Not Even Trying

Suppose for a moment that you were a parent traveling with children, possibly small children, and when you attempted to book tickets in the same row with your children (and spouse) you were told that the airline was going to charge you an additional fee for letting your party sit together. Let us further suppose that you asked the justification for this peculiar charge, and were told that there was no particular reason for the practice; the airline was just doing it as a way to wring more revenue from each flight, because they can. And, just to cap things off, let us suppose that you asked what the CEO of the airline thought about this practice, only to be told that the whole thing had been his idea in the first place. Would you still book the tickets?

Since you’re reading this story on my blog (assuming I have readers) you’ve probably figured out by now that this is an actual policy at United Airlines, according to an interview with their CEO on the Flyer Talk site this week. United President Scott Kirby claimed that the practice was just a matter of the company charging extra for a superior product – effectively, increasing the price because of value added – and defended it on the grounds that all companies charge extra for more valuable products or services, and airlines shouldn’t be any different. Whether he was missing the point deliberately or just brushing off the reporter isn’t clear from the article, but I feel it’s worth raising the issue anyway…

In general, any business policy that involves forcibly separating parents from their children – or extorting money from them in exchange for not doing so – is going to cause trouble, particularly if there isn’t any objective reason for doing so. Leaving aside over-protective parents who literally carry their children everywhere until the kids are school-age, most people find travel with small children stressful enough without having to worry about where they might be or what they might be doing/breaking/ingesting at any given moment. For that matter, most other travelers don’t particularly want to have to consider the complications of sitting with unaccompanied children just because the airline wants to make a few extra dollars. If this story is accurate, though, United is running the risk of irritating every customer on a given flight…

Now, I’ve made no secret of the fact that I consider annoying the customer to be a colossally bad idea; I’ve gone so far as to suggest that the Second Law of Business should be not to do this. In the case of a company like United, which is already having public image and customer relations issues due to things like having customers dragged off of flights (and possibly beaten), this policy goes beyond “stupid” and is careening directly toward “complete fiduciary misconduct.” While I can admire Mr. Kirby’s honesty and candor, I can’t help feeling that he’s not even trying to understand the potential shortcomings of the policy he is defending. If I still owned stock in United (I don’t) I might be trying to sell it, but I’d almost certainly be trying to oust the CEO at the next proxy vote…

From this perspective, I can’t actually tell if this policy (or admitting to it in public, at least) is insanely brave, utterly tone-deaf, or unbelievably arrogant. All I can tell you for sure is that none of these are adjectives that I want to associate with a company with which I do business, or with the senior management personnel of such a company. If United wants to improve relations with its customer, or at least stop being the punchline of jokes written by millions of scruffy bloggers across the Internet, they need to at least try to consider the needs of their passengers. Before things get any worse…

Back to Basics

Back in 2013 I brought you the story about United Airlines reconfiguring its CRJ regional aircraft to include more – but lighter and smaller – seats. At the time, I commented that travel on a CRJ is already a miserably cramped experience, and I couldn’t imagine that trying to cram more people on to one was going to help. Since then, all of the airlines have been experimenting with new seating arrangements and equipment, ranging from things that look like a saddle to a kind of standing-room-only system that provides just enough support to keep the FAA from shutting it down. It’s enough to make you wonder if anyone running an airline is even thinking about passenger comfort anymore…

Well, apparently they aren’t. Some recent interviews with the leadership at United and arch-rival American Airlines reveal that they have been working on smaller and lighter seats, and planning to fit extra rows – and possibly even an extra seat per row – onto every type of airliner currently in service. This will enable the airlines to increase their revenue per flight considerably, as I noted in the 2013 post, but it completely ignores passenger comfort and potentially safety (in the case where you’re trying to get more people off of a more cramped airplane during an emergency). Push-back from some consumer advocate groups has helped prevent the worst of these plans from going through, although we should note that the public relations and customer service staff at some of the major carriers have also complained about the concept…

Now, as I noted five years ago, the management team of any company has a responsibility to its shareholders, and to a lesser extent, all of the other stakeholders, to maximize revenue. In the case of airlines, getting more paying customers aboard every airplane is one of the only ways to do that, but the problem with doing so is that you are also making the experience less and less enjoyable, which lowers the value you are providing to the customer. Carry this process too far and you will reduce the perceived value of the service you are providing to the point where no one will be willing to buy it…

This is a perennial problem for any company utilizing a low-cost strategy. If a given product’s perceived value drops below a certain level no one is going to purchase the product, no matter how cheap it becomes. The example I use in class is the 1980s-era imported car known as a Yugo, which cost about one-quarter of most basic cars, but was so poorly regarded that no one wanted one. If you care, I can name any number of other companies that have failed for the same reason, but given that there are only three kinds of business strategy (cost leadership, differentiation, and focus), and every business school in the world teaches its graduates to watch out for a lack of parity of quality when using the cost leadership strategy, it’s hard to understand how anybody could get to be CEO of a major airline without learning this lesson…

Even worse, in some ways, it the fact that several of the same senior managers have openly admitted that the only thing driving their decisions is how much additional revenue they can create, regardless of passenger comfort, and the only thing that has prevented some of the bone-headed ideas from going into service was that the personnel who have to care for the passengers (and deal with customer complaints) kicked up a fuss. It’s enough to make you wonder if any of these CEOs were paying attention in Strategy and Policy class…

Would You Buy That?

At first glance, the owners of a major company looking for buyers is nothing special. Most people thing of acquisitions as starting from the buyer’s side – somebody finds a company that they think can create synergy with their existing assets and puts in an offer to buy it – but it isn’t at all unusual for an ownership group to decide that one or more business units are not going to become profitable in the future and look to sell them off. It is somewhat more uncommon for such an offering not to get a single bid, even one that dramatically lowballs the value of the company being offered and is extended just to see if the seller is serious. What makes the story from earlier this week so remarkable is that the seller in question is a national government – and the company being offered for sale is their national carrier…

If you missed it, the Times of India article is available here. Why exactly the offer hasn’t drawn any bids isn’t entirely clear – it can be very difficult to explain things that didn’t happen – but a few parts of the deal seem a bit unworkable. Assuming the debt owed by the company being acquired isn’t unusual in this sort of transaction, but when there’s a lot of it (as in this case) it can serious impede efforts to recoup the cost of the purchase. Taking responsibility for an inappropriately large work force can also be problematic, given the costs in both severance pay and public relations that will be involved in cutting down the number of employees to a manageable level. But what really sounds like the deal-breaker to me is that the Indian government is only looking to unload 76% ownership of the company…

Now, let me stress that I don’t have anything against public-private partnership arrangements in general. In this case, however, the national elections in India are apparently less than a year off, and there is no guarantee that the government will continue to cooperate with an acquiring company if the party currently in power does not retain control following the election. In fact, if I’m reading this article correctly, there’s no telling what a new government might choose to do regarding the sale. There is always some degree of uncertainty in an acquisition project, but it’s hard to blame any potential buyer from being skittish about having to work with a minority partner whose identity, let alone policy, could change at any moment…

Why, exactly, the government wants to retain a 24% interest in the airline isn’t clear in the story, although I’d expect it has something to do with this having been the national carrier up until now. Also unclear in this reporting is the question of why the government believes that Air India would have been an attractive takeover target in the first place. The industry isn’t quite as volatile outside of the US, where only one major airline (Southwest) has consistently made money over the last 30 years, but neither jet fuel, landing rights, or airliners are getting any cheaper, while the world of international travel is becoming increasingly dangerous. And the fact that all of the relevant unions have been opposing the sale definitely doesn’t this offering any more attractive…

