It’s become all too common to believe that the only things customers care about are schedule and price. This idea has been at the core of the ‘race to the bottom’ where legacy airlines strive to become more like ultra low cost carriers and then fail to understand why customers are unhappy.
Early in the deregulated era American Airlines realized that they could compete against discounters by offering low fares on the same planes where they were selling expensive tickets. They didn’t need a new airline to compete. And since they had seats going out empty they could compete against newer airlines with lower marginal cost.
That was an important insight but it comes at a cost when a carrier tries to differentiate not just the price being charged to different customers but also the product they’re delivering.
United’s President Scott Kirby describes their schedule as their product. It’s no coincidence United is the only carrier still banning basic economy fare passengers from bringing full sized carry on bags on board.
Delta on the other hand pays close attention to its net promoter score which they believe is the reason they earn a revenue premium for their product.
It is not 100% clear to me whether the median passenger is willing to pay more to fly Delta, or the driver is that people paying more choose Delta. Either way customers aren’t choosing strictly on schedule and price.
British Airways, which has obliterated its brand over the past several years (to the point where its CEO has to try to convince customers they’re still ‘and will always be’ a premium airline, yet no one believes him, has now come to the realization that brand matters for profitability.
At their Capital Markets Day they presented their findings that brand is nearly as important as schedule in customer decision-making, that the “importance of brand should not be underestimated,” and that to achieve a strong brand it’s important to:
- know who your customers are
- not try to be all things to all passengers
British Airways says they’re already well-positioned on schedule and price, and essentially the fact that their brand is at a nadir presents an opportunity because it can get better (“more value can be captured”).
Now that British Airways parent company IAG is telling investors that a quarter of the buying decision is based on brand, can we put to rest the notion that what customers think of their travel experience doesn’t matter for a full service high cost airline?
Well, isolated anecdotal evidence that supports and reinforces your view is not really proof.
@Ron How are statistics quoted by a global airline with millions of passengers either “isolated” or “anecdotal”?
Here’s a definition of anecdotal:
anecdotal
/ˌanɪkˈdəʊtl/Submit
adjective
(of an account) not necessarily true or reliable, because based on personal accounts rather than facts or research.
I can’t see any way in which the information presented by BA fits into that definition….but perhaps I’m missing something.
@Ron – isolated anecdotal? It’s not an anecdote, British Airways, Iberia, Aer Lingus, and Vueling report their data on it and it’s consistent with what Delta has found.
@Ziggy I think that @Ron’s point is that we were not given any information about what BA is basing their conclusion on. Where does that 25% statistic come from? Without further information, and objective data, I am not sure if this is accurate or not. Just because BA states it, that doesn’t automatically make it true. Gary, can you tell us more?
“It is not 100% clear to me whether the median passenger is willing to pay more to fly Delta”
I never understood that, either. And then I took two domestic flights in Delta; one in first class, and one in economy. And I “got it.” You’re not treated like a bother for merely existing as the other domestic airlines so often treat you, and surly flight attendants are the outlier, not the norm.
I live in PHL and constantly travel domestically for work; I choose DL with connections over direct AA flights any day of the week, even if it means getting up earlier or getting home later to squeeze meetings in.
I only care about price and schedule. I will even fly Spirt if necessary. I will never go for elite status ever again. I pick my airline based in when I want to travel and then price.
@Ron
In statistics, one doesn’t really prove anything anyway. We can show all kinds of relationships (and lack thereof) but “proof” isn’t a word that’s used.
Besides, a presentation at “Capital Markets Day” is far more than just an anecdote.
@Brad
I think a lot of people agree with you including me. But I’ll also suggest that branding can be a bit more subtle. Let me ask you this about Spirit: A few years ago, the Spirit brand was cheap fares and unreliable schedule (e.g., frequent delays). Presumably, a schedule is only worth anything if the airline can actually fly it. In the past, Spirit has been notorious for flight delays. As for me, I’d say that the Spirit brand was actually the most important factor in my flight selection and I’d avoid it.
Apparently, BA is finding that brand image is more important than everybody thought. Most of the time a choice is likely “non-stop vs connection”, or absent a non-stop option, a few airlines competing via connections. In this case, BA may very well have found that “crappy experience with a connection in LHR” was something people actually avoided.
@Ziggy: Where did they get that data? Ron is correct, this is an anecdote.
The compelling evidence is what people buy. In Europe, Ryanair is the second largest (by no. of passengers) and most profitable airline. easyjet is fifth. They are increasing share as well. The other growing sectors are ULCC subsidiaries of Lufthansa, IAC and Air France/KLM.
The evidence is clear. Ryanair is the end point. 95% people won’t pay more than the minimum for flights < 3 hours.
In fact, the very existence of Basic Economy is a ULCC defense. Deliver a cheaper seat to cannibalize the ULCCs.
The most recent issue of Consumer Reports (a well-regarded independent consumer advocate magazine and testing company in the USA) tells that among its 92,000 surveyed subscribers:
ALL economy products except JetBlue rated very bad. Even JetBlue rated bad (2 on a 5 point scale — 5 being good/best.) (The subscribers chosen were only those had flown at least once domestically in the past year.)
Passengers #1 complaint was the discomfort of ALL economy seats, including ALL enhanced economy products.
The combined ratings (everything, not just seats) from the top were:
Southwest (subscribers thought Southwest treated them decently, humanely and with courtesy)
Alaska
JetBlue
Hawaiian
Delta
Allegiant
American
United
Frontier
Spirit
There was significant gap in approval between Hawaiian and Delta.
American and United were roundly bashed. The authors pointed out in their article that
#1. low cost airlines were not always the cheapest.
