http://www.businessweek.com/print/innovate/content/mar2006/id20060302_922016.htm MARCH 2, 2006 Insight By Jesse James Garrett Flying the Cyber Skies To keep their customers away from upstarts and booking sites, major airlines are going to have to fight competitors on their turf -- the Web It's hard to go a week these days without reading another story about the ongoing financial crisis in the airline industry. In the last few years, one major carrier after another has either been forced to seek bankruptcy protection or has come dangerously close. Meanwhile, small carriers are simply going out of business rather than trying to compete in the current environment. Every carrier in the industry has been squeezed by converging trends and forced to reconsider almost every aspect of their business. Spoiled by decades of the freedom to charge a premium for their services, the major airlines were unprepared for new price pressures precipitated by smaller discount competitors. When they finally did give in and adjust their pricing, they had already lost considerable ground, giving upstarts like Southwest (LUV ) and JetBlue (JBLU ) a loyal customer base and a considerable foothold in the marketplace. These problems were compounded by a steep rise in the cost of jet fuel. The major airlines found themselves carrying fewer passengers on each flight, and spending even more money to do it. DO IT YOURSELF. In response, the big airlines have tried... well, everything. They've cut back the number of routes they fly, the number of flights on each route, and the number of planes in their fleets. They've turned to their ground crews to help deliver operational efficiencies in the never-ending maintenance commercial airliners require. They've spun off low-cost subsidiaries to go head-to-head with the discount carriers. They've taken away the pillows and peanuts and started charging for meals. Some have added seats to generate more revenue from each flight; others have taken seats out to provide extra room to justify their premium pricing. Another factor in the industry's financial crunch is the Internet. The immense popularity of third-party booking sites such as Travelocity, Orbitz, and Expedia has brought the airlines into competition with one another in ways never before possible. Price-sensitive travelers can now compare fares and run scenarios. The average consumer can now work out the most economical combination of airlines, connections and flight times to a degree that would break the hold of all but the most tenacious professional travel agents. These tools have made the competitive disadvantage of the major airlines even more severe, reducing brand identity to a thumbnail logo (if that) and completely obscuring all the service factors airlines look to in order to differentiate themselves. When the customer's options are simply reduced to times and prices, why wouldn't the discount carriers win out? For the major carriers, the result is an erosion of customer loyalty and repeat business. GIVE IT WINGS. The best possible way to combat this would be for the airlines to offer their own alternatives to travel sites, ones that are designed to build loyalty. Every major carrier already has such an option in place -- its public Web site -- but none of them has yet used this asset to its maximum potential. The typical airline Web site is built as if it were a weak extension of the company's loyalty marketing programs -- reporting and managing mile balances in frequent-flier accounts seems to be the high priority. Buying tickets on these sites, however, is a very different story. These interfaces almost seem like afterthoughts, as if the company put in a purchasing function because it was expected, not because it conveyed any particular business advantage. These interfaces look like little more than a hastily thrown together front end to the company's internal systems. Users are typically dropped into a cluttered landscape of arcane data without any clues to help them make sense of their options. No wonder the third parties are so successful. Third-party sites excel at supporting price comparisons among airlines (something, of course, no airline site would do), but that doesn't mean they're invulnerable. The airline can learn an enormous amount about a customer from his purchases. The time of day, seat position, and service class a traveler favors could all be recorded and offered as a default. Web sites could offer frequently used routes and connections when customers log in. Upon booking, airline sites could offer frequent fliers the option to automatically request an upgrade on qualifying flights. MISSED OPPORTUNITY. In fact, clearly indicating which tickets were and were not eligible for upgrades might "upsell" elite passengers to buy full-fare tickets instead of automatically choosing discounted prices. By owning this relationship -- and delivering a better buying experience than third parties -- the airlines can keep that frequent traveler all to themselves. With all the attention the airlines have given to other components of the overall customer experience, such as passenger check-in kiosks and in-flight services, it's surprising that they haven't yet seen the strategic advantage of improving the online ticket-buying experience. It's a missed opportunity to improve top-line revenue -- and maybe a first step toward giving fliers their peanuts back. --------------------------------- Yahoo! Mail Bring photos to life! New PhotoMail makes sharing a breeze.