Operating an airline that hasn’t made a profit in years would be difficult enough without adding a significant debt load and an unpredictable minority partner to the mix, let alone all of the other issues that appear to be in effect. Unless the government can identify some other selling point for Air India, it seems likely that they’re going to be stuck running the airline as a public entity for some time to come. Maybe things will improve after the elections, or perhaps they can bring some intangible factors (National pride? Love of air travel?) into the mix. But unless they can find some way to make the acquisition more attractive, they may eventually just have to shut down the company, sell off the remaining assets, and hope that the hit to national pride won’t be any worse than having to deal with the fact that no one seems to consider their national carrier worth buying in the first place…

The Hits Keep Coming

Suppose for a moment that a random customer of yours has just saved your company from a disaster that would have meant the loss of an asset worth at least $100 million, plus at least a few hundred wrongful death lawsuits, each of which can easily run into the millions of dollars all by itself. Let us further suppose that the employees to whom they initially reported the impending disaster did not believe their report, and only reluctantly verified the story while being particularly rude to those customers. And while we are at it, let’s suppose that the signs of impending doom that they discovered could have been noticed by any ordinary school child, and that enough witnesses exist that trying to cover up the details of the story would be asinine. Where would you expect to find those customers when the dust clears?

Well, unless you said “Sleeping on the floor in the Baggage Claim area because no one gave them a hotel voucher” you have, again, over-estimated the customer service and public relations skills of our old friends over at United Airlines. According to a story from the New York Post a United flight was departing from Newark for Italy when two of the passengers noticed fuel leaking from the airplane’s main tanks in the wing. Not just a dribble, either; they described it as looking like the stream from a fire hose. The flight attendants reacted to the report of this information by yelling at the passengers to get back in their seats, and only reluctantly looked out the window – whereupon they immediately called the cockpit and told the flight crew…

After aborting the takeoff and returning to the gate the flight crew were nice enough to the heroes of our story, personally thanking them for saving the plane and everyone aboard from the fiery (and idiotic) death the airline had unknowingly been courting. United’s ground personnel were less effusive, however, proceeding to attempt to cover up the incident, issuing a statement downplaying the leak, and trying to get everyone on the flight rebooked and overseas before they could start talking to the press. They managed to get meal vouchers to all of the passengers, but somehow failed to supply hotel vouchers to all of the customers they had just massively inconvenienced (and nearly killed), including the couple who had noticed the leak in the first place…

Now, I don’t mean to suggest that these two people, a couple on their honeymoon, were the only thing standing between United and total disaster. We can probably assume that the flight crew would have noticed the rapidly dropping fuel levels, either on a routine check or when the flight computer’s alarms went off, and returned to the airport. I’m also not suggesting that the airline go to any special lengths to thank them, although one would imagine that customer retention concerns alone would make that worth the effort. I’m just pointing out that I’ve gotten better care than that when a flight I was supposed to be on was canceled at the last moment, and all I have ever done for that particular airline was buy a ticket…

Okay, so this wasn’t really an atrocity. The worst thing that seems to have happened is that a group of passengers was moderately to severely inconvenienced (if the worst thing that ever happens to you while traveling is having to sleep in an airport, you’re an extremely fortunate traveler), and any of that could have happened on any ordinary day, even without mechanical failures and employees who appear to be thick as a brick. But it does make you wonder how many close calls a single company can survive, even leaving potential air disasters out of it for the moment. Sooner or later people are going to get fed up with the various United shenanigans and start voting with their feet. You might expect that the company would want to put off that day for as long as possible, or at least avoid any billion-dollar disasters in the meantime…

But unless this story turns out to be a hoax, you’d be wrong about that, too…

Consider the odds

If anyone out there is surprised at hearing about new and different examples of airline personnel screwing up by the numbers no one has mentioned it to me. It’s possible that this is the result of all of us getting desensitized to these stories because of how often they come up, or perhaps the increasing deluge of horrible and horrifying news is making all of us jaded. For the record, I don’t believe that the world is actually getting worse; I think it’s far more likely that as the world becomes increasingly interconnected we’re getting more information of all kinds, good and bad. I do consider the most recent story, which is being brought to you by United Airlines (the people behind the Dave Carroll episode!) is particularly inept, but I think it speaks as much to the size of the problem as it does to any specific airline or airport…

If you missed the original story you can pick it up off the Washington Post site. It’s another one of those cases of a United supervisor trying to have their own way instead of thinking, in this case continuing to insist that a musician travelling on a United flight had to check her 17^th Century violin despite Federal law that explicitly gives musicians the right to carry their instruments aboard. In this specific case, the musician had informed the airline at the time she booked her ticket that this carry-on arrangement would be necessary, and told the gate agents that she would leave and take a different airline if they wouldn’t let her carry her violin with her. For the supervisor to have continued to insist on checking the instrument at that point is absurd, as well as illegal, but when the supervisor made a sudden lunge and tried to rip the violin case out of the passenger’s hands it crossed the line into a level of stupid that we rarely see even in Airline stories…

Fortunately for the airline their passenger was not permanently injured during the ensuing wrestling match; even more fortunately, she has apparently decided that she has better things to do than suing the airline. Why, exactly, someone in a supervisory position was either unaware of the laws regarding this situation or too pig-headed to obey them (or both) is beyond me, but I think it points up just how complex the customer service function is in this industry. Consider, if you will, that the last time I checked the US airline industry moves somewhere over 2.2 million people a day – on the order of 820 million people per year. That means that even if screw-ups like this one are literally one in a million, there will be a couple of them every day, and over 800 in a year. It also means that the various airlines could get everything perfectly right 819,999,948 time each year and we would still have an atrocity like this one going on somewhere every week on the average. Or, if you like, every company in the industry could get every one of its people certified to Six Sigma standards and there would still be around 2,780 failures per year (about 53 per week), although admittedly not all of them would be this idiotic…

It should come as no surprise to regular readers of this blog (assuming I have readers) that even in the Airline industry, where customer service failures can result in million-dollar fines, billion-dollar lawsuits, and potentially even deaths, customer service is apparently still being regarded as an expensive function that does not generate any income. I don’t know how much longer the industry can go on this way, and I don’t know how many additional companies can go bankrupt before people stop blaming rising fuel prices, uncooperative unions, or fickle customers, and figure out that what is really killing these companies is management incompetence and inadequate customer service…

Or that, at least in this case, those two factors are one and the same…

Doubling Down

In my last post, I joined with the thousands (millions?) of other bloggers out there who are piling on to United Airlines for their determination to set customer relations back a hundred years by not just bumping customers off of overbooked flights but actually using the seats freed up that way to move their own employees around the country. Since the story first broke the victim in the original story has retained legal counsel and the CEO of United has issued a real apology for the incident – in that order, unfortunately. Whether that will help with the multiple lawsuits that are about the hit the company remains to be seen, but over the last day or so a similar event has popped up in the news that has even more disturbing implications…

You can pick up the original story off of the Los Angeles Times website if you want to, but apparently there was a United passenger who needed to get from Hawaii to Los Angeles in time for a business meeting, so he paid for a full-price first-class ticket. He had already boarded the plane on Kauai and was enjoying the complimentary orange juice prior to takeoff when a United ramp agent ran onto the plane and told him he had to get off. Upon asking, the passenger in our story discovered that United had overbooked the flight, and were going to give away his seat to a passenger with “higher status.” Apparently there is a pecking order among frequent flyers (based on number of hours flown, maybe?), and the company will cheerfully screw over anyone if a higher-ranking customer wants their seat…

