This is an edited version of this article and is reprinted with permission from Rotman Management, the magazine of the University of Toronto’s Rotman School of Management.
In January of 2009, TED Airlines flew its final route and ceased operations, after only five years in service. Parent company United Airlines acknowledged that its attempt to create a low-cost carrier had failed, and began repainting the planes and absorbing them back into its general fleet. A few years earlier, Delta’s attempt at a low-cost airline, Song, fared even worse, folding after just three years in operation. Both ventures had set out to take on America’s most consistently profitable airline, Southwest, along with its young protege jetBlue, and beat them at their own game. At face value, TED, Song, Southwest and jetBlue had several things in common, including budget pricing, ‘no frills’ service and recognizably-quirky brand identities. Nevertheless, TED and Song were unable to replicate Southwest’s success.
In Europe, a similar pattern emerged during the same period, as upstarts Ryanair and easyJet grew to become the largest low-cost carriers on the continent, while more established airlines like Lufthansa and British Airways failed to unseat them with their own budget-minded sub-brands. Even Air Canada , which has long dominated the Canadian market, was unable to keep its low-cost carrier Tango alive for more than three years. In each of these cases, a better-funded competitor, backed by an experienced player in the market, lost out to a younger, smaller company, despite a nearly-identical offering and pricing structure. It’s a pattern that defies conventional logic.
When we are faced with the question of why one company triumphs over another, several standard answers tend to emerge, including “smarter business models,” “more efficient supply chains” and “being to market first with a new service.” In tech-heavy industries, large R&D budgets or extensive intellectual property might be targeted as the ‘secret sauce’ that sets them apart. But whatever macro-level advantages Southwest might have had were negated when Song, TED and jetBlue copied their business model, so it had to be something else.
The fact is, Southwest was a true innovator: a budget, bare-bones carrier established in the early 1970s, when other airlines were touting the quality of their cuisine or the youthfulness of their (all-female) in-flight service staff. Ryanair and jetBlue took Southwest’s innovations and ran with them, including its cost-saving strategy of flying only a single type of aircraft, and offering only one class of service.
This level of imitation is common throughout the modern business world, as car companies, banks, online service providers and retailers all borrow heavily from one another – a natural result of today’s easy global communications and free-flowing technology and talent. These days, knocking off someone else’s competitive advantage is to be expected, and it now takes months, not years. As a result it’s even more unsettling that United and Delta couldn’t pull off the same trick that jetBlue and Ryanair did, despite their vast experience and resources.
One clue as to why lies in a Forbes article from 2003, reporting on Delta’s launch of Song airlines. “Rebuilding the total customer experience,” the article concludes, “is what could make Song sing.” Even Forbes understood that jetBlue and Southwest owed much of their success to the way they treated customers, and that Song’s success would hinge not on the composition of its fleet, but on what it felt like – as a customer – to get on one of its planes and fly to Miami.
Delta knew this too, and put enormous effort into making the Song experience unique, bringing in a famous fashion designer to do its tropical-coloured uniforms, and having acting coaches train in-flight staff to be quirkier and more spontaneous. But the efforts rang hollow: customers just didn’t buy it, and the experiment failed. Unlike jetBlue, Delta didn’t have the attitudes, values and motivations that make for an effective low-cost carrier. In short, despite its advantages, it had the wrong organizational culture for the market.
Deconstructing Organizational Culture