I've been studying the insurance business for a while. It is quite intriguing – the whole business model is to allow someone to pay a small fee, and alleviate them of their financial burden when undesirable event happens.
There are all kinds of insurance contracts in terms of length, subject, coverage and payment methods. For subject, you can hedge almost on anything, from death, most kinds of accident, cancer, your favorite pet, your ears and nose… but does it make sense to insure on events such as a fight with your best friend, or missing an important appointment?
My guess is probably not. First of all, it won’t make too much sense to provide financial compensation in such event. It might be better if there’s other way of pay back… (emotionally, like a hug from a beautiful girl?) Second, it’s (probably) hard to estimate the occurrence frequency. Third, it needs some groundbreaking ideas and model to avoid adverse selection and moral hazard problem. Forth, a wild guess would be that the fee collection and claim payout would be a lengthy, messy process that doesn’t make any business sense whatsoever. Although there might be a strong demand from customers, but the current model definitely won’t work.
I’d like to think of finance as a tool to deal with difficult problems in life. I’ve successfully IPO myself to lose 3 kg in 3 weeks. I’ve also seen micro-finance doing its magic in developing countries. I hope there’s a way to re-invent the business model of insurance company, and instead of passive compensation, perhaps take on a more active role to bring us happier lives.
Showing posts with label business. Show all posts
Showing posts with label business. Show all posts
2009-04-23
2008-09-21
Innovating the Airline Industry
I’ve make a lot of air travel during the last two months. (TPE-SFO-HOU-SFO-SEA-PIT-PHL-SFO-TPE) Among them, two are international flight, and the other domestic. This excess exposure gives me the advantage to take a closer observation of the airline industry in the high energy cost periods. It Is the worst of times, and it is the best of times. The hike in operating cost stimulates many innovation that try to squeeze any money out of consumers pocket while remain some level of service.
The one thing everyone shares in common is how to differentiate passengers with different needs, and then charge different amount accordingly. There are several ways to do it. For example, not everyone really enjoy a free drink or meal onboard right? So, those who want something to drink or something to eat now have to pay for themselves. The soft drinks range from $2 to $3 dollars, and the snack and meal range from $5 to $10. For me, diet coke seems much less appealing not being free. I guess it’s the same for most of the passengers. It’s common to see flight attendants having basically nothing to do in the cabin, because no one calls on them and they don’t have to voluntarily offer anything. The most important task for them now is to close the overhead carry-on luggage storage before take-off. Seems like an easy job, huh?
But wait. Did I mention the airline companies started to charge the first check luggage? For United Airline, the first piece is $15, and the second $25. The third piece is not encouraged so the price goes to $125. How do the customers react? They simple squeeze their whole luggage into carry-on. And this really cause a problem for flight attendants – because the overhead storage is stuffed with carry-on and they are forced to use innovative ways to actually close it. Or, sometimes, just brute force.
First checked luggage = $15, second = $25, third = $125 (United Airline)
The seats are also differentiated. Those unintentionally designed to have more “leg space” (e.g. the seats near the side exit or in the very front row) are now reserved for customers who are willing to pay a premium. The price is decided according to the length of the flight time. For short flight, it’s probably $15. For long flight like PHL to SFO, it’s $65. It’s like a sub-business class. In fact, United Airline is kind enough to give these seats a resonating name: Economic Plus.
"Who wants more legroom?" ad for Economic Plus Class (United Airline)
What’s going to be the next move? Maybe they could charge you for pillows and blanket? The privilege to sit in an aisle seat? Restrooms? (e.g. Business class can go as many times as they want. Economic passengers have a free first run, but any additional runs will cost $2.) My favorite will probably be seat belts, (Pay us $10 to be safe, otherwise we don’t give a damn) although this will probably be rejected by FAA committee. But I mean, think about it. There’s no limit to business innovation!
The next thing you’ll notice is that airline companies really are saving every penny they spend. Collaboration is formed across company to share flights with same destination in order to reduce non-necessary flights. I personally don’t really care for this change. The reason is when you hop on a China Airline flight, you will find yourself surrounded by non-Taiwanese. The airline company loses its home-like identity by cooperate with Delta and some other companies.
There are some operation details I noticed from American airline companies that haven’t been adopted by Taiwanese airline. One is the Self Check-in procedure, and the other the assignment of boarding sequences.
