American Airlines removed espresso machines from its widebody aircraft. I broke the news and in response to One Mile at a Time picking up on it, a commenter there writes,
The problem is everyone wants something for nothing. Many people forget that like ant other entity this is a business and business needs to make money ihey and other companies are not a charity.
- Update 4/12/21: American now says that the machines will actually stay. They have removed supplies, but expect the espresso service to eventually return to premium cabins where the machines are offered,
[W]e are certain the machines will stay on the aircraft and this is temporary as service is modified on these flights and the expresso offering is currently not available. The removal of equipment for the machine will help prevent confusion among flight attendants and conserve fuel.
This commmenter offers a common sentiment. People like low fares, airlines should invest as little as possible in product. Anything else is unnecessarily giving away something for nothing, airlines have to make a buck, and anyone who says otherwise is a freeloader ‘wanting something for nothing.’
It’s a common theme, and something I hear from a subset of readers whenever I criticize an airline for failing to make award seats available (more or less ever) whether in a particular class of service or on a set of routes: “Airlines need to make money, why should they give away something valuable for free?”
Both sentiments are wrong. First of all, if you’re Allegiant or Frontier your goal is to be the low cost provider of air travel. If you’re Frontier Airlines you want the lightest seats possible to save fuel and you won’t invest in inflight internet, since you won’t sell internet for more than it costs to offer.
When Scott Kirby was President of US Airways he said that airline was slow to add internet because they didn’t think they could make money selling it. The US Airways ticker symbol at the time was ‘LCC’ for ‘low cost carrier.’ But even there they realized they were losing ticket sales to airlines that offered internet – people were choosing on more than just schedule and price, they were choosing based on the need to be productive for the length of the flight.
And the people making this choice were the ones buying the most expensive tickets, business travelers that US Airways was measurably losing out on. So they added internet fast.
American Airlines may not lose ticket sales over lack of espresso, but they already had the machines so faced little cost keeping them – it is the difference of fuel and catering pods. This isn’t a question of do you go out and install machines. American installed these machines as part of an overall attempt to deliver a quality product, and by the way even US Airways under legacy America West management installed espresso machines on their Airbus A330 widebodies.
A quality product matters for American because they don’t have the option to pursue a lowest-fare strategy. They will lose because they have higher costs than competitors – a differential that has risen during the pandemic because
- they didn’t get senior employee early-outs the way competitors did, so they’re flying with more crew at the top of the pay scale
- they have more debt and debt service than anyone else
American needs to earn a revenue premium because they’re a high cost carrier. That means they need both a product and schedule that customers want to fly. They need to be better than competitors. That’s not a guarantee of success, but not doing so is a near-guarantee of failure as a business.
And the reason an airline like American – or any with a frequent flyer program – needs to make award seats available is because it is profitable to do so not because they’re a charity giving away something for nothing.
- Frequent flyer programs are multi-billion dollar businesses. American raised $10 billion backed by AAdvantage, Delta $9 billion backed by SkyMiles, and United $6.5 billion backed by MileagePlus. American’s entire pre-pandemic profit was accounted for by sale of frequent flyer miles, mostly to banks.
- Customers earn the miles, there is revenue associated with those miles, essentially earning miles is pre-purchase of air travel – which the airline then needs to provide in return.
- For customers to want to continue to accrue miles they need to be able to redeem their miles. In fact, successful redemptions increase the rate of future accrual. Getting customers to have success making redemptions is how to keep them on the treadmill, peddling faster, and earning more loyalty revenue per member.
There’s always a balance of how many seats on which flight to offer at what mileage cost. But there has to be a reasonable path to redemption, sometimes even treating seats as loss leaders, to connect with customers’ emotional investment in the program.
Airlines have even chartered planes to Hawaii and other destinations strictly for redemption, and found a reasonable value proposition doing so – while demonstrating that it’s possible to reach dream destinations with miles.