I’m already on record as saying that the company’s handling of the original situation was asinine, and I’ll stand behind that, but at least we can consider the idea that moving the four crew members would prevent the cancellation of an entire flight – that is, the company was accepting annoying four customers to avoid completely browning off two hundred of them. In the Hawaii case, however, the only advantage the company seems to have gained was the chance to suck up to someone who already flies with them all the time, while at the same time costing themselves another frequent flyer, everyone from his company, and anyone else who might be concerned with being bumped off their flight by someone whom the airline likes more than them…

Now, we should probably note that, like overbooking, bumping passengers to make room for VIP customers is a long-standing practice on all of the airlines. In some cases there might even be a sound business reason for doing so, as in the case of emergency travel or a family trying to get somewhere together. But the idea that every business practice that was acceptable in 1931 (when the company began flight operations) is still reasonable today is utter nonsense, and the assumption that your customers will put up with being displaced purely at the whim of some slightly more frequent flyer is demonstrably preposterous. It took a week of pushback, and the threat of even more legal action, before the company even came up with a written apology and reimbursed the customer for the price difference between his full-fare first-class ticket and the middle seat in Economy class they ended up sticking him into…

I’m not sure how much more of this knavery, chicanery and buffoonery the United Airlines stockholders are going to tolerate; I know that I personally would have started demanding resignations from everyone responsible for this crap starting with the “United Breaks Guitars” episode involving Dave Carroll. I’m also fairly sure there’s a limit to the number of times a company facing strong competition, rising costs, falling revenues, customer dissatisfaction, and an increasingly hostile operating environment world-wide can go alienating current and potential customers by making mistakes that any small child could tell them are idiotic…

Piling On

I’m not sure what I can say about the current United Airlines situation that hasn’t been said by millions of business bloggers (and travel bloggers, one assumes) since the story broke. If you missed it, the story goes that United had oversold a flight from Chicago to Louisville, and then compounded the problem by trying to get four passengers to give up their seats so that a flight crew could get to Louisville in time for the flight they were supposed to work the next day. When no one volunteered, the airline selected four passengers who were already on board the aircraft and attempted to eject them. One of these four people took exception to being forced to give up his seat, refused to leave the plane, and was eventually forcibly removed by ground security personnel – literally kicking and screaming…

In any era prior to this one, the whole episode would probably not have made it onto the local television news; it might have made the local paper if it was reported at all. Unfortunately, in an age when almost literally everyone carries a camera around with them every day it is unrealistic to expect that no one on the plane wouldn’t have recorded video of the whole thing and posted it to various social networking sites before the flight even took off. It shouldn’t have surprised anyone that a graphic (and to some extent disturbing) video like this one would have gone viral immediately, either, or that this would cause additional Public Relations nightmares for a company that isn’t exactly known for good PR or good customer relations. Why it appears to have come as a surprise to senior management is beyond me…

Now, we should probably acknowledge that overbooking flights – and bumping people off of them when necessary – has been standard practice within the airline industry for decades. It’s completely legal, and in fact you have already agreed to put up with it – there is a clause in your ticket agreement that give the airline the explicit right to do that. It is also probably worth noting that for most of its existence, the airline industry has wielded enormous political and financial power in the US, and senior management personnel have apparently gotten used to answering to their stockholders, the FAA, Congress and the Unions before they consider what their customers might want. And I’m sure you already know that most people my age and older don’t automatically think about how the world will view their actions, if only because they don’t think of the world as watching them…

What struck me about the affair wasn’t the remarkable tone-deafness of the management team, as demonstrated by the CEO’s non-apology for the events, or the laughable incompetence displayed by the customer service personnel involved. It was the fact that United appears to see this whole situation as being nothing more than business as usual; this is the way they have done business for generations, and they see no reason to change now. But the fact is this level of disregard for your customers and disdain for anything they or the general public might feel about your company would have represented gross incompetence even before any given disgruntled passenger could share his or her gripes with every other potential customer in the world in a matter of seconds. And even more importantly, perhaps, this situation is not going to change…

As we plummet ever further into this new century, every customer-contact position must be treated as if everyone in the world is watching, because they effectively are. And every employee who holds such a position needs to be trained to ask him or herself how they would handle the situation in front of them if the whole affair was going to appear on every television and Internet news channel in the world within a few minutes, because it probably will be. Simple, ordinary, it-could-happen-to-anybody mistakes will be bad enough; errors that involve callous disregard for your customers, putting the company’s interest ahead of the customers, or violation of either criminal or civil law will at minimum damage your corporate image and credibility, and may very well end up destroying the entire company if you annoy enough of the wrong people badly enough…

But that’s a story for another day…

Booming Along

Earlier this year, in the March issue of Air and Space Magazine, I found the surprising story about a company called Boom Aerospace (or sometimes just “Boom”) that claims to be gearing up to build the fastest civilian aircraft in history. The company hasn’t revealed the name or model number of the design, but the airplane in question would apparently be a 45-seat airliner capable of about Mach 2.2 and a ceiling of around 60,000 feet. That’s about 1,450 miles per hour, or around 2.6 times the cruising speed of a conventional airliner – fast enough to go from New York to London in roughly 3 hours and 15 minutes. Even better, the company claims that its airliners will be efficient enough to make a transatlantic fare of $2,500 profitable for airlines flying that route – which is where things get really bizarre…

A quick check on Expedia shows that a business-class fare of $2,500 round-trip from New York to London is just barely possible, assuming you book well in advance, stay over a Saturday night, buy a non-refundable ticket, and so on. If you want a non-stop flight you will end up paying around three times more than that, but if you are willing to accept one of the 1-stop routes you will be in transit for 14 to 18 hours depending on how long the layover is. If the company’s claims hold up, travel on one of the Boom aircraft would be the greatest value in the air, giving a potential operator the option of maintaining price parity with other airlines on the same route and making far higher profits, or undercutting all of the existing competitors while making a similar level of profit, all while offering a highly superior service (at least in terms of transit time). Whether or not this will really work is a much bigger question…

Anyone familiar with commercial aircraft will probably remember the Concorde, an Anglo-French supersonic transport (SST) in service from 1976 to 2003. The aircraft was an amazing technical achievement, particularly considering the limits of 1970’s technology, but was never commercially viable, due in large part to the extremely high ticket price. Ranging as high as twice the cost of a first-class ticket on a conventional airliner, and twenty or more times as much as an economy-class fare, travel on the Concorde was beyond the reach of most flyers, and too expensive for most business travelers to justify. It certainly didn’t help that only a handful of units were ever produced, with the only buyers being Air France and British Airways (e.g. the national carriers of the countries that originated the project), or that due to noise concerns the Concorde was only allowed on flights over water…

Now, we might reasonably ask how a private company, without either the backing of a national government or decades of successful production of civilian or military aircraft, could hope to succeed where Aerospatiale and BAC failed. We might also ask how a private company would be able to successfully operate such a vehicle when the national carriers of two different countries couldn’t make a go of it. It’s possible that 40-plus years of technical advancement in the aerospace field, especially in advanced construction materials and computer-assisted production techniques, might make this new design cheaper to produce and more efficient to fly on a per-passenger basis than the Concorde. It is also possible that a private company will have an easier time selling the aircraft to various governments and their national carriers around the world. And it may be that as air travel has generally gotten slower, more drawn-out, and less comfortable than it has ever been before, that the idea of spending less than half as much time (or possibly less than one-sixth as much time) on an airplane will have a much greater draw than it did a generation ago…

Personally, I’m not going to plan on traveling on any Boom aircraft for the foreseeable future, at least not until they manage to get their financing worked out and their product actually available for purchase. But I have to admit that if the company goes public any time soon I’m going to be severely tempted to invest in at least a few shares. Because if they can actually build an airliner with these capabilities that is also economically viable, this will be the biggest change in the nature of air travel since the introduction of jet-powered airliners in 1952…

I have to admit, though, that’s still a pretty big “if”…

Make What Great Again?

