How to Run an Airline: The Fine Art of Blaming the Customer and Energy Costs Instead of Yourself

There has been a lot in the news this week about airlines. I've seen multiple reports of carriers cutting routes, dropping service to some destinations entirely, and then there was this article from the Chicago Tribune titled "You are now free to take a flying leap".

The article details a forum sponsored by the U.S. Dept. of Transportation this past Tuesday to bring disgruntled consumers together with the airlines to discuss problems. Two statements from the article stuck out:

1.  "The message from airlines wasn't reassuring either.  Essentially, they said, if you think it's bad now, you ain't seen nothing yet.  They warned of shrinking service and higher fees for everything from preassigned seats to bottled water."

2. "Airline officials made it clear that much of the burden for having a successful flight rests on passengers."

In my opinion, this paints a pretty bleak picture for the U.S. airline industry, specifically the legacy carriers (American, Continental, Delta, Northwest, United, U.S. Air).  There's no doubt that the current cost of fuel is putting quite a burden on these companies, and there's also no doubt that you'll hear them whining about it every chance they get.  However, I have a hard time feeling sorry for them, because in my opinion they've brought this on themselves.

I came to this conclusion after reading a post on the Freakonomics blog about American Airlines beginning a test of in flight wi-fi on two planes.  This sounded like a great idea to me and a potentially large source of revenue for American.  More importantly, this made me realize that outside of these two American planes, there's really not much of a difference between any of the "Big Six" airlines for the average traveler.  

I hope you can forgive me for my lack of in depth knowledge regarding the Airline Deregulation Act.  I was negative two years old at the time, which I feel is a decent excuse.  Having said that, it seems pretty obvious that the legacy carriers have dropped the ball on two of the most fundamental aspects of succeeding in a free market; innovation and product differentiation. One of the first lessons you learn as a marketer is that it's always a good idea to develop a product or service and focus your marketing efforts on one specific thing that you do better than your competitors.  Creating and successfully marketing a competitive advantage fosters customer loyalty.  A market absent of niches really only leaves one point of competition: price.  

When your only competitive advantage is price, you throw customer loyalty right out the window.  Why would anyone choose a more expensive flight over a cheaper one given equal travel times, connections, and terrible service?  Even frequent flier miles, the great loyalty tool, are becoming less and less about fostering loyalty and more about getting additional revenue through B-to-B partnerships (case in point, Delta and U.S. air are now charging fees to redeem points for air travel).  If, years ago, someone had put some thought into the customer experience, product differentiation the air travel market today would be able to compete on multiple levels beyond price.

When I began writing this post, I had intended on concluding with the thought that 30 years of poor planning and mismanagement since deregulation has resulted in the situation these businesses face today.  What I realized while writing this piece was that the airlines probably would have been ok if similar, adjusted for inflation, oil costs had arrived in the 80's or the early to mid 90's.  The Internet was the game changer as it gave consumers more information.  I missed this originally as I have only been a direct consumer for airline fights since graduating college in 2003.  More information always leads to more efficient markets, and thanks to the Internet a potential flyer can see each airlines' price in one convenient location instead of having to call every carrier individually.  15 years ago, if you found a price that seemed reasonable, you would book it and be happy.  Today, if the price looks good you still use a few extra mouse clicks to make sure the grass isn't greener somewhere else.

Let's hold out hope that this announcement of new service from American Airlines is a harbinger of good things to come from an old-fashioned industry that has either refused to or has been unable to adjust to the current competitive landscape.  On the bright side, if tradition holds and no real innovation comes from these seemingly paleolithic organizations, at least we have companies like Southwest Airlines to rely on.  Incidentally Southwest does a great job with customer service, does not charge for checking bags, does not use the hub and spoke system of the legacy carriers, books a majority of its flights through its own website, doesn't charge for changing a flight reservation, just so happens to have been profitable for each of the last 35 years, and is currently the number one airline in the world by number of passengers carried.  You don't need an executive level salary to understand that if a competitor is unquestionably succeeding while you are declaring bankruptcy and asking for government bailouts that you might want to take a look at their business model instead of blaming the rest of the world for your problems.

Agree, Disagree? Let me know what you think by leaving a comment.