Pivot to Millennials? It Might Work for Airlines

(Bloomberg View) -- The commoditization of air travel has led to an industry-wide race to the bottom in terms of price, and an uncomfortable place in general for the companies and customers alike. A new airline is unleashing an over-the-top strategy to spark a new emotional connection with a coveted -- and fickle -- demographic. 

Joon, the Air France-KLM subsidiary airline that begins operations this week, is on a mission to win over millennials, even hipsters. Its opening argument is a marketing understatement for the ages. Joon introduced itself as "a fashion brand, a rooftop bar, an entertainment channel, a personal assistant" before admitting -- as an afterthought -- that it's "also an airline." The cabin crews' outfits riff on millennials' beloved athletic clothing. The bar serves smoothies. Virtual reality entertainment is available for business class travelers. Even the destinations are hipster favorites: Barcelona, Berlin, Lisbon. Joon checks so many boxes that it's making millennial news sites like Mashable cringe

But that isn't what's intriguing about Joon's marketing. Even if millennials moan about being associated with banal trappings, it rings true nonetheless. They do like smoothies. They are glued to screens and uncomfortable without Wi-Fi (which will be free next year). There are international herds of them -- dressed in fashionable sweatpants -- in Berlin. Besides, what generation appreciates postmodern self-mockery and self-parody more than them?

They, however, don't care which airline they fly. As the Boston Consulting Group noted in a 2013 report, millennials are four times more likely than non-millennials to strongly disagree when asked if they were loyal to one or more airline. They are also less likely to collect frequent flier miles or subscribe to loyalty programs than older travelers. 

One reason the frequent flyer programs are evolving away from miles and toward credit card bonuses is that airlines are trying to make them cheaper. But the other reason is that more people travel like millennials: They use an aggregator app to find flights and just pick the cheapest option. As Euromonitor analyst Nadejda Popova wrote in a post accompanying the market research company's recent analysis of airline loyalty programs, "With the increasing number of price comparison and review websites, many travelers are more bargain hunters than loyal clients." Price pressure has already all but killed off first class, once a major differentiating point for airline marketers. And there's less and less difference between traditional and discount airlines as the former try to shrink cost and the latter, locked in their own wars, seek to improve service.

An airline can still have an emotional relationship with its passengers, but it won't necessarily help it as a business. I was recently one of many witnesses to the heartbreaking story of the last weeks of Air Berlin, the airline that once connected walled-in West Berlin to the rest of the world. It just couldn't compete with bargain-based brands RyanAir and EasyJet. Pilots and flight attendants, many of whom would be unemployed after the airline closed, made sentimental, heartfelt announcements during the last flights. Some had tears in their eyes as they handed out Air Berlin's trademark chocolate hearts to disembarking passengers, who grew emotional in response. The airline's final flight, out of Munich, was fully booked well in advance, and people were paying thousands of euros for tickets. The flight was deemed worthy of a blow-by-blow account in Germany's most popular tabloid, Bild. 

Yet no white knight showed up for Air Berlin, and its planes have been sold off to Lufthansa and the low-cost carriers.

So why is Air France-KLM, which finally posted a profit after seven years of back-to-back losses, betting on millennials? That same Boston Consulting Group report said millennials traveling for business are four times more likely than older passengers to pay for Wi-Fi and 60 percent more likely to watch in-flight entertainment. They are also 60 percent more likely to pay for extra legroom and are far more open than older passengers to paying for roomier seats. As leisure travelers, millennials have less money than the average flier, so they're generally not picky, but it's clear they'd like the same amenities for which they pay with their expense accounts when traveling for business.

So there's nothing unreasonable about Air France KLM's experiment. Joon's pricing is set between the low-cost carriers and traditional rivals, and it offers various levels of the combination of comfort, connectedness and entertainment that millennials seem to want. It's dedicating just 28 out of the company's 228 aircraft. If it works, expect other airlines to focus more on entertainment and communication options. They'll become a more important differentiation point -- one of the few than still matter beyond price. 

And perhaps attendant uniforms will finally stop looking like school uniforms or vintage movie costumes.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

To contact the author of this story: Leonid Bershidsky at lbershidsky@bloomberg.net.

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

©2017 Bloomberg L.P.