Despite my avoidance of political topics on this blog, I am perfectly willing to admit that I am personally pro-business, and against excessive regulation. The problem is, as a Centrist my idea of what constitutes “excessive” does not suit people on either end of our increasingly polarized political spectrum. I don’t agree with the far right, who appear to believe that business leaders are a collection of saints and angels who would never do anything to the detriment of the public good just because it would enrich them personally, and I can’t abide the far left, who appear to believe that all we have to do is meditate, eat organic kale, and keep our carbon footprint as close to neutral as possible, and everything we need will just appear before our wondering eyes...

The unfortunate truth is that regulations exist because without such measures people will cut corners and take chances that make no bloody sense, even if those behaviors have no real chance of increasing their personal wealth. So as much as we would all like to avoid government interference in business operations that chokes off trade and curtails personal freedom, whether that involves increased tax incentives for small business start-ups or legalization of certain controversial agricultural products, I think we can all agree that FAA regulations that prevent passenger aircraft from catching fire and exploding in mid-air are probably worth keeping…

Unfortunately, as a story from the Associated Press last week makes clear, not everyone in our current Administration understands this principle. It seems that under certain conditions lithium-ion batteries can self-ignite, which is generally not a good thing on an airliner carrying hundreds (or thousands) of gallons of highly flammable, potentially explosive fuel. Over the past few years three cargo aircraft have experienced such fires (and have been destroyed in flight), and the UN agency that deals with international flight safety has been trying to get all of the nations that have airlines to adopt safety regulations about transporting these batteries by air. One might think that this sort of common-sense measure would appeal to both the people who own airplanes and the people who fly on them, and so far it has, but that doesn’t consider the people who make lithium-ion batteries…

Sure enough, the battery industry has been lobbying to prevent exactly this sort of regulation, and the current business-friendly government in Washington has placed a freeze on this and all other new safety regulations pending additional study of their effect on business. Apparently, they are arguing that people in remote areas, such as the Alaskan back country, would be unable to get the batteries they need if this regulation was applied to all flights. They also seem to be blaming the Chinese, whom they claim manufacture sub-standard batteries and avoid the existing safety regulations, even though neither of these claims have any relationship with reality…

Now, the truth is, I have no idea how often the need for lithium-ion rechargeable batteries becomes so acute (and so immediate) that it isn’t possible to ship them using surface transportation, let alone cargo aircraft, and requires that large loads of batteries arrive by the first and fastest mode of transportation. I am dubious about how often, or even whether, such a spike in demand is more important than the safety of hundreds of innocent passengers, not to mention the potential loss of airliners that can easily cost hundreds of millions of dollars in their own right. It’s also not clear to me how the battery lobby has been able to push its agenda past that of the airline lobby and the consumer protection lobby…

I can’t tell you if the current Administration in Washington will actually be able to make America great again; I’m no expert on politics or economics, and I think the country is pretty great as it is. What I can tell you with complete certainty is that I’m not going to be purchasing tickets on any airline that is still accepting loads of rechargeable batteries as air freight on passenger flights, and that if I had any stock in any airlines that did this I would be raising every possible kind of stockholder protest right now. And if I was in charge of running an airline, any airline, I’d make absolutely certain that we stopped carrying such cargoes, no matter how much the battery companies were willing to pay. Before things get any worse…

Will They Ever Learn?

For years now I’ve been writing in this space, and occasionally elsewhere, about the importance of front-line (first level or first tier) customer service, and in particular about how failure in this position can render everything else the company does irrelevant. The sad reality is that even if the entire company has excellent customer service personnel, and provides exceptional service in general, to that one customer who we have completely failed, our entire company’s record is zero. None of this is new information, either; ask anyone associated with a service or consumer business, and they’ll all tell you how important good customer service (and good customer relations in general) is to the survival of the company. Right before they go back to treating the customer service personnel like cannon fodder…

Part of the problem is that turnover in any public-contact position is going to be rapid, because of the corrosive effect that working with public has on most people. Even though the majority of all customers are good people, it doesn’t take that many instances of being lied to, stolen from, screamed at, insulted, or otherwise abused to sour anyone’s opinion of the customers they are supposed to be serving. Over time, even very good employees burn out, shut down, or just stop trying – at which point we need to retrain or replace the worst cases and try to motivate whoever is left. It’s hard to convince anyone to invest money in employees whom they know will not last – in much the same sense that it is difficult to side with shifty, short-lived cannon fodder over paying customers who are actually giving us money. But as Don Henley notes, “apathy is worse…”

Consider, for example, the case of cancer patient Lisa Love, who was attempting to fly home from San Diego to Texas on American Airlines. Between her illness and the effects of the treatment, Love was not feeling well and asked an American gate agent to call a wheelchair for her. Said agent failed to do so, telling the passenger that “Oh, you look fine to me” and returning to her regular duties. This resulted in calls to the company that were not returned, emails and tweets that apparently never got to anyone who was prepared to do anything, and eventually calls to a consumer-advocate reporter and the resulting television news story and Internet account that you can view here if you want to…

Now, it’s not hard to imagine how something like this could happen. Think of any major airport on a busy day, and imagine a busy gate agent, trying to get a couple of hundred hot, cranky, generally uncooperative people onto an airliner without delaying the flight or throwing things any further behind schedule, when an apparently healthy passenger asks her to drop everything and summon a wheelchair and attendant. Maybe the agent is trying to cover the work of three people; maybe she’s had dozens of able-bodied people request wheelchairs so they can avoid having to walk a hundred yards extra; maybe she’s being paid peanuts and knows the odds of a raise this side of retirement are virtually nil; maybe it’s just a really crappy day. But however it came about, the company is now being mocked by dozens of scruffy bloggers all around the world for something they really do know was a bad idea…

If you consider the airline industry as a whole over the last thirty years or so, you will note that there is only one U.S. carrier that has consistently made money over that time period – it’s Southwest Airlines, which is known as much for its “Positively Outrageous Customer Service” (as the company calls it) as they are for their cut-rate airfares and slightly skeevy airplanes. I don’t believe this is a coincidence, any more than the success of Nordstrom is. Nor is it a coincidence that Southwest has generally taken better care of its employees than the industry standard. In almost every industry, if you examine the most successful companies, you will find that all of them have the best customer service and the best human resources practices of any firm in that industry. One could almost believe that there was some direct causal relationship…

None of this will come as any surprise to any student of management – or any experienced air traveler, for that matter. One has to wonder if American Airlines is ever going to take this lesson to heart, however…

Present But Not Accounted For

In yet another installment in our seemingly endless saga of airlines behaving badly, a local television station here in Michigan is reporting that a passenger on a Southwest Airlines flight was mistakenly notified that he had failed to show up for his flight that morning, and all of the other flights on his itinerary were being cancelled. This would be upsetting if he had received the message hours or even days before his flight; it would be somewhat amusing if he had received the message weeks after his return home. What makes the story noteworthy is that the passenger received this notice while he was actually aboard the airplane, during the flight…

