Great time to start an airline

This post picks up on one of my favorite themes from my previous blog at chetrichards.com, namely that the US airline industry is working as hard as it can to put itself out of business, and this generates opportunities for someone else.

First, to recap, the “legacy” carriers, those who were here before deregulation in 1978, appear to have only one business strategy: wring maximum revenue out of their product, while reducing its cost wherever possible. Thus, distance between seats becomes smaller, planes are fuller (though there are fewer of them — available seat miles are down about 6% from 2000) — and hardly anything except the seat itself is included in the price.  Classic description of a commodity.

Is this the way it has to be?  Consider a few points:

  • In Europe, high speed rail is replacing air travel on city pairs where they compete.  Thousands of miles are complete for trains traveling over about 130 mph and some clip along at over 200 mph.  On city pairs where they compete, high speed trains have taken a big chunk of the airlines’ business, to the point that only people who can’t afford the train have to use airplanes.
  • In many businesses, people will pay more, sometimes considerably more, for what they see as either a better product or better service.  Will a Lexus get you downtown any faster than a Toyota?  And realistically, what does a Mac do that a PC won’t?
  • Of course, there’s always business class. Let’s compare some fares, ATL – LAX, 18 – 25 August (all on Delta) nonstops:  Coach $248; business$1,242.  International?  ATL – LHR coach $1,082; business $5,182.  This gap has always presented an attractive target, but nobody seems to have figured out how to hit it, aside from a few niche players like Virgin’s Premium Economy.

Now, I’m typing this on my MacBook, so you may be able to figure out where I’m headed.

Air Apple

Why not?  Speaking of Virgin, Sir Richard Branson leveraged his way from a record shop to an airline empire.  I’ve flown their Australian service, which is as good as it gets in the discount airline business.  But he’s still offering the same service as everybody else and is still competing on price for most of his product.  Commodity.

Key point: But Apple has already established that people will pay more for its brand.  Is there a way to transfer that willingness to pay more to the transportation business?    Here’s my guess as to what it would have to be:

  • Hassle free.  That’s how Apple conquered the music player business, recall.  In the early days, it wasn’t just the ridiculously expensive iPod, but the entire iPod / iTunes ecosystem.  Unlike their competition at the time [remember “Plays4Sure,” which didn’t?] it was easy and it worked.  Plus it was fun.  Hassle free, at least compared to the competition, and at a very premium price.  In today’s security environment, this is going to be a challenge, but it’s also an opportunity.  Southwest has taken the hassle-free concept a ways (unfortunately they haven’t been able to summon up the courage to fly to Atlanta), but I think there’s a lot more that could be done.  I just don’t know what it is.
  • Great customer service, again, though, at a price:  AppleCare for a 13″ MacBook Pro, roughly my computer today, is $249.
  • Cachet — This isn’t so true today, at least for computers, but when I first started buying Macs, they did attract attention (with about 2.5% market share).  Frankly, I think Apple is running a real risk here.  On the other hand, how many iPhone 4s have they sold?
  • Better than what’s out there today.  Fact is, for years, Macs have received the highest reliability ratings, and many reviewers continue to praise OS X as easier to use and more stable than even Windows 7 (which is quite nice, by the way).  Can this be transferred to the air travel experience?  Who would have thought it could be transferred to cell phones or retail stores?

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