How do companies differentiate their product?

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Recently, a senior executive of a major airline asked me what I think differentiates the product from carriers in order to guide customer choices. I admit that I suggested a moment of reflection and here are some avenues.

First of all, we will only talk about the major carriers, the only ones to compete fiercely, and their survival is at stake. The slightest failure can come at a high price, especially with business customers who, with less than 50% of passengers, account for more than 2/3 of the companies’ turnover. Very large operators are characterized by fleets of several hundred aircraft, networks of more than 100 destinations, more than 30 million annual passengers and a turnover of at least $20 billion. Suffice to say that these are very large companies, which are often grouped into even larger groups with many subsidiaries or associated carriers such as the Lufthansa Group, Air France/KLM or IAG in Europe, Delta Airlines, United Airlines and American Airlines in the United States, or Latam resulting from the merger between Lan Chile and the Brazilian TAM. Other very powerful airlines have not found the need to partner with anyone, the Gulf carriers, for example, or Ethiopian Airlines in Africa and Qantas, Cathay Pacific, Singapore Airlines and the other major Asian carriers that are reluctant to mix with others.

So what differentiates one company from another? First of all, its network is obvious. No carrier claims to go to all points of the planet, even if, with alliances, companies try to capture the clientele of mega companies that have global transport needs. For the rest, the fundamentals are strangely similar. The major airlines operate the same aircraft from only two manufacturers: Airbus and Boeing, which are eerily similar in terms of standard cabin layouts. These aircraft fly at the same speed, have comparable ranges and operate to the same major airports. So how can you differentiate yourself from your competitors? And finally, why would the passenger choose this or that carrier? On the transatlantic route alone, more than 20 airlines operate hundreds of flights every day. All major operators use the same model of transfer platforms commonly known as “hubs”.

Going into a little more detail, there are still some factors that can tip the balance for this or that company. First of all, its customization. Airlines are the true ambassadors of their country and each one reflects the personality of its origin. You can’t go wrong when you enter an aircraft between an Asian carrier and an American, a European or an African one. This is reflected in the cabin crews’ uniforms. I’m not talking about the pilots, all dressed in the same way regardless of their country of origin. So if the customer prefers a French atmosphere, he will choose Air France and if he prefers the American style, he will take Delta Air Lines or American to make the same trip. The experience of the flight will be different, if only by the language commonly spoken on board. We do not understand why air transport invented code-sharing, which consists of selling a product other than the one purchased by the customer. It’s a deception because you have to call things by their name, except that it’s legal. Who knows why!

And then there is the reputation of the companies. In this sense, respect for schedules and regularity of operation is decisive between two close competitors. In its time, the Belgian company SABENA has had the bitter experience of this. For the front classes: Business and Premiere, ground service is also a differentiating element. Trade fairs where you spend a lot of time ultimately lead to certain choices. However, the same type of product must be available in all destinations, and this is almost never the case, except for the two major Gulf carriers: Emirates and Qatar Airways, Emirates having shown originality to the point of a higher level of on-board equipment with the massive use of the A380s. The quality of the services provided is also appreciated by those used to long-haul flights, as is the electronic equipment.

The major argument remains: loyalty programs. Customers are ultimately very loyal to the carriers with which they can earn their miles, even if only 40% is actually consumed.

I’m not talking about the rates, which are so important, but they fluctuate so much at the whim of the Yield Managers that they cannot be analysed objectively.

Of course, the differences are much more noticeable for long-haul flights. As far as medium and short-haul flights are concerned, the airlines’ services are all converging towards the low-cost model, which has undoubtedly won the game.

How to make African air transport prices affordable

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ECOWAS (Economic Community of West African States) is a place where exchanges can lead to concrete measures. Admittedly, the organization created in Lagos on May 29, 1975 is currently in a bit of difficulty with the pseudo exclusion of 4 states located in the middle of this geographical area: Burkina Faso, Guinea, Mali and Niger, all governed by military powers which, concerned about the independence of their country, have cut the ties they had with France, which,  incidentally also has repercussions throughout Western Europe.

Recently, at a meeting of the civil aviation officials of the member states, 11 countries, if we remove the four that are at odds with the Organization, put the price of air tickets within the territory covered by the states at the center of their debates. And this is quite normal if we compare the rates charged to those in Europe. Here are a few examples taken on the most direct route with a one-way trip on December 10 and a return trip on December 17, 2024 in economy class: Bamako/Lomé 4h30 return flight, €891 with the company Asky – Accra/Douala 8h20 journey because there is a stopover €1,194 still with Asky – Abidjan/Dakar 5h25 flight,  price €525 with Kenya Airways. And by comparison on the European routes Paris/Rome: 4 hours and 25 minutes of flight, price €66 with Ryanair or Paris/Athens in 6 hours and 50 minutes round trip for a price of €176 with Transavia or London/Athens 7 hours and 50 minutes of flight time, €114 by taking EasyJet. I chose comparable great circle distances.

Differences also exist on identical routes depending on whether you travel in the south/north direction or the other way around. Examples always taken on the same dates and in economy class: Abidjan/Paris €1,208 but Paris/Abidjan €993 with the same carrier, Air France, or Accra/London €1,466 and London/Accra €1,216 travel with British Airways.

