Showing posts with label Airlines. Show all posts
Showing posts with label Airlines. Show all posts

Thursday, June 18, 2015

Why airlines dislike (most) of their clients.

Mark my words, airlines and their clients are rarely in the same boat.

The aviation industry has always been peculiar, and it is, indeed, a very difficult one to regularly make a profit. It is said that the cumulative financial results of the world’s international airlines from the end of the Second World War is a nett loss. Currently this may be changing as the US carriers finally make money, and serious piles of the stuff, but if history is any guide to the future this will change.

Change happens for many reasons, but today’s attitudes of airlines and their staff really takes the cake. Forge the sycophantic “Thanks for your business, we know you have a choice” message one hears upon landing, they know that in general, there is no choice. Depending on where you live, there is a single dominant carrier with pricing of a level of predation that would make a bald-eagle blush.

Most city pairs can be flown by one of the three major carriers; the determinant factor is, however, the number of flights available. Yes, one can travel from Minneapolis to New York with Delta, American or United, but only Delta offers a non-stop service, and prices it accordingly. The others will offer various levels of discount depending on the day of the week, how individual flights are selling at any given moment and a variety of other factors that feed the pricing algorithms that they all operate. 

This is, of course, fair enough, but not inclined to make the public believe that the airlines care about them one iota; and on non competitive routes (Winnipeg/Minneapolis), fares are simply disgraceful, and cynical in the extreme.

And then they get you; having found a reasonable fare, now there is the fight over baggage, flyer points, boarding sequence, refreshments and so on. The airlines spin doctors like to tell us that this is all a wonderful utopia designed solely for our “choice”, but the sad truth is rather different.

Airlines seem to be the only business whose heavily advertised product is deliberately made so dreadful that we will pay anything not to have to use it as described.

Unless one is one of a carriers’ most favoured clients, and here we are looking at only the top 20th percentile, one can be expected to face a cynical barrier of auto-responses and disinterest in response to any and every irregularity. Dealing with impossible call centres in distant lands solves no problems; hiding behind veils of inaccessibility allowing such gems as “The computer says no” to become the stock answer, and the pretence of the fusion of Alliances to help travellers mask a rapidly growing corporate contempt for their customers.

Airlines are behaving like governments; disinterested and too big to fail.

But why? I believe that they are simply too big. Senior executives, and even most middle managers, have never bought a plane ticket in their lives, and have absolutely no idea what the customer interface with an airline is all about. They have “Interline Desks” and travel free; other airline staff help them because they all know and participate in the same game.

I don’t begrudge them the pass benefits at all, but I do wonder how it is that an entire industry has evolved that is run by people with absolutely no practical knowledge of the customer/industry relationship. Senior folks in the grocery industry have often purchased milk themselves, or go to a Home Hardware store; they know what expectations of service are. Airline executives have simply no idea whatsoever.

They have no concept of the lunacy of the ticket restrictions when trying to piece together a complex vacation, or the difficulty in corralling three friends or family together to plan a trip. And when they do, suddenly they offer a “lock in the fare” option for (only) another $75! They simply don’t understand the vast range of motivations for purchasing their product.

And herein lies the glimmer of hope. Pride, as we know, goes before a fall; sadly, falls don’t always follow pride, but we can’t have everything.

Airline profits are slim on a percentage basis, and one that returns 3 - 4% is considered quite spectacular. This implies, of course, that 97% of their income is spent operating the business, and this leaves a dangerous group of passengers who are basically ignored. For many, travel is completely discretionary, and the choice of airlines is too. For those living at gateways, those with choice, market share of the local dominants is being slowly eroded by the newcomers. Witness the extraordinary vitriol being spouted by the normally diplomatic CEOs of Delta and United over the growth of the Middle Easter Three: Emirates, Qatar and Etihad.

They know that they are losing, and spitting blood over “subsidies” is a poor substitute for raising their service to a point that people will actually want to purchase their tickets.

And while we are on the subject of subsidies, US Government requirements for thousands of employees, contractors and others to travel on a US carrier, and pay vast fares for the privilege generate billions of dollars of revenue for the airlines in a hidden subsidy.

The contract for the US Mail is another major source of subsidy; original awarded to Pan Am to allow it to operate the first long-haul routes to South America and Africa, this tool has long been a well-used part of the government’s arsenal of support.

It is time that airlines realised that their passengers doubled as human beings, and would react positively to good service off the plane. Air Canada’s service on board is exemplary, but it does not mirror the off-line support offered by their baggage folks, airport staff, sales staff and most certainly the reservation desks. If carriers are to secure their now-found financial stability, ensuring clients’ loyalty by delivering an attractive service from beginning to end rather than by forcing loyalty through geography and nicely designed web tools would be a good move.

Tuesday, December 2, 2014

Airline Fuel Surcharges: Time to review ...

With the price of oil dropping like a stone, and airlines posting magnificent profits, is it not about time that we talked about “Fuel Surcharges”?

