At It Again

Over the past few years, I’ve been consistently amazed by the antics of the larger U.S. airlines, especially American and United. There are times when you have to wonder if these companies are actually trying to destroy their industry and/or immolate themselves, simply because it’s difficult to imagine that anyone could possibly be that tone-deaf – or make that many silly mistakes entirely by accident. Thus, we have episodes like United losing Dave Carroll’s luggage, or both companies raising checked baggage fees AGAIN after doing so not only resulted in massive market-share losses to companies like Southwest that don’t charge for checked bags but also left them still operating in the red. Earlier, I had commented on American charging extra for in-flight meals as a silly concept – you’d have to sell a lot of seven-dollar sandwiches to make up for a $3.59 billion loss over the last two years; even if the food is 50% profit, we’re still talking over a billion sandwiches or the equivalent. But I have to say, this time I think they’ve outdone themselves…

According to a story on the Associated Press wire by way of the MSNBC news pages, American is going to start charging passengers in Coach an $8 fee for a pillow and a blanket, beginning May 1 of this year. On the one hand, this will give them two opportunities to pick up some incremental income from each passenger (food and a blanket), which means they should only need 500 million or so takers in order to get back into the black – assuming, of course, that they don’t end up throwing even more money onto the tarmac or hemorrhaging any more money over the next fiscal periods. However, I think we are quite justified in questioning whether this will actually help the company’s cause – because the actual numbers do not add up…

Suppose, for a moment, that American can actually make a 50% profit on its pillow and blanket packages – which seems a bit optimistic. Let us further suppose that they achieve a 10% sales rate, which would be amazing. If an airliner hold 150 coach passengers, and American manages to sell 15 of them (10%) a blanket package, they will have made $60. But with the average coach ticket on a flight long enough that you’d consider napping on it well over $60, that means that if American loses even one passenger to another airline as a result of this new policy, they will be losing money on the deal. If they suffer even a 2% loss of passengers, they stand to lose several hundred dollars per flight, which adds up after a while. If I’m reading these numbers correctly, American would have to suffer less than half a percentage point worth of lost customers for this venture to break even – and that seems highly optimistic…

Any experience customer service representative could tell you that most of the trick to retaining customers is a matter of appearances; it’s not what you’re actually doing for your customers, it’s how it looks to them. If you’ve had your entire evening ruined by indigestible food, getting your meal for free isn’t really going to help you – especially if the event was an anniversary dinner you can’t ever have again. But if the manager offers to comp your meal – or perhaps offers you a certificate for a free one in the future, as well – you’ll accept the apology, even though your damage is done, and you know that the meal didn’t actually cost the company nearly as much as you would have paid for it. In the case of the formerly free services like blankets and checked bags, the amount the company is actually making on the fees is negligible – but the loss in their customers’ good opinion might one day cost them the company…

We’ll just have to wait and see if they stop these shenanigans while they still can…