Volume 93: Slumlords of the sky unite.
1. Slumlords of the sky unite.
tl;dr: Merger makes “worst airline” league table a little easier.
For anyone who doesn’t know, Spirit and Frontier are two of America’s most notoriously lousy airlines, sometimes described as “slumlords of the skies.” So this week, they announced that to avoid competing for the title of the country’s worst airline, they’re merging. Thus putting clear space between themselves and every other awful airline…except JetBlue, which is apparently now the worst. (My, how the mighty have fallen, I quite like JetBlue).
Famous for cramped seats, poor service, ultra-low base fares, and a litany of additional fees for everything from selecting your seat to checking in (seriously), and yes, bag fees, it’s easy to laugh. But we probably shouldn’t.
Pre-pandemic, these were very successful disruptors within a notoriously difficult market. Setting expectations for less than no-frills service in return for cheap fares, they attracted leisure travelers seeking to avoid the higher fares that mergers between larger airlines inevitably led to.
Now, the shoe is on the other foot. Coming out of the pandemic, every indicator is that leisure travel will likely be dominant for years to come, with business travel a smaller segment. With this structural change, the airlines with the lowest cost structures and the keenest pricing are likely to succeed. By combining two of the lowest cost players into what will become the 5th largest airline, the story is that this is a bet on growth.
And while that might be true, it also might not. With mergers like this, the executives in charge are careful to state that it’s about something other than market concentration reducing competition so they can charge higher prices to the consumer. Why they say this is simple - it’s illegal to admit and would guarantee failure to pass antitrust scrutiny.
However, all too often, this story is nothing more than a PR shell game, as the ability to reduce product quality, stall innovation, and raise prices is the real but unwritten reason for a merger or a desirable side-effect anyway.
In the case of Spirit and Frontier, it could go either way. Only about 500 of 2,800 current routes overlap, so there might be a real growth story here for a single ultra-low-cost national carrier. But, equally, it might not, as they will have market power within those 500 shared routes. More importantly, though, is that we’ll have two airlines that are no longer competing with each other. Here’s why this matters. Up until now, they broadly cut the country in half; Spirit in the East and Frontier to the West. To grow, they’d have had to increasingly encroach each other’s turf, which would inevitably have led to a price war since this is the competitive lever low-cost carriers have to pull. By merging, a price war that is shareholder value-destroying but attractive to consumers has essentially been taken off the table.
This leads us to a possible worst-case scenario, where we end up with one terrible discount airline that decides to flex its pricing muscle, leaving us without the low prices to fall back on as the reason for using them.
Ugh. Let’s hope not.
2. Fear and loathing in Menlo Park.
tl;dr: Megadrop at Meta. More to come.
Last week Meta (Facebook to you and I) watched as stalling subscriber numbers led to a wipeout of $260bn in shareholder value in a single day, and still falling. This was the largest single-day wipeout of any company in history, with little or no sign that it’s coming back anytime soon.
Just to put this in perspective, adjusted for inflation, this was a larger dollar number than the entirety of losses made during the “Black Friday” stock-market crash of 1989.
So, why is it happening? Well, there appear to be three reasons:
First, global subscriber numbers are now in decline. Likely caused by the toxicity of the Facebook brand combined with more innovative and dynamic rivals, such as TikTok & Snap.
Changes to tracking by Apple are eating into advertising profits.
Investors view a $10bn investment into “the Metaverse” as a cash incinerator rather than a runway to future growth.
In addition, there are major regulatory headwinds in play for the company:
First, the European Union is getting all feisty regarding privacy laws, which it claims Meta, Google, and everyone else in the AdTech Industrial Complex have been breaking. It also responded to a veiled threat by Meta to stop doing business in Europe with a blunt “Feel free, don’t let the door hit your ass on the way out.” Then there are an array of legal cases in the US, where judges are getting so angry with the way Meta is stalling and obfuscating the discovery process that they’re now demanding executives turn up in court.
