That, in a nutshell is what's missing. I don't have the answer either - I'm certainly not close enough to know the numbers, and I can only guess at what's been tried. In this situation I think CO has very little to lose by experimentation on one route or in one region and see if you can scale it.

I think it's interesting that WN & B6 have been able to build brands based on "value for money". They've come to set the fare levels in most domestic markets, yet they're not always the cheapest, though people still perceive them that way. It's their "brand" if you like, yet CO is lost in the grey "legacy" brand where to most travellers their totally indistinguishable from UA, AA, DL etc. I wonder how much this is influenced by WN's direct selling approach? Would it be positive or negative to get CO off the online comparisons?

One thing I think they have wrong is a lack of a differentiated product between "business" and "leisure" travellers. I'm not sure exactly how I would define these labels, but the key features for business are scheduling and reliability. People travelling for work want at the airport late and get whisked away on the first in the morning / last in the evening, and arrive refreshed, on time & ready to work. These days they want power and space on the plane to work, but their employers won't pay for F, but getting people to pay for more flexible tickets if the package (including ground handling!) is right, would go a long way to elevating financial performance.

How about taking away the upgrade lottery, but provide a "business class" service if you pay for a semi-flexible ticket - kind of an x-UP I suppose. Maybe I'm arguing that CO should turn away from the WN / B6 single class model and fight very hard to capture a disproportinate share of corporate dollars on key routes with a 3-class system, decent food, perhaps 5-wide seating on narrow bodies and bundle that with matching ground services - maybe in some markets that means partner rental cars ready-to-go at the curbside when you land? More space for carryons, and any checked bags ready when you land? Heck, what do people want if you look at the overall end-to-end travel process? Maybe it's even more radical than this, and ought to include mixes of travel and video conferencing?

None of this would stop CO offering competitive fares with no food in the back of the bus, in fact there would be the option to offer different fares in the middle of the day and/or Saturdays and/or to adjust the mix according to the time of the day.

One of the interesting things to me is markets tend to go in cycles. There will be an end to the lowest cost, commodity pricing model, and it will start to switch back. Some of it might be because lucrative passengers making 1-3 day trips rebel against LCC's fly-when-we-want-to scheduling that waste a lot of time - it's certainly a problem I now face where trips AUS-SJC have been turned over to the LCC's. As you said, finding the missing connection is essential and it needs someone with a "feel" for positioning 5-10 years down the road.

At this point, given their performance, I don't think the managers should ignore options like cutting 30 or 50% off the size of CO it that would make the remaining business profitable. It would be ugly, but the business can't stumble along like it has been doing because something unforseen will take it out.

Being an "exceptional" standalone carrier was an excellent way for a legacy airline -- in the United States, or indeed anywhere else in the world -- to do business in the 1990s until the mid-2000s. Nowadays, it's a recipe for market marginalization, if not an outright consignment to the history books. The airline industry has changed immensely over the 2000s, and simply put many airline traits that were key to success in years past have diminished value or are an outright liability going forward.

While airlines can and will continue to invest in their products going forward, success in the 2010s will belong to those airlines that reinvent themselves to function in the context of larger, multi-carrier, (and mostly) alliance-based air transportation systems. For some airlines, the only "reinvention" option on the table is a merger or acquisition - in North America, we've seen America West, Northwest, and Midwest exit the marketplace as standalone players, and it's no secret US Airways would like to bring its own independent existence to an end (but in the meantime, US is engaging in low-level consolidation through its deal with Delta). In Europe, bmi, Swiss, Austrian, SN Brussels, Air One, and KLM have all bid farewell to their standalone status as well, BA seeks to do the same, and Virgin may not be far behind. Asia is lagging in consolidation, but the day of reckoning for the Chinese, Japanese, Indian, and Southeast Asian air carriers is fast approaching.

