MARKET FOCUS: Turbulent descent

Effective PR is critical to the survival of large, established airlines.

Effective PR is critical to the survival of large, established airlines.

Airline PR in the past two years has become synonymous with crisis PR. More than one airline communications professional has compared it to a hospital emergency room. Not only have airlines been hit by operational disasters, such as the terrorist attacks, the SARS epidemic, and the resulting reluctance of travelers to fly, but they have been battered throughout by the brutal economy. "It's been all about survival," says David Fuscus, president of Xenophon Strategies, agency of record for the Air Transport Association, whose members include the top 10 airlines. "It changes your communications focus. For example, when we did the 'Airlines in Crisis' campaign [to demonstrate the devastation in the industry so that a request for government assistance could be interpreted as an aid package], that is something that would really depress stock prices. Normally, you wouldn't do that." But these are far from normal times. The airline industry is hanging in the balance, and one communications misstep could send a carrier into further turmoil. Such a situation was never more evident than in the saga of American Airlines' labor concession negotiations in April. American had already narrowly averted filing for Chapter 11 protection when executives determined they could avoid it again - provided the airline's three labor unions would agree to a cut in pay and accept the possibility that some would lose their jobs. When unions balked at a phrase in the proposals that allowed executive pensions to be protected, however, a communication breakdown resulted in executives and unions calling for the resignation of CEO Don Carty. "This has not been an industry that has always done a great job of communicating consistently," says Chris Chiames, SVP of corporate affairs for US Airways. "I think that what happened at American underscores the importance of a PR function as much as successes do. And whether it's fair or not, American suffered a PR black eye." Communicating consistently is necessary, but extremely difficult. The dire situation of the airline industry has caused a never-ending barrage of communications challenges for executives, in particular because each airline has at least six groups of stakeholders with different roles in the company's financial well-being - employees, shareholders, customers, lawmakers, and the press. In addition, PR teams are charged with carrying on proactive campaigns and prioritizing the needs of the business. "The airline industry is in this transition period," says Jon Austin, who was chief spokesman for Northwest Airlines for 10 years and is now SVP at Fleishman-Hillard. "It's painful and harsh and affecting every stakeholder. It doesn't matter how you participate, you're feeling the pain. How you manage communications with all those groups is a real balancing act." Tempering "firefighter's syndrome" Austin points out that many airline communications teams are understaffed to begin with, and others have what is called "firefighter's syndrome," a situation in which urgent quick fixes keep pushing proactive communications to the bottom of the to-do list. In addition to keeping the business steady, PR departments are charged with handling the media, which always loves a good airline story. The public has an enormous appetite for stories related to air travel. As a result, many departments centralize their media relations, trying to manage the media's interpretation by telling the story directly and issuing press releases for everything from financial announcements to new promotional flights and deals. "You're not trying to generate press," says Fuscus. "You're trying to manage press coverage. You've got to have a solid overall strategy and a good, solid implementation plan." One big business problem for the established carriers is the high operating cost associated with the conventional hub-and-spoke model, compared with the point-to-point routes being offered by a crop of newer, low-fare airlines. "The hub-and-spoke carriers are losing money because of a drop in traffic," says Fuscus. "Southwest has a unique business model, and they have continued to consistently post a profit. And if you look at JetBlue, they're using all brand-new equipment and, because of that, they have low maintenance costs." But, says Chiames, "If every airline operated that way [point-to-point] you'd see scores of cities losing their airline communities. The hub system isn't broken, it's just that the airlines need to be repaired." Cutting costs is not helped by the pressure on airlines to compete over fares, exacerbated by the availability of price-comparison sites on the internet. "There's a lot of speculation in the industry that the internet has destroyed the pricing structure," says Austin. "Airlines no longer have the upper hand in the information department. You've got customers who have demonstrated that they don't want to pay for what airlines can offer." Gareth Edmondson-Jones, VP of corporate communications for JetBlue, agrees. "There's little brand loyalty; it's all price sensitivity," he says. "The pricing power is on the side of the low fares. Every carrier is a low-fare carrier. Only low-cost carriers are making any money." Looking ahead, but warily Now many airlines are partnering with other companies to market their services and publicize promotional deals. In April, Delta, Continental, and Northwest announced a marketing agreement that allows for cross-promotion, though it is uncertain how it will affect PR operations. John Lampl, VP of communications at British Airways, says that the carrier is working hard to fill seats, placing special emphasis on promotional PR. "We have deals on the leisure side and deals on the business side, agreements with corporations, loyalty perks, and upgrades. We're looking to get the business back to where it was, using 1999 or early 2001 as a benchmark." As for the future, nearly everyone is cautious, saying that things will probably get worse before they get better. "The travel business doesn't get better quickly," says Chiames. "The unknowns drive a lot of the things that are going on. There could be consolidation. We're seeing the business slowly rebounding after the war, and we've been actively telling our restructuring story through a public-speaking campaign. We're also focused on running the business." Others are more optimistic. "The [$3.7 billion aid] package from the government is going to help," says Fuscus. "Fare increases will also help. We'll see a slow to moderate recovery. Every airline PR person is going to be busy, busy, busy." Stacy Geagan, GM of corporate communications for Song, Delta's low-fare subsidiary, says that the biggest challenge facing airline PR's future is internal communication. "Because we work with an absentee work force," she says, "we need to help them understand and forward the brand experience with the customers." Austin says, "I think there will be continued distress. The only way to succeed is to get consent from everyone, and the only way to do that is to persuade. The only way to do that is to communicate." ----- Point-to-point profits While the larger carriers struggle to survive, low-fare carriers are not only making money, they're pushing into the frontiers of branded air travel with an emphasis on customer service. The low-fare business models are made possible by point-to-point schedules, as opposed to the more expensive hub-and-spoke models used by the larger carriers. "The Southwest model isn't recession-proof, but it is recession-resistant," says Linda Rutherford, director of PR for Southwest Airlines, which posted first-quarter earnings of $24 million. "When the economy drops off, we see some dilution of revenue, but incremental revenue from business travelers. "We're the dean of low-fare carriers, but we don't think that we should be seen as a has-been." As a result, low-fare carrier PR is just business as usual. "We react to major news stories, but in general our main focus is product marketing," says Gareth Edmondson-Jones, VP of corporate communications for JetBlue. "Our goal is to communicate with our existing customers and court new ones." JetBlue saw earnings of $17.4 million in the first quarter of 2003, and it has grown 80% in the five years it's existed. Edmondson-Jones credits the fact that the airline could start from the ground up when communicating with staff. "We have to make sure that our front-line people are the ones who talk to customers. We are still a young company, and there is lots of enthusiasm among our crew. We don't want anyone to get jaded." JetBlue's successful style, inspired by Southwest's model, is now seeing imitators. In February, Delta announced its own low-fare subsidiary, Song, which had its first flight on April 15. "Southwest started the movement," says Song's GM of corporate communications, Stacy Geagan. "JetBlue came in and changed the game. We feel like we've changed the game again. Our customers have more choices. There's flexibility to make it more interesting. Hopefully this is a trend, and others will push to evolve." And while the low-fare carriers ride the high of profits and evolution, they see the implications for the industry as a whole. "What we see is exciting," says Edmondson-Jones. "It's a brutal industry right now, but in coming years, the airlines that are left will be better."

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