You can pick up the original story here, if you want to, but the gist is simple enough. When the hero of our story arrived at the gate and attempted to board the aircraft, the ramp agent attempted to scan the bar codes on his boarding pass – a method of tracking passengers that is becoming increasingly common at US airports. Unfortunately, the scanner failed to read the codes on the first and second try. Since the line was long and the time to departure was short, the agent gave up and just let the passenger board, no doubt planning to manually enter the boarding information later. In the event, however, the agent either forgot about the manual update or was too busy to take care of it before the company’s computer system noted the “no-show” and cancelled the man’s non-refundable ticket…

I’ve written in this space before about the somewhat questionable ethics of non-refundable tickets, but apparently I missed the single most corrosive aspect of such products: the fact that people with non-refundable tickets miss their flights just as often as anyone else, and will then make up whatever preposterous story they can think of in order to convince the airline to refund their money or replace their ticket. After a few years (or possibly less, in some cases) of listening to stories that are filled with whining, vitriol, or outright insults to their intelligence, the airline’s customer service personnel have gotten fed up with the entire situation and are apparently refusing to listen anymore – it’s hard evidence or nothing, and the passenger in our story didn’t keep a receipt from either airport, let alone retain his boarding pass…

Now, I don’t want to rag on Southwest Airlines in particular; I know that all of the major airlines have regulations like this, and I imagine that all of them are having the same issues with their customer service personnel, at least to the extent that they weren’t already. What I think is getting lost in this story is just how lightly the airline is getting off, given the potential disaster they were courting. The linked story is mainly focused on the airline cancelling their customer’s non-refundable ticket and refusing to refund the replacement ticket he had to buy to get home following their screw-up, but imagine if they had given away his seat before the airplane left the ground. Southwest generally doesn’t have assigned seating, which means they would have been left with an airplane with 180 passenger seats and 181 people aboard - and no way to tell who the imposter really was…

Even worse, though, would be the case in which the passenger really didn’t board, but his luggage already had. This would violate any number of Federal safety regulations, possibly resulting in massive fines or other sanctions against the company – which would still be less of a fiasco than if the passenger had placed a bomb in his checked luggage and then failed to check in. In this case, the airline didn’t get around to cancelling the passenger’s ticket until he and his luggage were already in the air, which means that no one had the chance to take note of his absence and pull his suitcase out of the cargo hold, either. And while it’s true that the odds of a random murderous psychopath attempting to bring down any specific airplane are very small, they aren’t quite zero – and I wouldn’t want to be the one who tried to use that as a legal defense in either civil or criminal proceedings…

Repurposing

Here’s another interesting case for you: Suppose you are the general manager of an airport that no one is using, and nobody particularly wants to move into. It’s not a far-fetched situation, either; a lot of the smaller and less well-traveled US airports are falling on difficult times following the consolidation of the industry. Thirty years ago there were over 70 major airlines in the United States, and at least four dozen of them that flew coast-to-coast, all competing for passengers and guarding air routes to which only they had access. Getting permission to use a gate in an airport outside your normal system wasn’t possible, at least not at anything like an affordable price, and customers in a given city were limited to whoever was already entrenched there. Then Congress deregulated the airline industry and everything changed…

Today there are fewer than a dozen carriers with nation-wide operations left in the US, and most of the survivors have been moving away from direct, non-stop flights in favor of a hub-and-spoke system. There was a time when if you wanted to fly from Los Angeles nonstop to Des Moines or Pittsburgh you could just get on a flight and go, but this is no longer the case. Today you’d probably have to fly to Dallas or Chicago (on American) or Denver (on United) or possibly Phoenix (Southwest) and catch a connecting flight – and some of the minor airports aren’t even that lucky. Increasingly in the US you will need to get on a regional carrier that can connect you to a major airport and change airlines there…

The difficulty here is that an airport is (usually) a large, sprawling installation, and it requires a lot of expensive maintenance to remain operational, regardless of how many flights are landing there. And while it might be possible to use some of the airport grounds to launch other businesses, both the EPA and the FAA will probably take a dim view of that, not to mention what Homeland Security and the TSA are going to think. Unless you can find some form of revenue stream that can be generated using the existing facilities, or whatever resources are located in, around, or under those installations, a lot of the lesser airports are going to have to close…

Fortunately for the folks in Pittsburgh, they’ve just discovered one such resource: natural gas. It turns out that the runways at the Pittsburgh airport are sitting over a large, and previously undiscovered, natural gas field – and that modern horizontal drilling techniques can get at the gas without disrupting operations at the airport or weakening the integrity of the structures. Dallas and Denver both have working oil fields on their grounds, and have operated them for years without any ill effects. This is especially important in Pittsburgh, where the Economist is reporting around half of the airport’s current revenue is being taken up just paying the interest on various debts. Hopefully, this will be enough to keep the airport out of the sort of death spiral where it can’t afford to keep up its facilities, so fewer airlines want to go there, which lowers revenue still further and the cycle repeats…

It isn’t being reported at this time just how long the natural gas deposits might last. We can only hope that the people running the airport will use the time during which the gas is flowing to figure out their next move – because eventually the gas field is going to run out, and when it does they’re going to be right back to where they are now, trying to find some other financially viable use for a dying airport…

Without the Word Cluster

A lot of questions popped up after the Malaysian airliner was shot down over the Ukraine – or over the disputed part of the country that a separatist group claims is rightfully part of Russia, depending on your point of view. People are questioning where the missile that brought down the plane was fired from, and by who; people have questioned how closely the Russians are involved in the supposed civil war, and what role this plays in Mr. Putin’s eventual plans for the region or the world; people have questioned whether the American satellite footage is real, and even if it is, what role this plays in Mr. Obama’s eventual plans for whatever it is people think the President is doing this time. The most basic question of all, I can’t help thinking, is why a civilian airliner was flying over a war zone in the first place – and, unfortunately, that’s even more complicated than most of the other questions…

A story this week from the NBC News site pointed out that there really isn’t any one agency with the ability to declare any particular airspace off-limits for reasons of safety or anything else. There is a United Nations aviation agency, the International Civil Aviation Organization (ICAO), headquartered in Montreal, that issues warnings and advisories to all member nations, but the ICAO has no ability to impose or enforce no-fly zones. Individual countries can declare their own airspace unsafe, but can’t be compelled to do so according to treaties dating back to the end of World War I, and Ukrainian authorities had declared the route Malaysia Airlines M17 was flying to be safe. Various military coalitions have declared no-fly zones over the years, but there is no such group involved in the Ukrainian civil war; The Netherlands are part of NATO, but Ukraine isn’t…

Ultimately, the only thing most pilots have to go on are temporary restrictions, usually called Notices to Airmen or NOTAMs, which can be issued by (or occasionally about) specific airports or air corridors by local air traffic controllers or national aviation agencies. No US carriers were flying through Ukrainian airspace at the time because the FAA had issues such a warning, but there is no consistency over what constitutes a credible threat from one country to another, or even one controller to another. And meanwhile, every airline in the world is under pressure to control costs (and keep fares low), which means using the fastest and more direct routes possible between destinations – even when that means flying over a warzone populated by trigger-happy pro-Russian idiots…

Now, we should probably note that with the exception of the United States and a handful of other countries, most national governments don’t have the intelligence assets available to assess the threat levels present along various air routes, let alone the airlines from that country. It might be possible to avoid all flight routes that pass through even questionable airspace, but only at the risk of driving airfares to a price level that will exceed what the public is willing to pay, thus losing all customers and eventually bankrupting the company. The truth is that air travel can never be made completely risk-free, and consequently every airline has to find a balance between risk and profitability that it is willing to accept. And with no International standard to follow, some companies end up making bad choices…

