Saturday, April 5, 2008

Random Musing: Airlines Still Failing & Upscale Outlet

Northwest Tries To Save $100 Million A Year
Northwest said it would try to save $100 million a year through "cost reductions, productivity improvements and revenue enhancements." One part of this plan calls for 5% reduction in its domestic schedule. However, Northwest said it said it would not seek pay cuts. Northwest currently has $3 billion in cash at the end of 2007 as cushion against future losses.

Emerging Risk Event: Employing Failed Strategy To Reduce Costs. One would think that Northwest, having come out of bankruptcy, would have looked at what Southwest was doing right and try to emulate its efficiency. After all, bankruptcy is a great place to streamline workforce and get concessions out of the unions. Instead, Northwest is going to try the same cost cutting strategy that didn’t work for them, United, Delta, American, and other major carriers: cut costs, reduce domestic schedules, and added fuel surcharges (another way to say fare increase without the stigma) to their profitable international routes. I guess these airline company executives haven’t learned anything from their mistakes.

Required Corrective Action: Drastic times call for drastic actions, such as:

  • Increase the fuel surcharge on domestic flights by $50 each way
  • Charge $30 for each checked bag, after the first checked bag
  • Charge $20 surcharge if the total weight of a passenger’s carry-on items is more than 40 pounds. (Who in their right mind would carry more than 40 pounds on-board?)
  • Cut back on the beverage service choices to just three soft drinks, water, coffee, and two beers (no alcohol on flights shorter than 2 hours; yea, it's tough but if you need to drink alcohol on short flights, then you have bigger problems.)
  • Stop offering snacks. This was a way to cover for the previously offered meals but it really does nothing but make a mess, cost money, and gets people missing meals again
Then use some of the money saved to provide the following services:
  • Provide free gourmet, bagged meals to passengers at the gate, say at a price of $10 per passenger, including a bottle of water. Passengers can eat at the gate or carry it onto the plane.
  • Offer free movies again. Each plane carries the video equipment already. So, given them some generic news channel or PG rated movie. Even on flight less than 2 hours.
  • Provide free newspapers on board. Tribune Company and Metro International offer free dailies. So, why not work with them to provide free newspapers to your passengers?
  • Install computer stations at the gates and offer 20 minutes of free web access to each checked in passengers. All a passenger has to do is enter in the ID number from their boarding ticket and they are surfing the web
  • Provide passenger education on the reason for the changes and how, overall, it benefits them
By offering added value service that other airline carriers do not offer, Northwest can differentiate itself from the competition. While passengers may stifle at the drastic changes, once they understand that the tradeoffs benefit most passengers since most of us road warriors know how to pack. Those blockheads who decide to lug a large duffel bag or an oversized roller bag as their carry-on will pay the price, as they should. In the long run, we will have faster on-boarding and off-boarding time as well as a peace of mind knowing that some idiot is not destroying your bag by trying to cram an oversized bag right next it.

Will Northwest take the courageous path? I doubt it. Most likely they will cut more service and piss more passengers off. It must be a corporate mentality that I will never understand.
SkyBus, the “Wal-Mart of Air Travel” Died A Quick Death
Just shy of its first year anniversary, SkyBus died ignobly today. The ‘pioneer’ of air travel that experimented with al a carte pricing and selling advertising on its planes just didn’t calculate that they needed PROFIT to stay alive. It's one thing to say that you want to be like Wal-Mart but just saying it doesn’t make it so. One thing that people forget when they try to emulate Wal-Mart’s business model is the sheer size of their purchasing power. Attempting to undercut on price while flying only 74 flights to 15 cities does not make you a Wal-Mart. (Here is Wal-Mart’s fact sheet)

Perhaps, if all the U.S. airline companies merged together and started to under cut the international carriers, then one can begin to make a comparison to Wal-Mart. Until then, you are not even Sears.
Beer Version Of the March Madness: Hook & Ladder Backdraft Brown, the beer that I was rooting for beat out Raven Lager to win the second annual Beer March Madness. Way to go guys! Now, I am really jealous of the guys living in Baltimore. They get to enjoy the champion and the runner up at most pubs.
An Economic Oxymoron: Upscale Outlets
These retailers can come up with ingenious ways of marketing their brand. Millions of shoppers have been going miles out of their way to outlet centers featuring upscale brands. Companies like Chelsea Premium Outlet, Prime Outlets and Tanger Outlet Centers turned this into a moneymaker with outlet malls throughout the U.S. Initially these outlet malls bought damaged (often labeled as ‘irregular’) or unsold merchandises from manufacturers and department stores, respectively. To avoid competing directly with department stores, these outlets were often located at the outskirts of a city or in a secondary city close to a major one. However, as their business model became more lucrative, brand names began making clothing lines just for the outlets. Now, these bargain basement irregular retailers have moved to the first floor and are competing directly with the department stores and major discount stores.

So, what’s the oxymoron? It’s this: How can it be ‘upscale’ if it at an outlet?

Also, just because you stick on a brand name logo on inferior products, doesn’t make it so. Look at the history of Izod Lacoste, LA Gear, Bonjour Jeans, etc. They started with good product, built up a brand name, and then started cutting on quality, eventually going into history or coming back a shadow of their former self.

Another oxymoron: If a brand name makes products exclusively to be sold at an outlet mall, then is it really an upscale product?

Tommy Hilfiger, Geoffrey Beene, and Saks Off 5th Avenue are few of the brand names that have different clothing lines specially designed and marketed for the outlet centers. So, if you buy a Geoffrey Beene shirt for $15, does it mean that you bought the same quality shirt that retails for $52.50 at Macy’s? I think not. If you are not convinced, take your outlet shirt and go to Macy’s and compare the stitching and fabric. The same goes for Hilfiger shirts. At least Saks comes right out and states that their ‘Off 5th“ is a discount brand.

Now, outlets have great bargains, especially at the very high end; however, you are buying off-season items. But who cares? A lot of the very high end products really do not have a season. So, hop on a bus or drive to your nearest outlet mall and join millions of fellow shoppers hoping to pick up a bargain. Whether or not these are a true brand name quality product or not doesn’t really matter if you like what you bought. However, if you do want to opt to buy truly brand name products at off-season prices, go to the original, Filene’s Basement or if you are ever in New York City, come to Century 21.

Have a Great Weekend!
Ed Kim
DISCLOSURE: The author makes frequent visits to Century 21

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