Background and Challenge
A leading low-fare, low-cost passenger airline serving a variety of cities with point-to-point routes in underserved markets and high-fare metropolitan areas, was at a historic crossroads, having grown tremendously since its inception but suffering from the fallout from a recent operational failure. Its market cap had fallen significantly and analysts had been mixed on the company’s growth potential. Therefore, the airline wanted to undergo a rigorous self-evaluation of its business model, including its customers, its brand, its product, and its resources. They also wanted to explore business growth strategies, including: organic growth, acquisitions, and alliances & code shares.
Approach and Recommendations
L.E.K. Consulting was asked to complete a strategy assessment in two phases:
- Phase I, Current Model Analysis, included three modules: Product Benchmarking, Customer Analysis/Brand Perceptions, and Resources & Capabilities Assessment
- Phase II, Strategic Plan Formulation, covered three modules: Organic Network Growth, Product Strategy Analysis, and Acquisition/Alliance Opportunities
The recommended strategy focused on the customer, network, product and inorganic growth. L.E.K. analyses demonstrated that the client was a different kind of airline, which provided a “better experience” for value-seeking travelers in markets that were already partially competitive. L.E.K. redefined the traditional customer segmentation of the market and proved that there is a true, “value-buying” customer that is attracted to the client – a niche opportunity that legacy and other low-cost carriers did not effectively serve.
Additionally, L.E.K. was able to overlay customer-facing data (trip purpose, income demographics, population mobility and moving trends, age, and others) to help better explain the client’s success or failure within new markets. Overall, L.E.K. provided a very compelling view on customer segmentation, network development, and ancillary revenue opportunities for the “value” niche segment. By better defining its customer base, the airline had the tools to change its perspective on its competitive set as well as strategies for which markets to enter and how.
Based on L.E.K.’s analyses, the airline redefined its target customer. L.E.K. provided independent endorsement of significant growth opportunities through network expansion, and helped secure new partners for the airline. Also based on this better understanding of the customer set, L.E.K. helped the airline develop and implement a new set of products that generated significant incremental profits during its first year.