Under Larry Kellner, Continental has taken the shrewdest possible approach to reinvention for the 2010s -- maintaining as much of CO's service distinctiveness as possible while transitioning the airline into an alliance-based operating framework without a change in ownership and the consequences that would arise from a merger/acquisition. Considering CO's post-deregulation history, this is a BIG accomplishment. Kellner's legacy wil be that of a Continental that met major challenges, weathered the indutry storms in the best way possible, and positioned itself for future success that its rivals, many of whom are mired in merger messes or more dire financial crises of their own, cannot easily duplicate.

I worked in the industry nearly 10 years and bailed out. It's an impossible model to sustain. When you have a commodity (seat) that is perceived to be different to each individual that sits in it, with no legal or ethical way to differentiate that product at time of sale based on price, you effectively have to be all things to all people. That's very a very expensive opportunity cost that's nearly impossible to recover if you get it wrong. Couple that with network hubs, 1,000s of flights per day and 10,000's of seats that are sold from a year in advance until the day of departure, with schedule changes, aircraft swaps, crew scheduling, hub flow, weather, labor unrest etc., it's nearly impossible to get it right. So you do the best you can.

I agree with you 100%. And unfortunately the market has spoken; if your competitor charges $5 less for the same flight/travel requirements, the passenger will book the lowest fare. While there are a few that are loyal enough to stick with one company over the other, there's no way (at time of booking) for the RES system to distinguish you from John Q Public. Therefore, the same inventory and price is available to everyone. Therefore, fares will remain depressed.

They did. Trust me there is virtually nothing that an airline can do that will yield additional revenue for the company without increasing costs that hasn't been tried. The only way to compete is slashing costs, since the fares are virtually the same across competitors. LiveTV works because the upfront cost is not borne by CO, but either is the revenue. LiveTV is a hope for keeping current customers and also hoping the discretionary traveller will be convinced to fly you over the other carrier. It doesn't yield additional revenue to CO.

Your right, and CO didn't initiate this, the followed the industry. Fact is, passengers will buy airline A over Airline B if the ticket price is lower on A, but don't seem to mind paying an extra $100 for bags/food/drinks on the travel day. CO was leaving money all over the check in counter since it wasn't making any difference in passenger behavior having free bag check. Plus there's no taxes on the ancillary fees. This is innovative and yielding additional revenue to the bottom line. It's here to stay unless Congress changes the laws.

Southwest is losing money and "attracting" passengers isn't borne out in the revenue picture. They are in the same boat as everyone else, desperate to control cost and increase revenue.

However, I agree, WN and B6 have managed to market themselves as the "low fare" airlines although this is not always the case. But they also only support one business model. The legacy have to be both low fare, and amenity rich for business travelers. It's very hard to satisfy both markets in the same cabin.

Bethune didn't have to deal with the internet and the destruction of the carriers distribution channels. Bethune also re-launched CO during an economic boom cycle. The stark reality is times are different, and there is virtually nothing outside vast improvement to aircraft operating costs (hence the large 787 purchase) that's going to make an appreciable impact to any carrier's bottom line. The only innovation is going to come from additional cost reductions (i.e, service and amenity cuts), and ancillary revenue collection (not terribly popular). No visionary leader is going to make much of a difference to the market realities.

The funny thing is that, despite your expertise, you don't seem to grasp that TWA and I are probably on opposite ends of the spectrum on this issue. As best I can tell, he thinks that CO's biggest failure is that they didn't differentiate enough. I think there biggest failure is that they stuck too long (and continue to somewhat cling) to the notion that such differentiation will work. You might try actually reading next time.

I disagree somewhat here. Another way to boost revenues is to build highly integrated partnerships/joint ventures with other major airlines that promote synergies that do not exist in the absence of the relationship. While the Star Alliance carriers will not be the first to set up joint ventures, they should be the best at it given their dominance of major O&D and connecting gateways and markets on both sides of the Atlantic and Pacific oceans.