And finally, with this huge drop in value, Meta now has less currency with which to retain talent as this massive drop in market value just wiped out their stock options. Mix in a little of the business’s ethical turmoil, and overnight, Meta probably lost a lot of hiring juice. It’s one thing to justify working for a crappy company because it’s making you rich. It’s another to work for a crappy company that’s just plain old crappy.
And finally, Peter Thiel stepping down from the board feels more like the start of a story rather than the end of one. Especially considering a secretive company he’s heavily invested in was found to be hacking WhatsApp, which raises some interesting corporate governance questions relative to his role on the Meta board.
So, where does all this leave us? Well, it shows Facebook isn’t untouchable. It suggests the stock market is more sensitive to its toxicity than anyone thought and that the market isn’t buying the “pivot to the Metaverse” story, which always felt a lot like a “don’t look here, look over there” kind of move.
Things really aren’t looking particularly bright for Zuck and co right now. Losing share, losing hundreds of billions in value, a pivot story the market isn’t buying, a sea of dirty laundry about to be aired in public. And, possibly, personal criminal proceedings to top it all off.
Good. It couldn’t happen to a nicer bunch of people. Meta is a terrible company, and it’s about time it reaped what it has sown.
3. Tools, not rules.
tl;dr: Every model doesn’t fit every brand.
Something that drives me crazy about strategy in general, and brand strategy in particular, is the idea that models and frameworks in and of themselves define the answer, representing rules that you must follow instead of a set of tools to pick and choose from depending on circumstances. Unfortunately, whether we like it or not, our choice of frameworks and models and their underlying assumptions will, to a large extent, dictate what our strategic outputs will be.
It’s a phenomenon particularly apparent at larger agencies, consultancies, and brands where actual thinking has long been collateral damage in a quest to productize the strategy process, but it’s by no means limited to these firms.
The challenge inherent in such dogma first became apparent when I started working in “corporate branding,” where we were defining brands for large, complex entities with hundreds, sometimes thousands of products and tens of thousands, sometimes hundreds of thousands of employees. As I was a voracious reader of all things brand, I quickly concluded that while most of what I was reading might apply to the CPG/FMCG space, what works for oven fries or diabetes in a foil wrapper has only limited value when applied to massive global corporations operating in complex stakeholder environments. And vice versa.
Today, far from this problem getting better, an explosion of social media-fueled snake-oil-selling, opinion masquerading as fact, and a desperate desire to stand out from the crowd, has precipitated an array of competing strategic approaches, all of which claim to be the way instead of a way.
Worse, the current environment seems to have devolved into an exercise in “I’m right, you’re an idiot” instead of any kind of thoughtful discourse.
Take purpose. As a branding concept it’s been talked to death and the battle lines are distinctly drawn between its proponents and opponents. Yet, the reality is that both sides can be right simultaneously. Clearly, it’s a strategy that can work, yet it’s not appropriate for every brand under every circumstance. As Unilever is beginning to find out.
Equally, I look at something like the “4 Cs of modern branding,” and it’s evident that while some or all of these Cs may be valuable to some brands under some circumstances, it won’t be suitable for all. Just take community, for instance. In the abstract, it sounds great, but we see how challenging it might be in application when we get specific. Imagine, for example, Cascade trying to build a community around dishwasher soap?
Or, take an idea that’s done the rounds in recent years that brands are like sports teams in that they need to build fans rather than customers. The truth is, very few brands work like sports teams because very few categories have the innate emotional attachment necessary to create true fandom. Imagine, for a second, referring to the customers of an insurance company as its “fans.” This simply doesn’t make sense and would likely send you down some terribly wrong paths were you to try. A videogame franchise, on the other hand, might be quite different.
It’s not that we should throw away our onions and triangles and models and frameworks and platforms and pillars and suchlike, or that we should ignore the snake-oil sellers and talking heads and book-writers. Quite the opposite, as they might have something we can use. It’s just that we need to mentally re-frame all of this as tools to be used rather than rules we should follow, which requires us to think critically about what we’re looking at, take the time to diagnose our situation, and then think about which of these tools might be the right one for any given circumstance.