We have to face the facts, at the same distance the rates are always more expensive, even much more expensive for Africans than for Europeans, yet the cost of living is much higher in Europe than in the ECOWAS countries.

The African air transport leaders meeting in Lomé pointed to several factors to explain these discrepancies: airport charges, air traffic control charges, various taxes imposed by governments and this is probably only the beginning of their reflection. But seen from the outside, there are other reasons why banknotes in Africa are so high.

The first is the atomization of African air transport. Apart from 4 airlines: Ethiopian Airlines, Kenya Airways, Royal Air Maroc and Egyptair, no operator has reached the size of the airline to compete with international competition that is still very active. However, none of the four carriers named above is based in the territory covered by ECOWAS. Thus, European companies can sell at higher rates than they do elsewhere and they do not hide it, because they are not afraid of African competition. The first answer would be to create a good-sized company based in this region.

The second reason comes from the scarcity of supply. To achieve a reasonably low level of costs, operations are needed that are much denser than those available to the market. Each pair of major cities, I am thinking first of all of the economic capitals, should be served by at least 3 daily round trips and this is very far from being the case. It is not normal to take more than 6 hours to reach Douala in Lagos, 746 kilometers away. For the same distance, there are nearly 40 daily flights between Paris and Nice. The same is true between Accra and Douala, where it takes more than 4 hours to cover 1,122 km. The demand for transport is there, especially if fares fall to a reasonable level. To achieve this, we must, once again, create a real low-cost carrier in this region. Make no mistake, low-cost airlines are the only reason for the huge drop in European fares. They have also snatched up nearly half of the market and forced traditional airlines to align their fares with theirs.

And then it would be wise for the composition of the fleets to obey only economic and not political criteria. Ethiopian Airlines, although entirely owned by the Ethiopian state, has always kept its full independence in terms of its strategy and the choice of its equipment.

Africa, and more specifically this region, is a real Eldorado for air transport: a young, fast-growing, often well-educated population, little ground equipment and economic development just waiting to take off. Air transport is perhaps the essential means of ensuring this development.

Ancillary income legal deception

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The first question to be answered is: what are you buying when you purchase a plane ticket? There is a distinction between before and after the arrival of low-cost airlines. Previously, a plane ticket covered the entire service: the transport of passengers from one airport to another, their seat on the plane, the transport of their luggage (with a weight limit due to the less efficient aircraft used at the time), as well as the check-in of passengers with seat and luggage allocation. There was different onboard service depending on the class chosen by the customer, including newspapers and a film (selected by the airline and the same for all passengers), all included in the ticket price. In exchange, fares were proportionally higher. In 1970, there were only two classes on board: first and economy, with business class introduced in the mid-1970s to allow for some fare flexibility.

The arrival of low-cost carriers disrupted the services included in the ticket price by subjecting traditional airlines to new, aggressive competition to which they were unaccustomed. For years, these airlines denigrated—even despised—this new way of selling plane tickets, but eventually they were forced to adopt it, in response to losing customers who were content with the minimal service offered by low-cost carriers, in exchange for much lower fares.

However, from the outset, low-cost airlines recognized that the price of the plane ticket, offered at incredibly low levels, would not be enough to balance their accounts. It was therefore necessary to reduce services to such a degree that customers would have to purchase additional services to enjoy a minimum level of comfort. This led to reduced space between seats, with an extra charge for more legroom; the sale of boarding priority, as the companies no longer allocated seats to passengers (a measure they have since reversed); and the sale of services that traditionally would be included in the ticket price, such as Ryanair’s recent, controversial policy of charging customers for airport check-in. Gradually, nearly all airlines began to adopt similar practices.

This is where it has become problematic. Air travel has aligned itself with a kind of deception: announcing prices far below actual costs to secure the best positions in the displays of major consolidators, then compensating for these losses by selling ancillary services, assuming the customer would not notice. This approach treats customers as naïve, and ultimately devalues air travel by setting prices that do not cover costs. To cover the cost of a transatlantic flight (around 11,000 km), a traditional airline needs about €900 with a cost of 8 euro cents per seat-kilometer, while a low-cost carrier requires around €700, with costs closer to 6 euro cents per seat-kilometer. This means any fares below these amounts are essentially sold at a loss, which is prohibited in most Western countries. Nevertheless, when I checked a popular consolidator this morning, I found transatlantic round trips at €633, or a Bangkok-Tokyo round trip (a 12-hour flight) at €534.

Managers often argue that the availability of such discounted rates is limited and that they compensate with revenue from ancillary services. In other words, they lure customers with an offer that does not cover costs—knowing that the offer is very limited, without making this clear—while ensuring additional revenue from charging for ancillary services, sometimes even for basic needs, such as baggage fees for cabin and checked luggage. This practice is unreasonable, as customers remember the advertised price and are surprised when they must add essential services to be able to travel.

The sums involved are far from negligible. In 2024, the estimated revenue from ancillary services is nearly $150 billion, out of a total turnover of around $1,000 billion—representing 15% of total revenue.

It appeared that after COVID-19, carriers returned to better practices by initially posting significantly higher fares that covered costs. However, the trend toward pricing below cost seems to be on the rise again. How can we encourage carriers to stop underestimating their customers?