The U.S. Airline Industry...a lesson in what to do if:
- You don’t want a sustainable competitive advantage
- You say "screw brand power"
- You don't think consumer loyalty is important
Plan to nickel and dime your customers? Say goodbye to a positive brand image. In a survey conducted by the University of Michigan in early 2008, U.S. airline companies were found to have a 62% approval rating – the lowest given by consumers since the terrorist attacks on September 11, 2001. Jaunted.com reported on the survey results stating “some airlines received survey scores in the low 50’s, which makes them less popular than the IRS.” J.D. Power and Associates also rolled out a study – The North American Airline Satisfaction Study - in 2007. The top airline according to the report was Continental, scoring a below-average 704 out of 1000 or, in grading terms, a C-. I’m sure any consumer who has flown recently is certainly not surprised.
For fun, I conducted a simple Google Search based on the key phrase “Airlines Suck.” There were >9000 search results. It’s no secret customers feel like the airlines – service providers if you would still call them that - are at war with them. And they’re not happy. But although everyone’s talking and complaining, no one seems to provide the airlines with an answer of how to fix this problem. Additionally, airlines aren’t exactly asking for help or realizing how badly their brand power has dissolved. Airlines have become brands we hate. So what’s the deal? Can any domestic U.S. airline turn itself around to become a brand we love and gain our loyalty? As a frequent traveler, I know if there was one airline that treated me like they cared and like a human being, I would probably pick them over the others, even if I had to pay a little more in the base ticket price.
Airlines are essentially a service company. But lately they seem to have forgotten what service means since they are so focused on their bottom line. Faced with rising fuel prices, airport take-off/landing fees, etc., they are losing money. We have seen multiple mergers and many bankruptcies and as customers, we know that they’re all struggling to keep their heads above water. But the problem is their passengers are struggling too. The U.S. economy, amid the housing crisis, fuel prices, rising unemployment rates, etc, is not exactly a picture of perfection. And since travelers don’t have any other options when it comes to getting to far away places quickly, they are forced to suck it up. Anyone want to try to figure out the confusing matrix that the airlines have created? Can you figure out which ticket price actually ends up being the cheapest?
Who’s Charging What and Why?
A little over a week ago, USA Today ran an article outlining the various fees U.S. airlines are currently charging. Below is a summary of what you can expect to pay...with some charges topping out at $250 on up. Just this morning, CNN Money reported United plans to start charging for meals on select international flights. It's definitely gone beyond the point of being ugly.
As consumers, many people wonder why airlines are all of a sudden charging these fees. Many airlines attribute it to the rising fuel prices that are consuming around 50% of the price of an average ticket. Regarding baggage fees, Heavens-Above.com reports “…most of these transportation vehicles earn profits by transporting both people as well as cargo. Their profitability is dependent on striking an optimal balance.” Delta, for example, announced in July it would start charging $50 for a second checked bag. They claimed it wasn’t an effort to raise money, it was to discourage travelers from bringing a second bag. In other words, the fee is to get passengers to leave bags at home so they can sell more cargo space. One person, known only as “angry passenger,” commented on a message board. “These are passenger planes not cargo. If you want to haul cargo, get out of the passenger business.” I'm sure many passengers these days would say "Amen" to that.
These “a-la-crap” fees as I have heard them called, have become completely out of control. But what are some other non-U.S. airlines doing that have yet to be added to this list? British airline EasyJet has been offering a speedy boarding service allowing passengers to pay extra to be one of the first in line to board the plane – and thus have a larger choice of seats. AIRASIA X, in an announcement that (smartly) hasn’t been made by U.S. carriers, is reportedly considering charging passengers depending on their weight. Oh Lord. Next thing you know they’ll start charging us to use the restroom. Adult diapers anyone?
In the land of U.S. carriers, Southwest appears to be one of the only exceptions to the rule. CEO Gary Kelly stated “To survive, the industry is charging, for everything…and anything. Pillows, blankets, bags, paper, and even conversation with a human being…we still have affordable fares and we don’t nickel and dime our customers. You get free snacks, you get free soft drinks, you get free pillows…you get two free checked bags…and there’s no charge to talk to our wonderful reservation agents.” At least somebody remembers what customers mean to their brand.
Why Are Customers Angry?
Let’s look at some basic human insights to figure out why customers are so angry at U.S. airlines:
- No one likes to suddenly be charged for something that was always “free” in the past. If it was always in the base price and it isn't really an option the customer "wants" to check the box for, why offer it up as one?