It’s easy to criticize Malaysia Airlines for flying over a war zone, but at this point in history the collection of local, national and international warning systems – none of which has any authority over anyone but the home country’s airlines – is so ridiculously complicated and miserably ineffectual that it can’t really be described without the use of the word “cluster” in there somewhere. And even if it becomes possible to appoint an international agency to actually restrict unsafe air corridors and give the definitive word on destinations, that still won’t protect carriers or their passengers from rapidly-shifting lines of battle, missile batteries that aren’t supposed to be in a given area, or idiots lobbing random projectiles into the general area of somebody else’s airport…

Flying: Then and Now

Ask anyone who has had to travel by air in the last dozen years what they thought of the experience, and you’re probably going to hear language that you can’t use on television. Between the annoying and insulting security measures (that are mostly futile), passenger discomfort (which gets worse every year) and flight delays most people already hate the entire process before you even get to issues like endless new fees or the time you waste getting to the airport two hours early. But if you ask anybody who has been traveling by air for a while, they’ll probably tell you that things didn’t used to be like this; that air travel used to be a more formal, dignified and enjoyable experience. They usually won’t mention that it was also far more expensive, or that you were more than five times more likely to die in a plane crash…

An article that ran this week on the Huffington Post UK site compares a number of factors between the 1950s – when the advent of jet airliners and international carriers began making the airlines over – to the current state of the industry. And while I wouldn’t say there were a lot of surprises in the article, it was a bit odd to realize just how much cheaper and safer air travel has become just in my lifetime. For example, in 1952 the industry average was listed as 5.2 deaths per 100,000 hours of flying – about five times the current average. This isn’t really that surprising, when you consider advancements in navigation, automation, radar, electronics, and power systems (especially engine reliability), but even for an admitted airplane wonk like me a 500% difference is kind of amazing. Then there’s price – everyone knows that airfare had dropped since the U.S. deregulated our airline industry in 1978, but according to the Huffington people we’re talking about an 83% drop in fares on the New York to London run. And while it is true that the food, drink and service were all better, there really wasn’t much to do – in-flight movies did not appear until the late 1960s, and even into the 1970s the picture and sound were nothing to write home about…

This week also brought with it news about a potentially brighter future for all of us who get stuck in the Economy section of the aircraft; at least in terms of on-board comfort. An article off the Daily Mail website details several new changes in cabin and seating design that have the potential to create a more comfortable passenger environment without adding weight or taking up extra space (both of which would lower the profitability of the flight). None of this is exactly surprising either; the inclusion of cup holders that are separate from the meal tray, footrests usable in the Economy cabin, or seats that can recline without getting any closer to the passenger sitting behind you are all common-sense upgrades that people have been asking for almost from the beginning of modern air travel. The amazing part, at least to me, is that no one has made any particular effort to upgrade this aspect of the experience before now…

Airline seats are theoretically safer now – thanks to advanced construction materials and the like – but they haven’t really changed in design over the past two generations. And while air travel is essentially a commodity product these day (in that competition is mainly based on price) on a route with heavy traffic and significant competition any material advantage that makes one company’s service more attractive than the alternatives could major implications for the success of that firm. It’s early days as yet, but it might just be possible that we could start seeing change for the better in the airline industry…

Unless the new developments in rail transportation render the whole question moot, of course…

The Ethics of Leg Room

Some years ago in this space I noted that if the airlines ever started to offer an intermediate class of seating - between normal coach and the now-rare business class - that would offer better legroom but no other particular advantages, I would probably buy it. Assuming, of course, that there was enough of a price differential that it was cheaper to get than an actual First Class/Business Class ticket in the first place, of course. This has now happened on a number of carriers, including the one I flew on this week, and I must admit that being able to fly without having my knees pressed up under my chin was a major improvement on my typical coach experience. But I could hear some of the other passengers complaining about it, and it got me to thinking about the ethics of the situation...

First of all, there's the fact that some people can barely afford the price of an airline ticket in the first place, which makes it seem somewhat heartless to start charging them extra for a comfortable seat, or even more to the point, for the privilege of getting off the plane sooner and having a better chance to meet their connecting flight. If we were talking about free champagne or expensive food this would be different, but for anyone over 5'6" or so basic coach seats are uncomfortable, and for anyone over 6' they're miserable - and the ten minutes or so getting off from the front of the plane instead of the back can make the difference between making a connecting flight and spending a night in the airport. Since these seats do not cost the airline anything to create, it seems as though charging a premium (often a high one) for them would be unfair to anyone who actually needs this service but can't afford the upgrade...

On the other hand, while the extra 4" or so of legroom isn't a lot, it does add up after a while. On most  U.S. airlines the pitch, or distance between seats, runs at about 32" - which means that eight rows of "enhanced" economy seats take up enough space to insert an extra row of regular seats. Given those figures it doesn't seem unreasonable of the company to ask the people using those seats to make up for the missing row, which would mean paying an extra 1/8 of a fare each. And since there are only so many rows near the front of the aircraft, there is already a hard limit on how many passengers can sit up front, regardless of how the pricing structure works. If we accept that the airline is a for-profit business which needs to generate a positive return on investment for its shareholders, and that they have already set their prices to the level they believe the market will accept, it would appear that they have no choice but to charge for the premium seats...

Of course, one could quite reasonably ask whether the airlines have an ethical responsibility to their customers to avoid physical discomfort, and if so, whether that responsibility is superseded by their fiduciary responsibility to their shareholders to make a profit, not to mention their (quite real) ethical responsibility to the rest of their stakeholders (e.g. suppliers, employees, customers, and even taxpayers) to run a successful company and stay in business. It's probably also worth noting that persons who can't seat comfortably in an airline seat usually do have some other way of reaching their destination, whereas the airline has nothing else to sell besides air transportation. So let's ask the question:

Does an airline have an ethical responsibility to its customers to provide a comfortable seat, above and beyond the minimum requirements imposed upon them by the Federal government? If so, does that responsibility take precedent over their fiduciary responsibility to their stockholders? Or should they just offer a variety seats at the price points determined by the demand for such tickets, and let everyone make their own decisions about flying, driving, or taking the train?

It's  worth thinking about..

Equal Time

I’m not sure why being a fair-minded man is so important to me. It’s possible that it’s just how I was raised – our family is known for a very direct honesty, to the extent that some of my cousins don’t understand me when I try to tell them that this behavior is unusual. But whatever the reason, I do try to see both sides of a discussion, and to provide both sides of the case when I present news stories for your consideration in this space. So in the interest of even-handed discussions, I should probably acknowledge that just because I spend so much time in this blog making fun of the airlines, that does not mean that transporting huge numbers of people great distances in complex machines according to an arbitrary schedule and set of rules is easy. On the contrary: as recent events have shown, even something as small as a mishandled diaper can bring a flight to a sudden halt…

According to a story on the UPI “Odd News” page this week, a United Airlines flight from Phoenix to Cleveland was delayed and ultimately cancelled because one of the passengers tried to flush a diaper down one of the onboard toilets, causing the plane’s waste disposal system to back up and shutting down most of the rest of the lavatories. The story does not specify the type of aircraft or the total number of passengers affected by the cancellation, but if there were over 71 people on board it wasn’t a CRJ or ERJ type; you would need something at least the size of a 737 or A320 to get that much payload. What that tells us is that this wasn’t just a case of some small puddle-jumper not being up to the challenge; this was a major episode aboard a 200-ton airplane – caused by something weighing less than a pound when empty…