That wasn't the point, and nice try. The point (if you actually read it) was the continual complaining with no reasoned understand of the business challenges or market realities of the industry. Just more whining.

You say nothing new, accept when it serves your interest to bellyache, yet again. I'll say it again, if you don't like flying them, DON'T.

You've outlined the perfect description of the accepted wisdom which will convert the worlds airlines into regulated utilities.

There's nothing wrong with smaller businesses, or as you put it "marginalization" - go ask BMW how they feel about being a marginal supplier some time. Continuing on that theme, Mercedes were doing quite nicely until they tried "consolidation" with Chrysler, and improved again after the divorce.

All of this "wisdom" about airlines will ultimately fail because it ignores the customer - eventually (assuming we're not talking about re-regulation!) the Southwest's and JetBlue's and Easyjet's will rise to the top simply because they understand and address the needs of customers.

Good point. I agree with your statement.

The 'spend $1 to earn $1.10' is a soundbite in itself, but the concept he wanted to employ was to spend on product features that would result in added revenue.

Some of it is directly measurable - for example, if CO paid to install LiveTV and it cost them 'x' per ASM and their metrics said that 48% of the passengers will buy LiveTV during the flight, they would earn 'y' per ASM and thus achieve a profit.

Some if it is not directly measurable - more of a 'if you build it, they will come'.

Food on board is a good example. If they got rid of free food on domestic flights less than 4 hours and did BOB Delta style, they would possibly lose customers and only sell to 20% of their passengers. If they did BOB Virgin America style (big portions, lots of variety, fresh food, self-ordering at any time), they might gain revenue from that change.

Selling a re-usable pillow/blanket kit with a big soft pillow, comfortable blanket, ear plugs and eye shade is another potential revenue enhancer - especially as the product has no spoilage.

UA is (apparently) raising revenue via sales of E+. I might look at revamping the first few rows of coach - perhaps a new seat design (like the AC seat, for example) with extra legroom, like a miniature premium economy cabin. This section could be reserved for Elites, but offered for sale to others in the same fashion that VX uses - a different fare class entirely. The better seat includes free checked baggage allowance, Elite Access benefits, free LiveTV (where available) one complimentary glass of wine or beer and one free item from the BOB menu (where available).

Another product enhancement in serious need of consideration is a true Premium Economy mini-cabin on the 777, 764 and 787 for long haul international service which is designed to compete with PE products from ANA, Virgin, etc.

These are examples of 'spend 'x' to earn 'x+'

At the very least, what you're discussing is a form of E+.

And it doesn't have to be like UA's E+, which has only be accidentally and haphazardly monetized.

Just imagine if a car company made only a '88 Geo Metro and a 2010 Mercedes S-Class, and nothing in between.

Not only would a huge market segment be left unmet, the car company would be leaving its most profitable market segment by the wayside.

E+ is the most timid--and cheapest--iteration of the three-class system. But it can be a hugely valuable asset for a carrier like CO not only to retain elite loyalty (which has value) but access to E+ (and its best seats) can be hierarchized in order to favor those paying the most and with the highest status.

People still use the restroom in exactly the same way. They still have the same aspirations. They still want health, wealth and happiness for their kids. Yes, the channel may have changed, but human psychology hasn't - if it had there would be no BMW, Mercedes, Lexus. There would be no branded breakfast cereal, or premium products of any kind. There would be no differentiation in Hotels or vacations.

It's the task of the managers in the business to position themselves out of the commodity pricing model, because if they don't they're always going to be beaten by the lowest cost supplier - if they can't build a brand that appeals enough to a group of customers that they can return decent margins (which they haven't done for a decade!) they ought to pull down the shutters and quit now.

This does not mean they have to be the same size they are today - as I said before a radical re-size of the business might be the best option.

Where the current model is broken is how to evaluate the value of what I call the sub-premium traveler, typically an elite frequent flyer who doesn't (or can't) pay for FC but is more valuable to the airline than the typical leisure traveler.