#2. however, if you chose enhanced seating, the legacy3 usually shoved you into a significantly higher price. Their examples showed (approximately) that $200 basic economy ticket on American could grow to $375 +/- with choice of seating and checked bag, while approximately the same ticket on Allegiant’s $220 basic fare would only be about $275. (All numbers from memory.)
#3. numerous times the article pointed out the strong feeling people have about the awful seats and the efforts people make to avoid the worst of what they hate. Btw, more people are getting airline branded credit card and trying to get in some group, some how to minimize the agony.
#4. One prescient (I think) commenter said, (paraphrased): we no longer have either competition or governmental regulations protecting consumers. There is going to be some enormous breaking of the bonds with one of those.
He is a lot more on target than Oscar Munoz, I believe.
Btw, Ryanair is often cited on here. Frankly, I do not find Ryanair wholly objectionable. I know what I am getting in for. What stands out for me again and again on Ryanair is that I can often get a nonstop flight from one relatively obscure location to another of those. I spend 1h30 in a crowded plane with silly sales of lottery tickets and perfume vs an entire day of two equally crowded flights of angry, depressed passengers and angry, depressed FAs with a lengthy change in a humongous, exhausting airport. It ain’t just price. I’ll take Ryanair.
@Cassandra “Consumer Reports (a well-regarded independent consumer advocate magazine and testing company in the USA)”
No. Treated with contempt in most areas. Rather like your elderly nagging aunt: slipping into dotage but still lecturing you (based on 20-year old information).
In this area they speak for a miniscule group: Snobs who expect coach to be like first class. An ULCC (like Spirit) is A+ because they give the consumer exactly what he wants: low prices.
Remember: Ryanair is the end point.
Wow.
You listen to your Spirit voices and I will stick with the NYTimes & Washington Post with CR on the side.
Recently President Obama (all past presidents are granted that honorific) asked the essential question: if they won the last election why are they still so angry all the time?
Hey, you won — I assume that is what you wanted: flying is a hideous, disgusting, arduous mess. Most people hate it. It isn’t cheap and it isn’t pleasant and the airlines are minting money Are you happy?
I am not interested in your politics (thank heaven), but you sound like the demented Oscar Munoz/ screaming voices of Wall Street: more, more, more, gimme more.
It is a made-up fairy tale that all people want is cheap, cheap, cheap. THAT comes from the airlines justifying themselves, NOT from those who have to fly. Believe me, it is not a miniscule group. Don’t delude yourself further.
The only thing wrong with Consumer Reports is that they take so damn long to get their information out.
Please do not tell me what “the consumer” wants. You simply don’t know. Despite your inflamed assertions, you don’t know. And, there is absolutely nothing snobbish about wanting to be treated well and NOT be abused. There is nothing snobbish about expecting that public accommodations will meet acceptable standards and not promote discomfort, pain, and customer conflict. That is one of the reasons that Southwest ranks at the top and American and United are at the bottom. First Class isn’t so great any longer either.
I buy American stock for a short-haul jackpot, but that is a Las Vegas bet. I sure don’t fly them if I can help it.
And, btw, one of my points was that things can get worse than Ryanair. I believe that in many ways the US domestic scene IS worse than Ryanair. At least all of my Ryanair seats have been acceptable if not commodious, the exit rows are a cheap extra, and the planes flew where I wanted to go.
Wishing you a middle seat on Family Dollar Airlines, C.
@Cassandra: “It is a made-up fairy tale that all people want is cheap, cheap, cheap…”
What do they buy? More room is available, and guess what they buy?
@L3 No, it’s not an anecdote. There is nothing in the BA information that fits with the definition of an anecdote.
I appreciate that this is probably not what you want to hear but you calling BA’s information an “anecdote” is as factually correct as me calling you a water buffalo.
@Ziggy: No supporting evidence. No source. Look at the reproduced slide (above).
Or do you have it? Please post the link here.
Maybe a ‘telling’ anecdote, but still an anecdote.
Google ‘anecdote’. The fit is perfect:
===============================================
an·ec·dote
/ˈanəkˌdōt/Submit
noun
a short and amusing or interesting story about a real incident or person.
“told anecdotes about his job”
synonyms: story, tale, narrative, incident; More
an account regarded as unreliable or hearsay.
“his wife’s death has long been the subject of rumor and anecdote”
the depiction of a minor narrative incident in a painting.
============================================
This is no more “proof” that the similar slides from similar investor presentations from AA years back “proved” that customers only cared about pricing. Investor days are nothing but “spin” (lies) to investors to get the share price up, and their content is often incorrect or misguided (as AA’s statements that having a low-quality cheap products was the way to profits — literally, according to its CEO’s statement, forever).
Yet BA’s statement is (roughly) correct based on half a century of studies truly proving that brand, which is nothing more than the expression of customer satisfaction, often measured as “net promoter score”, is a driver of profitability. Of the gazillion studies on this topic you can start with reading Reicheld’s excellent article on the Harvard Business Review at https://marketinglowcost.typepad.com/files/the-one-number-you-need-to-grow-1.pdf. As you can see from its date, 15 years ago this was already well known in the business circles, but first studies on this topic go all the way back to the 1960s, and they showed the same thing.
@Jake – Reicheld had a vested interest in that article finding. Independent assessments are more nuanced
https://www.forbes.com/sites/justinwarren/2016/08/15/tech-companies-abuse-nps/#43a9c5a370fb
NPS is not a panacea. If your cost base is out of line in the airline industry you can’t compete.
IAG is correct, that brand commands premium. It’s just that their brands are, well they are weak or very weak.
Just look at SQ’s brand and their prices. Or CX. Those are brands that really command a premium.