CATEGORY UPDATE

Best Practices: Navigating The Airline Category

Industry consolidation and new activity by global carriers lifts spending to new heights. July 15, 2013 When it comes to sponsorship, few categories have experienced more ups and downs then the airline industry. The primary culprit: industry consolidation. Continental Airlines, Inc. and UAL Corp.the parent of United Airlinesmerged in May 2010 to form United Continental Holdings, Inc., while Southwest Airlines Co. in 2011 closed on its purchase of AirTran Airways.
Southwest sponsors events in 15 to 18 cities each year, with Atlanta, Chicago and Denver representing growth markets.

More recently, Delta Air Lines, Inc. in June purchased a 49 percent stake in Virgin Atlantic Airways Ltd., while American Airlines, Inc. plans to complete its merger with US Airways Group, Inc. in the third quarter of 2013. While that activity has taken a number of brands off the tableContinental, AirTran and, as of later this year, US Airwayssome companies have increased the use of sponsorship to build their presence in new markets. For example, Southwest Airlines has signed a handful of deals to build its presence in former AirTran markets. The company earlier this year converted Charlotte, N.C., Portland, Maine and six other markets under its corporate banner and will rebrand four more by the end of the year. New ties include the May 23-25 Food Lion Speed Street presented by Coca-Cola in Charlotte and the June 9 Old Port Festival in Portland, Maine. The company uses sponsorship to tap into local passion points and educate consumers about the Southwest travel experience, said Andy Allmann, Southwests director of customer engagement and partnership marketing. Southwest in August will convert Grand Rapids, Mich. followed by Memphis, Pensacola, Fla. and Richmond, Va. in November. Properties also are positioning themselves to take advantage of M&A activity. Madison Square Garden hopes to leverage its four-year-old partnership with Delta Air Lines to secure a tie to Virgin Atlantic.

Justin Johnson, MSGs senior vice president of partnership strategy, likens the potential partnership to the consumer packaged goods category where companies frequently sponsor on behalf of their corporate moniker and individual brands. Virgin can come in under the Delta umbrella and get different points of activation. Naturally theyll want to play in the worlds most famous arena. Virgins rights fee would be incremental to Delta, he added. While industry consolidation can lead to new deals, it can also result in marketing inertia as companies focus on integrating management and organizational structures. Tony Schiller, executive vice president with Paragon Marketing Group, recommends that properties take a proactive approach to activation when working with companies that have recently undergone a merger. In normal times sponsors typically develop activation plans, but they may not have that latitude during the integration process. As a result, they may be more responsive to activation ideas. Paragon worked for 14 years with Continental Airlines and two years with United Continental Holdings. International Carriers Broaden Prospect Pool New spending by global carriers is driving additional deals across pro sports, marathons and other types of events in the U.S. market. Case in point: Etihad Airways recently announced a partnership with the Events DC Nations Triathlon, a tie it is using to promote the launch of daily service to Abu Dhabi out of Dulles International Airport. Etihad is activating the Sept. 8 event with a promotion dangling a trip to Abu Dhabi and entry into the Tri Yas Triathlon, an event it also sponsors. Etihad joins Emirates, Turkish Airlines, Aeroflot and other international carriers using sponsorship to elevate their positioning in the U.S. and abroad. And some of those companies are spending significant money: Emirates over the past two years has partnered with a handful of U.S. properties including the NASL New York Cosmos and the USTA Emirates U.S. Open Series, the latter of which cost a reported $90 million. And other global carriers could soon enter the U.S. sponsorship scene. Over the next three to five years I expect to see multiple international carriers investing in the U.S. market, said Schiller. One potential beneficiary: The four major U.S. pro sports leagues. The category has been open across all of the leagues since Southwest dropped the NFL in 2010. In a sign that things could soon change, the NBA reportedly was speaking with Emirates earlier this year about a league-wide sponsorship. Emirates last year sponsored the NBA China Games, a tie that is expected to be renewed. The Top 10 U.S. Airlines Airline Delta Southwest * UA/CO combined 2012 enplaned passengers 116.4 million 112.2 million 92.3 million 2011 enplaned passengers 113.4 million 110.5 million 95.6 million

(United) (Continental) American US Airways EV/XE Combined (Express Jet) (Atlantic Southeast) JetBlue SkyWest AirTran American Eagle

92.3 million 86.3 million 54.2 million 32.3 million 32.3 million 28.9 million 26.1 million 21.7 million 18.7 million

50.4 million 45.1 million 86 million 52.9 million 30.4 million 16.1 million 14.2 million 26.3 million 24.4 million 24.5 million 17.3 million

January-December 2012 scheduled domestic and international enplanements. *Southwest and AirTran reported as separate carriers with the exception of financials. Source: Bureau of Transportation statistics. Below, IEG SR highlights four hot buttons in the airline category. Gain business from sponsored properties. Airlines are increasingly placing more focus on gaining business back from sponsored properties. Gaining business is a key driver for United Continental, sources say. The new leadership looks at sponsorship as a revenue-driving vehicle. Theyre not as heavily invested in activation as they were in the past, said a contact close to the company. United joins other companies looking for business from sponsored teams. US Airways in 2011 expanded its long-running partnership with the MLB Arizona Diamondbacks by providing transportation for the team. US Airways has two contracts with the team: one for marketing, the other for charter service. The cost of charter service is hard to pin down. Its never been a negotiating point that we have used in sponsorship negotiations, said Cullen Maxey, executive vice president of the Diamondbacks. In a different twist, Madison Square Garden tries to facilitate business-building opportunities with other sponsors. Business-to-business is a huge driver for the airline category. We want to introduce Delta to our partners, said Johnson. Engage frequent customers. Nearly every airline uses sponsorship to access perks that can be used to support loyalty programs. For example, American Airlines activated the South by Southwest Music, Film and Interactive Conference to promote BusinessExtrAA, while JetBlue activated University of Southern California athletics with tailgate events for TrueBlue members. The opportunity to use sponsorship assets to engage high-yield, high-loyalty customers is very valuable, said Schiller. Promote co-branded credit cards. Airlines should try to secure pass-through rights for co-branded credit cards when negotiating contracts.

Thats frequently an afterthought, said Schiller, noting that it can be difficult to gain pass-through rights for the product due to existing team deals with banks and credit card companies, most of which have the category locked up. Gain category exclusivity. While most airlines are willing to pay for exclusivity, some are comfortable with a slice of the category. Case in point: JetBlue Airways Corp. is the official domestic airline of the Barclays Center, while Aeroflot owns the foreign airline category. Exclusivity across the entire category was steep from a price standpoint, so we carved out domestic carrier. That doesnt happen very frequently, said Rick Pineda, JetBlues senior analyst of national sponsorships. JetBlue has an interline partnership with Aeroflot, he added. Sources JetBlue Airways Corp., Tel: 718/286-7900 Southwest Airlines Co., Tel: 214/792-4000 Madison Square Garden, Tel: 212/465-6000 Paragon Marketing Group, Tel: 847/676-6550
The Most Active Airlines Using Sponsorship

*AMR Corp. (American Airlines) sponsors 30% of all properties in the U.S. Airline Sponsorships by Number of Deals

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