Now, the point of my bringing this up is that I really don’t feel we can blame the airline. Every lavatory on every United aircraft is equipped with signs in multiple languages, as well as International pictograms, telling the user not to put foreign objects down the toilet, and anyone with the intelligence of a newborn hamster should be able to figure out that doing so is a bad idea. By the same token, United’s maintenance and repair people could be the very best in their field, and follow all FAA, NTSB and manufacturer’s specific requirements for maintaining their aircraft, and there still wouldn’t be anything they could do about sabotage – which this is, albeit unintentional sabotage. At least, I certainly hope it was unintentional…

The American Author Tom Clancy once pointed out that the minimum number of mines your need to build a minefield and keep anyone from moving through a specified area is zero – you just need to issue a press release claiming those waters or lands have been mined, and then watch your adversary try to prove a negative in a life-or-death situation. Recently, the same point has been made about using disinformation to shut down airports in the U.S. – you don’t even need actual bombs; just leave a suspicious package in the baggage claim area and the whole airport will be shut down for days. Do this in enough cities and you could completely disrupt commerce in an economy that is already on the shaky side; economic warfare at its most basic level. And now we find out that you could completely cripple the U.S. airline industry, and possibly that of every other nation in the world, using nothing but a battalion of colicky babies and really stupid parents…

I’m not saying the airlines don’t deserve public mockery and scorn for some of the outrageously stupid and incompetent things we’ve seen them do over the past few years, or for the political idiocy that led directly to making the terrorist outrages of September 11 possible. I’m just pointing out that given how inherently difficult it is to run an airline in the first place, it would really behoove them to get the little things right. Because it approaches a mathematical certainty that somewhere, sometime, some other passenger is going to try flushing something unfortunate at the wrong moment – or something equally stupid…

Outrage in the Air

Looking back over my records I find that nearly 10% of all of the entries for this calendar year have involved airlines behaving badly; usually in some completely preventable way that inconveniences, endangers, monetarily damages or just outrages customers and potential customers. Some of these merely reflect momentary lapses of reason or cases of outright incompetence (such as failing to get an unescorted minor onto the correct flight), while others involve blatant criminal malfeasance (such as the employees accepting bribes to smuggle packages onto departing airliners), but nearly all of them are things so absurd that it passes understanding how a service-providing company can do them and remain in business. It’s almost enough to make you believe in collusion between the major companies in the industry – not to fix prices or to defraud the public, but simply to maintain service levels bad enough to convince the travelling public that one airline is much the same as any other…

Now, in fairness, operating a company that transports tens of thousands of people for billions of air-miles aboard complex machines that can be rendered completely inoperable in seconds by a single mistake by a single employee trying to park one of them is harder than it looks. To make matters worse, in recent years it has become increasingly difficult to differentiate one airline’s service from another, which has left many of the major carriers competing entirely on price. There was a time when it was possible to charge more for higher-quality food and drink, better services, or even (it has been done) more attractive cabin personnel, but today most carriers have to cut back on everything to remain competitive, which includes lowering expenses for recruiting, training, and especially salaries. What is less clear is how far one can lower staffing quality before the resulting lawsuits begin to eliminate any resulting savings…

Take, for example, the case of Angeline O'Grady, who was attempting to transport her late husband’s ashes to England for burial on a US Airways flight, when a TSA idiot insisted that since ashes aren’t a solid they had to go in her checked baggage. A competent airline might have tried to accommodate a customer during a difficult time, but US Airways gave away her seat reservation and forced Ms. O’Grady to pay for a business-class seat since she was delayed checking in by the aforementioned TSA idiot. That would merely be callous; however, when Ms. O’Grady landed in England she discovered that at some point during the flight, someone had opened her suitcase and stolen the urn containing her late husband’s remains…

As I have noted in earlier posts, a failure in operational security this severe has a very real chance of destroying the entire airline (as well as any aircraft that somebody manages to sneak a bomb onto because no one was paying attention). Here again, a competent airline might have considered apologizing for the theft, launching a serious investigation, calling on law enforcement agencies on both sides of the Atlantic to help them find out what happened, firing everyone who had access to the relevant baggage facilities during the time when the urn was stolen, or having all of the employees who could have stolen the urn arrested and letting the police/FBI/Scotland Yard figure things out from there. I’m not sure I have an adjective appropriate to describing an airline refusing to so much as explain what they think happened, and claiming they have no responsibility for the theft and did nothing wrong; calling this “stupid” would be an insult to stupid people. And that doesn’t even consider stonewalling the customer and attempting to tie up the case in court once the customer finally got a lawyer…

Here in one story we’ve got criminal negligence (leaving the baggage vulnerable to theft), criminal malfeasance (assuming it was a company employee who committed the theft), incompetent customer service (charging a bereaved widow for a more expensive ticket? Really?), incompetent public relations (saying things like “we’ve done nothing wrong” after losing someone’s mortal remains), incompetent operational management (letting things escalate to the point we found out about it) and incompetent senior management (not just quietly settling the case and moving on). And the company isn’t done yet; a few weeks ago attorneys representing US Airways filed a motion to move the case to Federal court, since this outrage took place on an International flight. That will hold up proceedings, make the whole case harder and more expensive to try, and might cause Ms. O’Grady to give up, but is almost certainly going to make a bad situation even worse for the airline…

To quote the late Frank Zappa: “It’s not getting any smarter out there, folks…” Keep watching the skies, everybody, because there’s no telling what kind of shenanigans will be going on up there next…

Decisions, Decisions

One of the cases I discuss with my students is about Southwest Airlines, and since this is a strategy class what we mostly discuss, both in class and in their written assignments, is changes the company could make in its strategy in light of the changing conditions within their industry. I get students from all of the various majors in the business school in my class, so I try to select cases that can be looked at from a variety of different angles and from the perspective of different disciplines. For example, the Southwest case was written just as the company had acquired Air Tran, and our Finance majors can analyze the deal and discuss the implications for the company’s future equity and capitalization, while the Human Resources students can talk about the difficulty in merging the two (very) different corporate cultures. It isn’t easy coming up with assignments that are interesting and fun (or at least, not boring) for this many different interests, and I’m sure I don’t always succeed. But the Southwest case is popular, and discussions of the anti-bag-fees policy are almost always spirited…

If you don’t fly commercial, you may not be aware that some years ago all of the major airlines started charging an extra fee for every piece of checked baggage, starting at around $25 and escalating rapidly from there. Some carriers have kept the fee structure basic, some have jacked the price up to see how high it can go, and others have tied it into other promotions, offering free bags for their frequent flier customers, people who sign up for their branded credit cards, or whatever. Only Southwest, out of the major carriers, has persisted in allowing customers to check two bags per person without charging extra – despite the fact that the airline industry as a whole is making roughly $3.5 billion on bag fees each year, according to an article this week in the Wall Street Journal. Many of my undergraduates have suggested that Southwest consider adding such a fee, given that these charges are now the industry standard and appear to be gradually gaining acceptance. But it’s never the Marketing majors who make that suggestion…

In the same article, the CEO of Southwest is quoted as saying that adding bag fees could end up costing the company in excess of $1 billion per year in lost revenue, as customers abandon Southwest in reaction to the change. On the face of it this seems alarmist – the company still has a number of other strategic advantages, such as lower fares and convenience of travel, not to mention overall customer satisfaction in most other areas of its operations. But there is no denying that the “Bags Fly Free” slogan is an important part of Southwest’s brand image, both in terms of the actual savings (at $35 or $50 per bag it doesn’t take long before we’re talking a significant expense) and also in terms of the company’s image as different from all of the other large airlines; a maverick organization that takes care of its loyal customers. And therein lies the question of strategy…

