Rx For The Airlines: Remember Your Customers
By Mark Huber
The nation's beleaguered airlines lobbied long and hard for their latest federal bail-out, $3 billion plus attached to President Bush's supplemental appropriation to finance the war in Iraq.
The measure just passed by Congress will allow the airlines to temporarily pocket security taxes (but passengers will still pay them) and to be reimbursed for security taxes paid since 2002.
This comes on top of the post 9-11 $15 billion bail-out of the industry.
It probably won't do any good.
Other than nuclear power plants, airlines are arguably the nation's most regulated industry. Since 9-11, they have also become the nation's most heavily-taxed industry, paying more in taxes as a percentage of sales than even the alcohol or cigarette businesses. Add in record high fuel prices, past unchecked labor expenses, pricey new aircraft leases, and some less than brilliant management decisions (United's entry into, and expensive exit from, the corporate jet business as perhaps the most egregious) and it is easy to see how an airline like American could burn through $5 billion in losses over the last two years. The airlines' woes began way before 9-11, prior to the economy taking a powder, and years ahead of the current unpleasantness in Iraq. They all can be traced back to a single sin: Contempt for the customer's time, comfort, and money.
Passenger's time. Start with the much vaunted hub-and-spoke system that created rush-hour pile-ups at the nation's airports, turning passenger gates into mosh pits and taxiways into parking lots. And it didn't do much for the sanity of air traffic controllers. Remember the joke? "How do you get to Hell? First, you have to go through Atlanta." American's solution to hub congestion: Create a "rolling-hub" schedule that actually increased passenger waits between connections. Automated check-in kiosks and E-tickets have shaved a few minutes off airport check-ins, but from my home in Upper Michigan I can fly just about anywhere within 600 miles faster in a 105-knot Cessna 172 than on a commercial jet flight with a connection. And that was before 9-11 and the politically correct insanity imposed on the traveling public by the TSA.
Passenger care and comfort. Note to airline caterers: Pretzels are not a food group. Been in the coach section of an Airbus A319 lately? You can find more legroom in the back seat of a Ford Mustang when a short person is driving. Remaining airline employees have suffered through give-backs lately to retain their jobs, but that does not justify surly customer service.
Airfares. What's the difference between buying a walk-up coach ticket and borrowing money from a loan shark? You can pay the loan shark later. Check-out these three-day advance purchase roundtrip coach fares from Travelocity, even in the current fare-slashing climate: Chicago O'Hare to Salt Lake City; American & United $725, Delta $1,397. Need to connect through O'Hare? Ouch: Madison, WI to Salt Lake City; Midwest $1,107, United $1,209, American & Delta, $1,504. How about Chicago to Dallas? You'll save a few dollars flying from smaller Midway Airport, but not much. Frontier $341 (but 8 hours and 10 minutes later), ATA $371, AirTran $381, Delta $429, and American $436. From O'Hare the fares range from $573 to $1,128. Does anyone think passengers with exigent travel needs enjoy being exploited like this? Is this the kind of pricing that fosters customer loyalty and goodwill?
Here's the other half of the equation. Today, with advance purchase, I can fly to Washington, D.C. cheaper than I could in 1979 in absolute dollars. In a couple of weeks I will fly AirTran from Milwaukee to Fort Lauderdale roundtrip for $156. Do you think AirTran is making any money off of me? I doubt it. But AirTran is trying to establish an outpost in Milwaukee by buying market share. Right now AirTran has five percent of Milwaukee passengers. That number will grow fast at these prices. Count on it. Ever since Southwest began displacing the family sedan as the favorite mode of bargain vacation travel, airlines have been irrationally falling all over each other, stupidly bleeding billions to take leisure travel market share away from each other, then hiding behind federal bankruptcy law when the strategy fails. Operating at razor-thin margins, the airlines' brazen over-expansion on unprofitable routes could not be sustained when the economy hit a bump and the exigent business traveler, whose usurious airfare made the margin, stayed home.
Left alone, the marketplace is a marvelously self-cleansing device. Many of the great airline names of my youth are now gone: Eastern, Pan Am, and TWA among them. The nation's air travel system has persevered, just as it will if United or USAirways someday are no more. Those of us who toil in this business know that it is often unforgiving of even the smallest of errors, in the cockpit or in the boardroom. Driven by lobbyists, politicians sometimes perceive natural market dislocations, such as business bankruptcies, as a public policy problem and throw money at it. More often than not the Law of Unintended Consequences intercedes and the public is no better off. Consider this example:
As part of the first 9-11 government-funded airline bailout, Hawaiian Airlines received $30 million, money that was supposed to be used to keep the airline flying. Evidence is now surfacing that it used $25 million of that for a stock repurchase plan, $18 million of which allegedly ended up in the pocket of the airline's CEO and a few insiders.
Last month Hawaiian filed bankruptcy.
Rather than appealing to Washington, troubled airlines need to refocus their attention on their proper source of revenues, their customers.