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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Southwest Airlines: Reputation matters

C. HUYGENS - Tuesday, July 09, 2013
In the movie, Crazy People, a bitter ad executive who has reached his breaking point, finds himself in a mental institution. There, his career actually begins to thrive with the help of the hospital's patients who produce such memorable campaigns such as the one for United Airlines which went: "Your fear of flying may be valid. There are always plenty of plane crashes and people die like crazy. But you should also know that more people arrive at their destinations alive on our flights than on many others. So, if you have to fly, fly us. UNITED. Most of our passengers get there alive".

Gallows humor? Perhaps, in the context of Asiana Airlines Flight 214, a 777 jet carrying passengers from Seoul, South Korea, that crashed at San Francisco's SFO airport on Saturday. The aircraft has had a great reputation for safety; the carrier less so. The Wall Street Journal says, "While the causes of the crash remain under investigation, Asiana's reputation has likely taken a hit in China, its second-biggest market in the region outside of Korea, say analysts."

Reputation for what? In Forbes magazine today, Jonathan Salem Baskin, Mission Intangible Monthly Briefing moderator, makes it clear that affinity is not the basis of reputation. Rather, it is the willingness of stakeholders to take actions that at the end create significant value for the company. The Economist made the same point last year, "Everybody bashes Ryanair for its dismal service and the Daily Mail for its mean-spirited journalism. But both firms are highly successful. ... the best strategy may be to think less about managing your reputation and concentrate more on producing the best products and services you can.”

It should therefore not come as a surprise that Ryanair is still near the top of the airline league table as reflected by the Steel City Re reputation metrics and the firms' reputation premium. Asiana, because it is not traded on a major Western exchange, is not rated.

Across the pond, what does a well-regarded American airline look like? Southwest Airlines, ranked #8, is a large carrier that distinguishes itself through a quirky service platform and dedicated employees. Customers who fly the carrier look forward to the experience.

Turning from the subjective to more detailed objective (algorithmic) metrics from Steel City Re, as of July 3, a few days before Asiana's crash, Southwest's ranking at the 84th percentile (reputation premium) is backed by a very low current RVM volatility (Consensus Trend) indicating near unanimity about the firm's reputation. Economically, the firm has been trailing the median of its peers ranking only in the 27th percentile. And with regards to safety, it has a fabulous record. Most of its passengers, indeed, get there alive. In light of its rising reputation ranking, the metrics suggest the firm is undervalued.

Flight safety

Nir Kossovsky - Tuesday, May 19, 2009
Recent news of Colgan Air, Inc., an operating company owned by Pinnacle Airlines Corporation (NASDAQ:PNCL) prompted us to consider the intangible asset of safety and the financial consequences of the reputation arising.

On 12 February, flight 3407 from Newark to Buffalo crashed while on an approach to Runway 23. A total of 50 people were killed. This loss of lives in Colgan Air Flight 3407 the greatest loss of lives on a domestic American flight due to an accident since 2001. Then on 12 May, flight 3260 from Newark to Buffalo lost a wheel after landing on Runway 23. There were no injuries and the passengers deplaned normally. The next day, the NTSB began its hearings on the 12 February crash.

Colgan Air operates under the brand of three iconic companies: Continental Connection, United Express and US Airways Express. It has been involved in two well publicized safety incidents. From an intangible asset perspective, what are the reputations of Pinnacle, Continental, United, and US Airways and is there any evidence that the two events had an impact?

We turned to the Steel City Re Intangible Asset (corporate reputation) Index for insight into stakeholder’s perceptions. As shown in the chart below, the relative rise in Pinnacle’s index ranking ends abruptly twice in a temporal association with the safety events described above. Also of note is that Pinnacle’s index shows a progressive drop -- ongoing reputation erosion – for the 8 months prior to the February crash. Financially, over this period, Pinnacle has underperformed the median of its 20 peers by 22%. Index EWMA volatility is very high at 5 log orders.

Among the 21 companies tracked and ranked in this index, all four companies -- Pinnacle, US Airways (NYSE:LCC), United Airlines (NASDAQ:UAUA), and Continental Airlines (NYSE:CAL) -- rank in the bottom quartile as of 15 May 2009. In the period following the 12 February crash, and measuring rank on a percentile scale, Pinnacle’s rank dropped 20%, US Airways dropped 15%, Continental dropped 10%, and United was unchanged. Other members of the bottom quartile are Jet Blue (NASDAQ:JBLU) and American Airlines (NYSE:AMR).

The membership of the top quartile among 21 publicly traded airlines as of 15 May comprises Copa Holdings (NYSE:CPA), Allegiant Travel (NASDAQ:ALGT), LAN Airlines (NYSE:LAN), Ryanair Holdings (NASDAQ:RYAAY), and Southwest Airlines (NYSE:LUV).

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