25 June 2009

United Credit Card Move - Smart or Dumb?


By now the debate is ranging far and wide about the wisdom of United Airlines decision to push credit card fees down to the agent in certain circumstances. The airline has been vilified on the subject by the Travel Agent press. No one seems to be springing to their defense - and at this stage neither am I - however I do think the issue needs a little deeper evaluation.

My take on this is simple. Now was not the time to do it.

UAL like many airlines is trying to change the model from supplier paid to user paid. Good if you can make it happen. For now however when you need all the distribution channels you can get - particularly if they result in higher yields then you would not want to be pushing them away. There is no doubt that there are instances where the agent may be using UA's merchant agreement in a not so direct and useful way to UA. For example plating on UA in order to get an unusual ticket issued. However the selective imposition would not be a good idea in my humble opinion today. I just think that United should not have chosen now to have this fight.

Longer term this situation does however represent a skirmish in a bigger set of battles - perhaps even a war of Tolkien proportions. That is the issue of the cost of financial fulfillment.

There is a very clear move on behalf of the credit card companies to shore up their business models. With near banks exiting the financial services market and the big banks getting very much bigger - the number and amount of fees on all transactions is rising and rising rapidly. UA is clearly being mindful of the long term trend of this and are trying to do something about it. They should be commended for starting to bring attention to the subject.

So chaps - this is one issue I am going to be following in the coming months. We are definitely going to see this issue stay near the front burner. I do believe we are going to see a strong focus by the supplier community - particularly airlines - on credit card fees.


The Not Quite So Strange Case of Qantas

The Professor is currently on a round the world roadshow trip for one of our clients. In doing so - I have been engaging in a social experiment of doing the entire trip in coach. As I chose BA/QF's low RTW fare - I am experiencing the joys of coach travel much of it on Qantas.

Qantas is an airline in transition. It is moving from a pure legacy carrier and under Joyce aiming to remake its future as a feisty HVC - Hybrid Value Carrier. Let me assure you there are no sacred cows anywhere inside Qantas now (perhaps a sacred 'Roo though!!!)

The business strategy under the Dixon era regime seemed to be almost Microsoft like - Embrace and Extend. Betting on the ability to support multiple brands and multiple business models shoring up the uber Brand.

The new guy - another Irishman - Joyce seems to have understood that the GFC is not going to let that model be sustained. So he has started the arduous process of remaking the airline from the inside out. Bringing with him some of his key Lieutenants from Jetstar - he is determined to lower the cost base and at the same time to enhance the organization to adopt new thinking. This type of behavior would not be possible under the old regime - it is still not without risk given the testy nature of the relations with the Unions. Australian Labour relations are not the easiest to deal with. So delicate would be the description of the negotiations that have to be undertaken. But we can expect to see a brighter smarter definitely more agile QF.

The corridors in Mascott (QF's HQ area) are getting more like ghost towns. Whole departments have been axed or merged. Gardening leave has been ordered for many. Indeed outsourcing the IT area to IBM will put many of that team out to grass for a long time.

Joyce is not mincing any words or so his actions are demonstrating. He is determined to make the mainline airline viable in the face of low cost competition and encroachment from external sources. The traditional battle for maintaining the status quo - and thus ensuring QF's protected position seem to be regarded as lost. Now the airline must compete on its product and conventional market tools. The last vestige of the Flying Kangeroo as a matter of public pride and therefore worthy of public protection has vanished. It can only be a matter of time before the Pacific really opens up. Contrast this with the debate over a possible bail out of BA in the UK.

So QF's protected world is now open. The threats come from local (Virgin Australia group with its 4 airlines), Traditional advisaries - SQ and CX etc, The occassional foray into the Oz market by the US airlines - Delta being the latest one this month to start the service. But perhaps one of the most threatening is the encroachment by the GCC airlines - Qatar, Etihad and of course Emirates that has seen that airline rise to being a major carrier on the Trans Tasman routes.

Today's news shows that QF is now not prepared to tolerate Boeing's BS on the 787. Cancelling part of the 787 order is a major psycholigical blow to the program. Nothing earth threatening but definitely a kick in the teeth. Given the severity of the problem in the 787 program - they are looking at a significant additional delay in deliveries to the early customers. Scuttlebutt says that the redesign could add many many months of delay to the program. This puts another issue BACK on the table with the weight/performance. QF was hoping for the ability to operate SYD-LHR nonstop. That is not going to be on the cards for a while in my opinion.

So watch out world. If Joyce gets his way - QF will emerge from the current crisis a much better animal.