I really like the self check-in design. It is fast and efficient compare to the old ways. Simply type in the 6 character reservation number or a swipe of your credit card, the machine will know who you are and print your boarding pass. You then put your check baggage on the counter and wait for airline personnel to make confirmation. For the airline company, this means less personnel needed behind the desk. 2 or 3 assistants are enough to keep 8 to 10 check-in window running. It’s a win-win design!
The boarding sequence (range from 1 to 4) is automatically assigned to passengers on the boarding pass. During boarding period, the airline personnel will announce which sequence is available for boarding right now. I know there are similar effort like “we are now boarding row 40 to 50”, but the old way is not intuitive to passengers. The new boarding sequence has the potential to keeps the aisle unblocked and accelerate the boarding process.
I’m really interested in airline related business. I know there are some aerospace consulting firms that offer great solutions on airline operations, logistics, and airport operation. Lufthansa seems to be the largest (need confirmation). I hope one day I could be in business with aerospace industry. That could be another way to fulfill my childhood dream of becoming a pilot.
The one thing everyone shares in common is how to differentiate passengers with different needs, and then charge different amount accordingly. There are several ways to do it. For example, not everyone really enjoy a free drink or meal onboard right? So, those who want something to drink or something to eat now have to pay for themselves. The soft drinks range from $2 to $3 dollars, and the snack and meal range from $5 to $10. For me, diet coke seems much less appealing not being free. I guess it’s the same for most of the passengers. It’s common to see flight attendants having basically nothing to do in the cabin, because no one calls on them and they don’t have to voluntarily offer anything. The most important task for them now is to close the overhead carry-on luggage storage before take-off. Seems like an easy job, huh?
But wait. Did I mention the airline companies started to charge the first check luggage? For United Airline, the first piece is $15, and the second $25. The third piece is not encouraged so the price goes to $125. How do the customers react? They simple squeeze their whole luggage into carry-on. And this really cause a problem for flight attendants – because the overhead storage is stuffed with carry-on and they are forced to use innovative ways to actually close it. Or, sometimes, just brute force.
First checked luggage = $15, second = $25, third = $125 (United Airline)The seats are also differentiated. Those unintentionally designed to have more “leg space” (e.g. the seats near the side exit or in the very front row) are now reserved for customers who are willing to pay a premium. The price is decided according to the length of the flight time. For short flight, it’s probably $15. For long flight like PHL to SFO, it’s $65. It’s like a sub-business class. In fact, United Airline is kind enough to give these seats a resonating name: Economic Plus.
"Who wants more legroom?" ad for Economic Plus Class (United Airline)What’s going to be the next move? Maybe they could charge you for pillows and blanket? The privilege to sit in an aisle seat? Restrooms? (e.g. Business class can go as many times as they want. Economic passengers have a free first run, but any additional runs will cost $2.) My favorite will probably be seat belts, (Pay us $10 to be safe, otherwise we don’t give a damn) although this will probably be rejected by FAA committee. But I mean, think about it. There’s no limit to business innovation!
The next thing you’ll notice is that airline companies really are saving every penny they spend. Collaboration is formed across company to share flights with same destination in order to reduce non-necessary flights. I personally don’t really care for this change. The reason is when you hop on a China Airline flight, you will find yourself surrounded by non-Taiwanese. The airline company loses its home-like identity by cooperate with Delta and some other companies.
There are some operation details I noticed from American airline companies that haven’t been adopted by Taiwanese airline. One is the Self Check-in procedure, and the other the assignment of boarding sequences.
I really like the self check-in design. It is fast and efficient compare to the old ways. Simply type in the 6 character reservation number or a swipe of your credit card, the machine will know who you are and print your boarding pass. You then put your check baggage on the counter and wait for airline personnel to make confirmation. For the airline company, this means less personnel needed behind the desk. 2 or 3 assistants are enough to keep 8 to 10 check-in window running. It’s a win-win design!
The boarding sequence (range from 1 to 4) is automatically assigned to passengers on the boarding pass. During boarding period, the airline personnel will announce which sequence is available for boarding right now. I know there are similar effort like “we are now boarding row 40 to 50”, but the old way is not intuitive to passengers. The new boarding sequence has the potential to keeps the aisle unblocked and accelerate the boarding process.
I’m really interested in airline related business. I know there are some aerospace consulting firms that offer great solutions on airline operations, logistics, and airport operation. Lufthansa seems to be the largest (need confirmation). I hope one day I could be in business with aerospace industry. That could be another way to fulfill my childhood dream of becoming a pilot.
Subscribe to:
Posts (Atom)