This is currently the most undermonetized segment of the market.

Commodities can be differentiated. VX is selling the very same seat with extra legroom for a HUGE premium over its discounted economy class fares by bundling in extra benefits. The cost of these benefits is miniscule and anyone who would actually pay DOUBLE the fare to sit in these seats needs medication, but they are selling and apparently the model is valid.
That's where effective marketing becomes a necessity. Both WN and B6 survived exposure to GDS with their reputation and mystique intact. WN is busy capitalizing on the net cost differential between their fares (which might be higher) and a legacy ticket which might cost more in the end. It's a complex issue and hard to reduce to a 30 second soundbite or an ad that someone might glance at, but it needs to be done - assuming there is something to differentiate.

I've posted examples of small and big things that CO could look at which would return positive revenue for the cost.

There is a real risk that Congress will change the laws because this unbundling is leaving tax revenue uncollected. If not charging for a bag is not altering customer behavior, but charging for a bag is turning them off - then I would look at the opposite of unbundling as I outlined in my suggestion list upthread. A sellable mini-PE is not realistic right now - but what if tomorrow CO offered at check-in the option to package 2 checked bags, Elite Access, 'move your seat to the premium section', free LiveTV (where available), a pillow/blanket/eyeshade/earplug kit and a free glass of wine or beer for $50. How many customers would bite? What if we looked at the non-loyal Internet customer and began blocking seats so they would need to get their seat assignment at the gate (Delta has been doing this for years) - so the choice is buy the $50 package and get a premium seat or wait for your seat before boarding (and expect a middle in the last row). There are different ways to package products which add revenue.

Which is why there needs to be an intra-cabin differentiator. Value-added services for a fee (which looks and sounds better than charging for checked bags, food, etc. a la carte). VX's move (depending on how many buyers they have) in this regard was brilliant. Instead of charging $15-30 for a simple exit row seat, they bundled additional goodies in with the deal and are charging a bundle for it.

Expedia and Orbitz were around during the latter part of Gordon's tenure. He was also steering the airline through some very rough economic times - and we can thank him for the handshake/knee-in-groin which came in the form of "Monday - EliteAccess'' (cheers, clapping, smiles), and "Thursday -50% EQM" (crying, screaming, hand-wringing). He made some tough decisions we didn't always agree with and his hubris about 'if you need to be there tomorrow, you'll pay what I charge you' turned a lot of people off, but by and large I can't think of any other airline executive in *modern* history who took what was basically a dead environment and reinvented it, moving it to the head of the pack in a relatively short time.

The point is there is more an airline can do to offer product differentiation that will attract more revenue. Redoing the whole cabin might not be the way to go - but selective upselling and enhancing can tip extra revenue towards an airline that creates and prices such a scheme smartly.

I agree to an extent. The best example I can offer is the former AA Nerd Bird AUS-SJC service. I used to be able to arrive in the Valley before 9am local and return on an evening service around 5pm so I would get 1, 2, 3 full days there. Now the service is gone I arrive late morning and leave early afternoon, so I do less work or stay more nights in Hotels. The service therefore had a value to me - the convenience and productivity certainly justified a $5-600 ticket, yet AA failed to monetize the value, kept selling me $300 round trips and eventually convinced itself the route was unprofitable.

One problem therefore is airlines are too introspective - they focus too much on costs and on each other and fail to sell the real world value of what they're offering which is fundamental to any sales process.

Whether that translates to two or three class domestic services, is a different question. Related to this is whether the Elite & Upgrade approach is right? For that matter, whether benefits of having an FF scheme actually outweigh the costs? Given the way these have morphed over the years, I hope CO does regular soul searching on such matters, and asks itself how it would operate without one? Or if it should be more targetted?

How do you monetize someone who necessarily has to fly cheapest fares? Oh, that's right. By taking on fees and other things that they will have to pay after the fact.

Good luck monetizing them some other way.