03/05/2012

Can Swiss rival the cheap airlines?

The airline Swiss is doing well at the moment and has a new service to China. Can it keep doing well in the face of the low prices for flights to Asia, and if so then how?


A couple of weeks ago I blogged about the new service of Swiss to China, including the fact that it was promised to be cheaper from Geneva then from Zurich, despite the extra charge of the Geneva-Zurich flight. Since then there has been an interesting article on the UK business magazine "Marketing Week" explaining how Swiss has managed to attract passengers despite often being far from the cheapest fare. This included a very interesting interview with Holger Haetty, Chief Commercial Officer for Swiss.

Saturday 3 March 2012 the newspaper Le Temps had an interesting article under a headline referencing the rapidly falling prices of flights to Asia. The article specifically mentioned the competition from the two Chinese competitors, Air China and Hainan. There are also other cheap possibilities, including going via Moscow with Aeroflot, or with other companies including Etihad, Emirates, Finnair, Qatar or Turkish Airlines. Effectively, for the low season (March, April) there are a lot of bucket fares from which companies can surely make little, if any, profit.

One perceived danger of this period of very low fares (a saturated market chasing few customers?) is that people will come to think that these are "normal", so that when prices go back up in the middle of the year the public who have a choice of destinations for their holidays will not be willing to pay them!

The article in Le Temps also comments on the fact that prices can be cheaper from a "spoke" airport, such as Geneva, Basel or Lugano, whether one goes via Zurich or another "hub" airport such as Frankfurt. Their explanation for this apparently illogical (in terms of pure cost) anomaly is that the companies want at all costs (pun intended!) to bring people via their hub airports.

So how does the Marketing Week magazine explain the success of Swiss, despite them being unable to match the lower costs of other airlines. Their answer is that Swiss is targetting the upper end segment of the business traveller. Offer them a more personalised service, special lounges, quality in-flight facilities and so on. In other words, the passenger for whom the cost is not necessarily the be-all and end-all.

This actually indicates a fairly radical change of strategy. Just a few years ago the "traditional" airlines were fighting the low cost airlines on their own territory, offering low fares and probably a less extensive in-flight service. Recently, however, these low-cost airlines are trying to attract more business travellers, offering more flexible conditions (change of flight, priority boarding and other attractions), thus attacking these traditional airlines in what had been their home ground. Will other airlines also adopt the approach of Swiss, trying to cater for business customers not necessarily wanting the absolute minimum price?

Will this continue to work for Swiss? Perhaps the answer will depend on external events, especially if they seriously affect the price of fuel!

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