- When you pay more for something you expect to get more. At a minimum, when you pay for a service, customer service reps who actually smile and act friendly, act concerned if your baggage is “lost,” are helpful when you need booked on a new flight, etc. shouldn’t be that difficult to come by. This is at the minimum...
- Everyone likes having choices. The key here is in providing desirable choices – not “hold a gun to my head” choices. This is the age of consumer customization and co-creation and people are used to being able to customize their own experiences...in a positive way. Why are consumers upset about being charged for their first checked bag? If you’re going on a trip for more than a couple of days, you will probably need a razor and more than 3 oz of some of your toiletries. Due to safety regulations, you can’t carry razors on board, liquids are limited, etc. So customers don’t feel like they have a choice – they have to check their bag and they’re being forced to pay for something that’s a safety regulation.
- Remember the old phrase K-I-S-S? Keep it simple stupid? People don’t like information overload or too many combinations because it confuses them and makes them frustrated and angry. Having too many boxes to check when traveling is already perceived as a hassle? Probably not a good thing for satisfaction.
- No one likes excess baggage – emotional or physical. Sure some travelers over pack. But some customers don’t want to (or are unable to) carry their suitcase around the airport during layovers, struggle dragging the luggage down the narrow airplane aisle where it constantly catches on seat armrests, or knock people out when trying to lift it over their head into the overhead compartment. For an average-sized woman or the elderly, the overhead bins are not exactly at an ideal height in which to place a 15+ lb suitcase. Telling them they have to pay when it's a physical issue for them makes them feel discriminated against.
- Having easy access to water is pretty much seen as a given in America. Since you cannot bring your own bottled water/beverage through the security checkpoint and sometimes timing is tight for your flight, you really have no choice for a beverage unless you pull out some cash and hand it over to a flight attendant. Charging people for water, something they could have gotten for free from a water fountain, just because they’re a “captive audience” will surely cause some customer dissatisfaction.
Why You Don’t Hear About Customer Complaints in Airports
The International Herald Tribune quotes Mary Gilly, a professor of marketing at the University of California at Irvine. She states “…passengers have learned that venting their anger at an airline employee means that they may be escorted off the plane by the authorities, Gilly said. "You complain at Starbucks, you get a freebie," she said, "If you throw a fit at an airport, you could be picked up by the TSA.” No one wants to get kicked off an airplane or escorted out of the airport in handcuffs, especially when they’re in a hurry to get somewhere. So airlines, it isn't that we all are OK with your fees, we're just afraid of being "that person" who gets kicked out.
Competitive Advantage Anyone?
Anyone who has taken a basic course in business knows what competitive advantage means – earn revenues higher than costs. This competitive advantage can be achieved through cost or differentiation. In other words, offer the same services/products at lower cost or offer unique services/products. But what happens when you compete solely on price and you don’t have any differentiating factors? You can enter price wars and run the risk of pricing yourself out of business. You also haven’t come up with a business model that offers a sustainable competitive advantage – i.e. something that cannot be duplicated by your competition.
My first question is who is working in finance and marketing for these companies? Don’t they realize the importance of brand and how to optimize profits without turning off your key revenue driver – your customers? I’ve written about how customers these days value customizing their experience, but what the airlines are currently doing is not really the right translation! Mary Gilly states: "I think the airlines are being pretty disingenuous calling it 'à la carte pricing.' Please. This is not a Chinese menu."
Some Ideas for a More Business Savvy, Customer-Friendly Airline:
But wait!!! Edward Bastian, President and CFO for Delta, says "Airlines need to have a way to recover the cost of their product.” According to a World News investigation, around half the cost of many airline’s flights go to jet fuel alone. So I don’t think any customer would argue with the fact that airlines need to make some money to stay in business. We’re not saying to not charge for things, just do it in a different way...as in the old way.
I know some companies would argue that if it's baked in their ticket price is higher and customers will walk to low-price/discount carriers like AirTran. Sure, you may have some customers who do this. However, right now, customers are so confused by the various fees, etc, and customer service is so bad, selecting an airline is like throwing a dart at a board where everything appears to be in the center. By moving towards some of these actions below, you're starting to separate yourself from the competition. Why else should airlines make the number of "choices" fewer? Most marketing and pricing folks know that when you are trying to figure out what to make "standard" on your product versus what to make into an "option," depends on how much you believe consumers will pay for that item. In other words, if it's something very desirable -and- it isn't something the competition offers as standard, you can guarantee it'll be offered to consumers for an added price. Looking at the airline selections, I don't believe any of these fall into this category. They should be standard.
Now on to the good stuff. For fun, let’s look at a small example, using United Airlines, to see what might help strike a balance between profits and customer satisfaction. These are just a couple of solutions to issues customers currently find the most annoying. So some fast facts:
- On August 18, The International Herald Tribune reported United believes it can raise $1B in revenue for its various fees.
