MISSION INTANGIBLE

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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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Chipotle and Jet Blue: What's the message?

C. HUYGENS - Tuesday, September 24, 2013
In this week's issue of Forbes magazine, Mission Intangible Monthly Briefing moderator Jonathan Salem Baskin, Managing Director of Consensiv, asks an existential question about the meaning of the branding campaigns currently being run by Jet Blue and Chipotle. Both companies initially established reputations for doing things differently. Jet Blue provided a level of service and amenities through an energetic and committed staff that in combination comprised a superior offering; Chipotle offered an innovative approach to fast-food with a service level, production process, and quality level of fresh ingredients that couldn't be beat.

The companies were darlings of all stakeholders. But have they lost their way? Looking at the Steel City Re reputational value metrics, the two companies have strikingly different reputational value profiles. Jet Blue's Reputation Premium is below average ranking at the 38th percentile relative to its peers - it's leaving significant value on the table; even equity investors are placing the company in only the 59th percentile in terms of its trailing twelve month return on equity. Trying to squeeze a price premium or better worker concessions, better supplier terms, or better credit terms from a vague campaign doesn't seem like the best use of promotional dollars.



Chipotle is wrestling with other issues. In the past two months, its reputation premium dropped from near the top of its peer group to the 73rd percentile. Its return on equity dropped precipitously, too, to the 33rd percentile, and its Consensus Trend -- an indicator of movement in stakeholder perceptions -- for Chipotle is down to the 73rd percentile having spiked near 11%, a critical level. All these measures indicate the company's stakeholders are confused by what the firm stands for.



As Jonathan describes the campaign, it doesn't sound like there is a clear effort to address what is a clear reputational value problem. Notwithstanding recent issues, among its large market cap peers, Chipotle is relatively rich in Reputation Premium and has been a constituent of the Consensiv 50 for the past two months. Seeing a time line of the campaign against these measures would help answer the question of whether the campaign is helping or hurting. More generally, it would be refreshing to review a marketing case study where the action line between promotional content and value-creating stakeholder behavior could be tracked.

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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