November 29, 2011

As a former legacy airline employee, it was sad to hear that American Airlines has filed for bankruptcy protection. American was the last legacy airline in the U.S. to file for Chapter 11. With this filing, the airline industry that I worked for is gone. It was an era when employees enjoyed serving passengers, and meals, pillows, and bringing a bag along was expected service, not an extra.

What caused the legacy airlines to fail? High labor costs and major debt are the reasons given by every airline that has filed for bankruptcy. True, but I think the fundamental problem was a business model that couldn’t survive a lack of new technology. In the heyday of the industry, the 1950s and 60s, faster and larger planes made controlling costs less important than flying planes that would increase productivity. If they carried more people, faster to a destination, airlines made more money.

Unfortunately, there hasn’t been a new plane in 40 years that has significantly increased productivity. Sure, new planes use less fuel and can be flown with fewer employees, but they didn’t dramatically increase productivity. Lack of technology and union work rules made improvements in productivity tough. So, with fuel and employee costs continuing to soar for four decades, the industry had no other choice but to change their business model to become a cost-driven “parity” product, where all airlines offer the same attributes, making all brands a satisfactory substitute for each other.

Why share this tale? Because I see many businesses, like financial institutions, retirement communities, and casinos, heading down this same path to parity. So, here are two questions to ask at your next marketing staff meeting: (1) What new technology are we introducing to increase productivity? and (2) What are we doing to make our product/service attributes unique and marketable?

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