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Monday, 7 July 2008

BA - Same thinking, same excuses, same result

From The Times, July 4, 2008, David Robertson

Cost-hit British Airways flies with quarter of seats empty

British Airways flights are taking off with almost a quarter of their seats empty after higher air fares and a slowing economy led to 87,000 fewer passengers using the British flag-carrier last month.

The airline said it carried 2.9 per cent fewer passengers than the same month last year with traffic to Africa, the Middle East and the United States being the weakest.

The load factor on BA's aircraft, a measure of how full each plane is when it flies, fell 3.8 percentage points to 76.7 per cent. That means nearly one in every four seats is now empty on BA flights.

The traffic figures are disappointing because June usually produces an increase in the number of passengers because people begin their summer holidays.

BA blamed the fall on “significant” increases in ticket prices because of the record high price of oil and a tough consumer environment in the UK.

Further on his report David Robertson writes:

IATA, the air travel industry body, said that International air traffic held up against the economic slowdown in May, rising for the first time in three months to 74.3 per cent.
The figure shows a rise of 6 per cent on May last year.

Of course air travel will be affected by the economic slowdown and by the need to raise prices in the face of significantly increased fuel costs. No one would expect BA to be immune from this and they still appear doing better than the IATA average. However BA is experiencing a drop in load factor at a time of year when an increase is usually expected. The IATA figures indicate this seasonal increase is happening, albeit perhaps at a lower rate than previously and both Easyjet and Ryanair report no drop off in passenger numbers.

Has it not occurred to BA that their appalling customer service record might also have something to do with why fewer people are using its services? In our last two blog articles we highlighted the crucial need for different thinking as a pre-requisite for finding solutions to today’s challenges. BA appears unable to change its thinking. It claims it has been forced to increase its prices and that customers just have to accept that is the way it is. Well they might if they thought that BA offered fair value in return, but they don’t and BA cannot, it appears get its head round this.

This is about both “value” and, crucially whose opinion of “value” really counts. Way back in 1987 Robert D. Buzzell and Bradley T. Gale wrote in their book The PIMS Principles:

“Value is the relationship between quality and price. A customer who gets superior quality at a low price gets better value; a customer who gets inferior quality at a high price obviously gets worse value. But who determines what counts as good or poor quality, high or low price? In a competitive context the customer’s behaviour is crucial: who he buys from and at what price, determines who wins and who loses in any competitive market. Therefore quality is whatever the customer says it is, and the quality of a particular product or service is whatever the customer perceives it to be. How does a customer decide whether a particular offering represents superior or inferior quality, or a high or low price? He makes that assessment on the basis of comparison; is this offering (product or services) better or worse than those of competitors? and; At how much higher or lower price?" (Buzzell & Gale. 1987.111)

So in a few succinct words, based on the extensive research from the PIMS database, Buzzell & Gale explain exactly why “Customers Count” and why customers’ perception is all. “Therefore quality is whatever the customer says it is, and the quality of a particular product or service is whatever the customer perceives it to be”.

As costs rise and the economy slows businesses are faced with some difficult decisions about value. Increasing prices, even if apparently justified by passing on increased costs may push the price of a product or service beyond the point where the customer consider it to be good value. In certain instances this may be the point at which some items actually become unsaleable as the price they must be sold at to recoup costs becomes such poor value. Furthermore customers may change their basis of comparison in assessing value and concerns about the economy can influence customers thinking in this respect.

This is where the different thinking comes in. Our work on Competitive Strength has shown that those businesses in the strongest Competitive Strength condition – Free and at the top end of Excellent – think differently to the rest. One of the characteristics is an ability to see things through the eyes of their customers. This is not about good market research but about a culture that is focused on the customer and makes its decisions based on what the customers want first and foremost. Consequently they can identify quickly and clearly how their customers perceive the value in their products and services and when and why those perceptions might change.

The second characteristic of this different thinking is high “Changeability”. So not only can they identify changes in customers’ value assessment perceptions earlier and better than their competitors, they have the ability to respond to any changes faster and more effectively, including the unexpected ones!

BA is not exhibiting this different thinking. Indeed it is still pursuing a merger with American Airlines and Iberia that would create a dominant carrier on transatlantic routes with the semi-monopolistic culture that BA has never been able to shake off. It is pursuing the merger not thinking about its customers but about how it can carry on the way it always has. Trapped in its traditional thinking this merger may be the only way BA can find to survive the economic slowdown.

Applying yesterday’s thinking to the challenges of today and tomorrow is not going to work. For more information on the different thinking that comes with High Competitive Strength and consequent Changeability please look at the Competitive Strength Report website– and the ChangeWORLD website.

Just how different does your organisation's thinking need to be if you are going to survive these turbulent times?