexity in a discussion which has perhaps simplified things a bit too much to my taste, though I accept that this invariably results in unduly long and boring and complicated posts on my part.
Sep 3, 2018, 6:33 am
#142
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Sep 3, 2018, 6:41 am
#144
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Sep 3, 2018, 6:44 am
#145
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Sep 3, 2018, 7:31 am
#146
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Nothing wrong at all !
Though safe to say it’s a long, long time since BA and the term innovation have been remotely synonymous ; a point highlighted (in somewhat amusing fashion, to give him credit) by Sr.Cruz, when discussing his own airline’s outdated CW seat offering.
I suppose there's something creative in the way they interpret the best interests, the wishes, hopes and aspirations of their passengers, but....
Sep 3, 2018, 8:28 am
#148
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In the case of BA, the emotional element is charged not by whether there's a cost for refreshments, but that the airline took the complimentary service away.
That annoyed some frequent flyers, but i reckon a lot more will have a subliminal adjustment to assessing carriers. So it's likely a number of regular passenger will reduce in some way they business the do with BA.
Some, perhaps many, are happy with the move, and will stay with the airline.
But it's difficult for me to see how the change in service is going to bring in new passengers, win them over from the Lufthansas and the easyJets. If any came over, let's hope hey were on flights where BoB worked, and were not put off by the amateurish way it was implemented.
Interesting, too, will be the reaction of infrequent travellers, returning to BA and discovering the on-board service is not so generous as their union-jack tinted memories would have it.
And yes, yes, I know that lower costs give scope for lower fares to attract new passengers. But the savings must be nugatory in the scheme of operating costs: deck chairs on the Titanic.
Sep 3, 2018, 9:00 am
#149
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