Airlines introduced these insidious fees in February 2004/5 at a time that the oil price increased from about $50 to $75 in a very shortperiod. The general idea, at least the one proposed to the US regulatory authorities, was that it would be too complex to refile the thousands of airfares so quickly, and that a surcharge could be introduced to combat the huge expenses that such fluctuations in fuel caused.

Fair enough, one might argue, but a surcharge is inherently a temporary measure.

Airlines, like other users of commodities, have means to hedge their exposure to oil cost fluctuations, and should use them to understand their costs accurately. Once the fuel prices had “stabilised”, or at least once the airlines had been given time to get their house in order, the cost of fuel should have been incorporated into the cost of flying, and the “surcharge” abolished. The price of jet fuel has, in fact, declined by 23.3% in North America in the past twelve months, and globally by 27% (source: IATA fuel price analysis/November 28, 2014), yet this farcical “surcharge” remains stubbornly in place.

For carriers, while the price of fuel appeared to be inexorably climbing, folks accepted the additional fee, even though one wondered what the actual airfare included if it did not incorporate the price of gas; now, however, the charge sticks out like a sore thumb, and has absolutely no place as a separate fee on top of the fare.

The fuel surcharge now has become an interesting way for the carriers to play games; corporate discounts, agency performance payments and other marketing strategies are all based on the “airfare”; low airfares allow carriers to place disgraceful advertisements that imply travel at rates that are often only half of the final price. They are, in short, a major player in the airline industry’s arsenal of deceptive sales tactics.

Now, however, with the price of oil reducing to rates that are even forcing gas stations to reduce their pump prices, the airlines should be forced to explain why the surcharge should remain in place, and what the precise financial levels that cause the surcharge are.

Surcharges are, or should be, temporary; they are imposed in response to a specific and rapidly changing economic environment over which they had no control. Now, however, they do have control of their pricing, and at least should let the public know the price that fuel should reach that will trigger its removal.

Thursday, March 21, 2013

Be careful what you wish for!

I remember the heady days of the mid 1908s when Jimmy Carter deregulated the American airline industry. Henceforth anyone could fly anywhere, competition would rule the skies and air travel was suddenly open to a wide section of the population previously resigned to staying at home or going by bus. 

They were the days of Freddie Laker and People Express; of new routes popping up every day and the birth of such fine carriers as Vanguard, Air Florida and ATA seeking to fill these new and exciting voids. 

Business, however, is a rather interesting beast. While competition is lauded as the consumers’ best friend, it is a fleeting benefit. Businesses care only about their own balance sheets, and while for a period, the interests of their own seem to coincide with those of their customers, it is a relationship that never lasts for ever. As soon as they can do so, prices rise, bonuses roll in the executive suite, staff gets laid off and the hangover begins. 

Business is, to put it bluntly, a commercial form of Darwinism. Business absorb weaker businesses, usually under the guise of some illusory benefits to the customer, evermore dangerous games of industrial chicken end with commercial collapse or further consolidation (all for the consumers’ benefit, of course) and now we are left with four airlines in the USA. 

Delta, United and American along with Southwest now control the friendly skies, and it remains to be seen how long this will last before Southwest is gobbled up by one of the Big Three. 

For it is no longer an American game; United is a part of the Star Alliance, American works with OneWorld and Delta is the American partner in the Sky Team alliance. Each of these three global alliances seek to dominate huge swathes of the world, offering their clientele lounges, happy faces, “seamless connections” and piles of other advertising drivel that  will cement the global relationships that control the product offering. 

And the tourist traveller, the very poor cousin of the might corporate passenger, is left with dwindling choices. The growth of consolidation within the tourist industry, leaving a few, mainly European-based companies in control of an ever larger number of brands and thus customers will serves to only further restrict choice, although cleverly doing so under the disguise of competition. 

Do you know why will offer comparisons with prices? Because they are both owned by the same group that also controls Trip Advisor and a number of other well-known on-line sites. Altruism? Consumer Choice? Not a chance. 

So we now see three airlines, and by extension their global partners gaining strength, and watching the brave financiers who placed massive sums of money into the industry over the past twenty years finally getting their just rewards; and these rewards will be substantial.  

Billions of dollars have been bet on the survivors in the airline industry, keeping the behemoth companies afloat in oceans of red ink. Finally the winners are being unveiled, and it is time to pay the pipers who have called the tunes; and consumers will face higher fares, higher fares, decreasing space and tighter schedules. 

There is, however, a silver lining. Buy airline shares now, (Delta, United and US Airways are good bets, as is Southwest for a slightly different fiscal dynamic) and use some of the profits that will be made to pay these additional fees. But make no mistake; it is payback time for the silent financiers of the industry. 

And Jimmy Carter must be wandering what he started. It is quite true that without deregulation millions of journeys would not have happened and the world today would look rather different from the way it does. I hope, however, that thirty years further on, we do not look back longingly at the period between 1985 and 2015 as the halcyon days of travel. 

Now, it is the time of the airline executives to examine the future that we all have, and not simply rely on the misleading drivel that their advertising companies love to put out. Will air travel remain the purview of many or return to being the privilege of the few.