This article from NYTimes.com has been sent to you by psa188@juno.com. Look to Your Feet and TV to Find the Future of Air Travel August 18, 2002 By EDWARD WONG THE world has changed." Those words were used Wednesday by John W. Creighton Jr., the chief executive of United Airlines, to explain the downtrodden state of the American airline industry. What he should have said was the way people want to travel around the world has changed. The turbulence that shook up the industry last week signals another turning point in the short-lived history of the major airlines. The fallout of the Sept. 11 attacks accelerated a Darwinian progression that has been weeding out the winged mastodons since deregulation in 1978. Now, the giants that remain are being forced to face the fact that it is impossible to follow the quixotic flight path of being all things to all passengers and still turn a profit. Major airlines in the future could start regularly offering niche products, with flights targeted to specific demographics, and ticket pricing simplified so that passengers know exactly what they are getting for what they pay. Niche marketing has been the hot selling concept for at least a decade, so why not apply it to airlines? On one end, there would exist the pared-down utilitarian service of Southwest Airlines and its imitators, often likened to cattle cars; and on the other would be flights geared for business travelers and other passengers used to being pampered. Midwest Express, based in Milwaukee, has always offered first-class service throughout the plane, and Lufthansa recently started a similar experiment on a trans-Atlantic route. There are many industries where niche marketing has brought in huge revenues. Cable channels have proliferated and flourished because each one targets a specific audience - no one confuses MTV, VH1 and BET, for example. More and more sneakers are being rolled out for different kinds of sports, from running to basketball to mountain biking to tennis. Few products promise to do all things. Airlines are only now discovering that successful carriers simply cannot fly everywhere, give passengers the fastest travel time possible and provide amenities that will satisfy everyone, from the Sultan of Brunei to the student on spring break. Evidence of full-service airlines awaking to that fact came in pessimistic bursts throughout last week. US Airways filed for bankruptcy protection. American Airlines, the world's largest carrier, said it was laying off 7,000 workers and streamlining its operations. United Airlines, the nation's second-largest carrier, said that it also may have to seek bankruptcy protection. Those announcements portend a radical reinvention of the industry. Full-service airlines are retooling in the direction of no-frills carriers, in an effort to cut costs. American, for example, is offering bag lunches rather than hot meals on almost all domestic flights, trying to turn its planes around more quickly and cutting first-class cabins on flights to Hawaii, Latin America and some European cities. Given that American is the industry's 800-pound gorilla, other full-service carriers will be asking themselves whether they should follow. The old amenities might then disappear from the industry, and "full-service" become a misnomer. The danger for such airlines is that their products might become so diluted that they no longer differentiate themselves and satisfy any niches. "People say it's all one commodity, but it really isn't," said Michael Boyd, president of the Boyd Group, an airline consulting firm in Evergreen, Colo. "Airlines are a lot like hotels. You don't want to confuse the brand. That's why you have Marriott, and for a lower price you might have Courtyard by Marriott. But the brands are different." Southwest Airlines and its profitable no-frills brethren - including Ryanair, EasyJet and others across the Atlantic - have shown that niche marketing can work with great success in the airline business. From its start 31 years ago, Southwest set out to fill a niche. It eschewed the grand travel experience promised by airlines like the now defunct Pan American World Airways, placing its money on travelers who put practicality as their top priority. Those are people who want to get from point A to point B and don't care how they do it, as long as the ticket is cheap and the plane gets there on time. In such a philosophy, the question of "beef or chicken?" is as academic as whether green men exist on Mars. "What's happened is that there is a market segment that values price over additional features," said John A. Quelch, a professor of marketing at Harvard Business School who sits on the board of EasyJet, based in London. "The major airlines competed really by adding benefits over the years. Their proposition has been, `We have something more over what other guys are offering.' The niche value airlines have been able to come under that pricing umbrella. They have identified consumers not interested in additional frills." In many cases, the low-cost airlines created a new market, by selling to people who would never have flown because of high prices. During economic downturns, their niche expands because cash-strapped passengers used to flying full-service airlines, including business travelers, defect to them. In June, Lufthansa unveiled a service targeted at the opposite end of the spectrum. It started a daily flight between Newark, N.J., and Dusseldorf that consists entirely of business class luxuries, with only 48 seats in a Boeing 737-700. Passengers get catered food, personal video-cassette players and the attention of four flight attendants. The idea sounded dubious, and it is still too early to judge its long-term prospects, but a Lufthansa spokeswoman said the company is making money on the flight. That kind of service, along with the rising popularity of low-cost carriers, foreshadows a possible two-tiered future for short- and medium-haul air travel, in which airlines sharply split their products. Airlines like Continental, Delta and US Airways have tried running separate no-frills carriers, but those generally failed because of branding problems or because the operations were tied too close to the main business. In Europe, some airlines like KLM have done a better job of creating separate low-cost operations, partly because they brand them well and target the products at the appropriate market segment. No one confuses Buzz, KLM's low-cost carrier, with the parent company. Delta hinted two weeks ago that it could be rolling out a new low-cost airline by next year. Creating niche products could also help simplify the complex airfare structure. The average traveler understands ticket pricing about as well as he or she knows how to pull a plane out of a tailspin. But with flights targeted to specific market segments, airlines would have to price to those demographics rather than offering dozens of fare types for a single flight. Making money off niche markets works, though, only if there are enough consumers in those segments to offset operating costs. It is easy to envision a luxury-oriented airline failing because of lack of demand. As Steven A. Morrison, a professor of economics at Northeastern University, observed, "People say a seat is a seat." How much comfort do travelers really want, other than more room to stretch their legs? http://www.nytimes.com/2002/08/18/weekinreview/18WONG.html?ex=1030682709&ei=1&en=fd41b17e0f0a64c7 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company