- According to International Air Transport Association published figures, in 2007, United had 68.4M scheduled passengers carried. For the sake of simplicity, let’s round down and call that number 68M passengers.
- United is currently charging $15 for the first checked bag. Thus, if every passenger checks a bag, it’s around $1.02B.
- Since not everyone checks a bag, to get to the $1B marker, United is banking on people paying some of the "other" fees. I'm going to argue that they could actually earn more revenue by not having as many pick-and-choose options.
On Board Experience
I doubt any airline customer ever thought snacks were really “free.” They just assumed it was baked in to the price of the base ticket. Most people when they’re traveling don’t want to have to get into the overhead compartment or wrestle to get into their back pocket while elbowing the person next to them in order to get money out for a (generally crappy) snack choice. Also, many people these days don’t carry a lot of cash due to how many places now readily accept credit cards. And I’m sure the airline employees, specifically the flight attendants don’t really want to be cashiers. So what to do?
United currently offers a snack on flights at a price of up to $4. On the 20+ flights I’ve been on over the past few months, I have only seen a handful of people paying up for a snack (I generally have one flight each week, one during breakfast hours and one during prime dinner hours). So, for the purpose of this analysis, let’s assume 40% of the people on the flight opt for the snack (I haven’t been able to find a study that actually shows the take rates of snacks on a plane, but it probably would be interesting). Doing the calculation, $4x40%x68M = ~$109M. Not shabby. But, say there was $6 baked in to the price of a basic ticket to help cover snacks and non-alcoholic beverages. That’s $6x100%x68M = $408M. In other words, by going back to the “free snack” option and accounting for it in the base fare price, you’ve almost quadrupled what you would have received for snacks, you’ve reduced labor (flight attendants don’t have to handle money, airlines don’t have to go deposit that cash into the bank), you’ve appeased your customers who still want “free” snacks, and you now have a more accurate estimate of how many snacks you will need per flight.
Another way to enhance the snack experience is to give customers a choice. One of the highlights of flying the now defunct Independence Air is they would pass around a snack basket containing a variety of granola bars and special snack foods. The customer selected what they wanted on their own and due to being able to choose, it was an unexpected surprise and delight.
At the Airport
Although airlines may think charging people for their first bag is good thing and believe it may make people pack less, USA Today reported that having more baggage go through security makes the security process longer – and thus results in a higher risk of something getting through security that shouldn’t. As a passenger I also find it a major annoyance as overhead bins become extremely full and flight attendants ask passengers to even bridge-way check their laptop bags. C’mon airline people – if you’re carrying around a laptop with a bunch of important work information on it I am not going to be giving it up to be handled under the plane.
If airlines feel the absolute need to charge for the first bag, it should be included in the upfront price of the ticket. They could then do a program rewarding people utilizing online check-in, making it carry-on baggage only and crediting $15 back to a customer’s credit card when they use this service. It would also help give carriers a better estimate of how much freed up cargo space they may have many hours prior to each flight. I think by doing this, United would get closer to that $1B than by just counting on passengers to automatically check their first bag.
When airports are busy, check-in lines do not move along quickly. Why is this? Generally the airlines have minimal staff behind the counters (another cost-cutting measure). Things run fairly smoothly with the self-check-in kiosks until one person at the front of the line has a question that consumes an agent's time or one agent alone has to walk back and forth between 12 stations pulling out luggage tags and yelling out a customer’s last name and their destination. Sure the kiosk system is a step up from the agent handling everything, but why not take it a step further? Why can’t your luggage tag print out from the kiosk as well? People are intensely concerned their bags getting to the appropriate destination. We hate lost luggage. We're going to make sure we're holding the right destination in our hands. Through moving to this type of system, kiosks can be completely removed from the counter. The counter would then have two lines - one for dropping off baggage and one for issues/problems. This would help the process go along quicker and result in more satisfied customers.
One Final Idea That's Kind of "Out There"
Anyone who has used the internet is familiar with the use of banner ads. Since the airlines really don’t appear to care what happens to their brand names, then the issue of another brand name on their airline or seating area at the airport, etc. does not seem like it would be a major issue for them. As a result, what if the airlines started selling ad space? For example, for a fee, a company could “decorate” the outside of a plane with their image. Or an airline could display ads on the backs of tray tables. Might be an easy way to keep base ticket prices a little lower than the competition. Of course, on second thought...with how low customer approval is for airline brands, it may be a challenge finding companies who actually want their brand name attached to an airlines...
Just my thoughts.