Southwest has spent most of its corporate existence working on a low-cost strategy – minimizing all possible costs in order to offer the lowest price to the customer while still earning a greater profit on each ticket than any competitor. But to continue on as they have, both of those things must remain true. If they depart from that strategy they may lose customers, as they will almost certainly lose their price advantage over the other airlines. But if they continue to pass up a major revenue stream like the checked baggage fees they run the risk of becoming less profitable than the other airlines, becoming a less attractive investment than other airlines, and losing the support of investors, which will impact their stock price and eventually their cost of capital. Not to mention earning less money in absolute terms…

Sooner or later, Southwest is going to have to decide if they believe they can make more money flying more people (and more people per flight, as well) without baggage fees than they could make by implementing them. Their traditional strategy has served them well so far, but can they continue with it if the add-on fees the competition is charging become the industry standard? Stay tuned, folks…

The Ethics of Overbooking

Yesterday’s post was about the changes in how consumers are viewing the common airline tactic of overbooking a flight, and I mentioned at the time that the ethics of the situation were a bit more complicated that you’d probably think. On the face of it, overbooking a flight appears to border on outright fraud: the company is selling product that they don’t have, on the assumption that at least some of those being defrauded either won’t notice or will have screw-ups of their own which will be sufficient to keep them from using their tickets. But a closer look raises the questions of what else can you expect them to do, and can you accept the consequences if they don’t?

First of all, consider that it the airline does not charge people for changing their flight reservations it can almost certainly expect that people will blow off their original flight times at the drop of a hat, and still expect to be accommodated whenever they eventually make it to the airport. I say that because people already behave this way, and many of them will then become incensed upon being told that there will be a charge for re-routing them. I can’t think of any other type of business in which customers routinely order a product or service, then decide not to use it, and then demand to receive either a replacement or a refund, despite the fact that the vendor provided exactly what they ordered and had it ready at the agreed-upon time and place. No retailer or craftsman would tolerate such behavior, and if you did that at a restaurant you might succeed in getting your money refunded, but you’d probably be banned from the establishment afterwards…

At the same time, as noted yesterday, any airline which takes concrete steps to prevent this type of abuse – by only offering non-refundable tickets, charging large fees for rebooking passengers or the like – will quickly begin losing customers to other carriers that have less draconian rules. And if the company raises fares in general to cover the cost of operating flights with empty seats they are unlikely to retain any passengers, at least in any of their lower fare categories. But while customers will not tolerate higher fares, higher fees, or not being able to refund/rebook tickets whenever they like, they generally will accept a (relatively) low chance of being the unlucky souls bumped off an oversold flight – provided that it remains a relatively low probability…

If we accept that these conditions are relatively fixed – or, at least, that they are beyond the power of the airlines to change – then we must ask what alternative these companies have in regards to overbooking their flights. Losing all of their customers to the competition and going under is not an acceptable option; neither is spending more running half-empty airplanes than you can make on the airfares and simply going bankrupt. And having these companies go under isn’t good for the rest of us, either. Quite apart from the damage it would do to our economy if all of their employees are left without jobs, all of their vendors lose their business, and all of the people who work for those companies are left destitute, the more companies the go under the fewer options that will be left on each flight route, and the less pressure there will be on the few surviving airlines not to abuse their customers still further…

Which brings me to the question: if overbooking flights is the only way for an airline to stay in business, and if the failure of their company will do harm to their stockholders, their employees, their vendors and their stockholders, and eventually even to the customers of competing carriers, does all of that harm outweigh the consequences of people occasionally being bumped off of flights? No one is saying that people who have paid for transportation at a specific time and place aren’t being materially damaged by not receiving that service, or that there couldn’t eventually be some serious consequence of someone being denied the passage they need. But given this choice of disasters, is the inherent iniquity of being temporarily deprived of a service for which you have paid actually bad enough to require the consequences? Or, to put it another way, does the airline’s ethical responsibility to get its passengers to their destinations as quickly and safely as possible outweigh their ethical responsibility to their other stakeholders to provide jobs, drive the economy, and provide modest return on investment?

It’s worth thinking about…

Collision Course

I was reading a story the other day about passengers in Canada being bumped off a commercial flight and reflecting that things people seem to be taking a different view of these events from years past. For as long as I can remember – about forty-five years at this writing – getting bumped off of a flight was a regular part of air travel. Airlines don’t like to discuss such things, but every airline ticket includes a bunch of boilerplate about conditions under which they don’t have to transport you anywhere OR give back your money, and what they are required to do if any of those conditions occur. I’ve had flights cancelled because of weather, equipment failure, and because there were only a few of us ticketed on the flight and the company figured it would be cheaper to pay for our hotels for the night than to lose that much money flying an almost-empty plane. I’ve also seen people get bumped – denied passage on the flight for which they purchased tickets – because the airline had over-sold the flight, although that happens less in recent years since the airlines have started offering people free tickets and other travel rewards to voluntarily give up their seats. But I’ve rarely seen anyone start demanding that their national government take action about such an event…

You can pick up the original Yahoo story here, but the basic idea is a couple was flying home from a vacation when they were bumped off their flight because Air Canada had sold more tickets on that flight than their airplane had seats, resulting in their not being able to get home in time to pick up their small children from the sitters who were watching the kids. In the end, the parents were most of day late in getting home, after the airline finally bumped someone else to make room for them on a later flight. As atrocities go it’s not very impressive; I have no reason to believe that the children were ever in danger, for example, and there is no indication that being delayed had any significant long-term effect on the passengers – although I doubt they will take any chances with their timing in the future. What struck me about the story was the outrage it seems to have generated, and the complete lack of understanding regarding why this practice will almost certainly continue…

I’m not going to argue the ethics of overbooking an airplane knowing that for a non-zero percentage of your flights that will mean that some people fail to make their destination; that’s a post for another day. But why does anyone use this practice in the first place? It seems as though a business that is essentially a commodity – most passengers don’t really care which airline they fly on, provided it gets them where they want to go on time – would want to make every attempt to maintain good customer relations and a positive public image. What the passengers don’t realize is that they are the cause of overbooking, and that it occurs because they demand it…

If an airplane takes off with empty seats it is losing money; the fuel savings (because of the lower weight onboard) do not approach the revenue lost on those empty seats. But not all passengers will be able to be on time for every flight, so the airline sells more than 100% of the seats, hoping that enough people will fail to show up to make good the overage. The airline could cover those costs in other ways, of course – through the use of expensive fees for cancellation or rebooking of a flight, or by raising the overall ticket price to cover the cost of people dropping out at the last minute. But passengers will not tolerate either of these things, and will gravitate towards airline with lower prices and fees, even if their chance of being bumped off a flight is much greater. It’s still a chance, you see, whereas the higher fares and fees are a certainty…

Time was, being bumped off of a flight was an unpleasant event, but it didn’t happen all that much, and most people just accepted it as a possible consequence of flying. Today, more and more people are missing their flights, or simply blowing them off, but still demanding low fares and minimal rebooking charges – and when they don’t get their own way, they’re complaining to their national governments or bringing civil lawsuits or both. But the costs of that litigation and government action increase the cost of doing business for the airline, and all of the prices they charge the customer have to be raised to keep pace. If we’re really in a feedback loop, and if nothing is done to stop it, eventually the current airline business model will become completely unsustainable and the industry as we know it will collapse…

Not exactly the end of civilization, I admit. But I still hope I’m wrong about this…