You Get the Devaluations You Deserve

Commenter Dan writes,

I used to do Strategy and Analytics for an [Online Travel Agency] and had an offer for a similar title [tp General Manager, SkyMiles Strategy & Analysis] at United Mileage Plus.

This is much more an analytics role than a strategy role. At all these firms, they need a business person who can run data models to tell them what is making/not making money. Sometimes I was able to put together small changes or run promos that helped the bottom line (my biggest was probably an international fare sale on select foreign carriers), but the overall direction of the program is guided by the higher-ups. This person would just tell the higher-up how much money they would be making off the decision.

That being said, 100% of the decisions made come down to the bottom line. One of the most common analyses I would run would be based on net revenue improvement vs. volume decline from adverse decisions. Very rarely was it not profitable at the end of the day to do a customer unfriendly move, as people get angry but rarely change decisions enough to offset the new cash being brought in.

(Emphasis mine.)

Relatedly, reader Alan H. pointed me to “Every Time a New Fee is Announced, a Fairy is Born

Ancillary revenue grew 7% in 2014, the most since 2010. 2015 is off to a good start with January up 9% as reported by A4A this week. There are more opportunities by tweaking current offerings and by exploring new ones. We list 10 potential new fees in this note, including charging for sodas (US Airways tried this unsuccessfully in 2008), first checked bag fee on int’l routes, and fees for customers that lie and try to cheat the rules. Many of these could be lucrative.

Inconvenient truth: customers like fees. Maybe that sentence would be better received if we had said “customers like paying only for what they use.” Well, guess what…that’s the same thing. Part of the airline evolution is about airlines segmenting their customers and treating good customers better than bad customers. Hotels do this well. Some airlines are just getting into that as they overhaul loyalty programs, for example, to dollar-based awards.

If a company can charge you more and give you less, and you don’t materially change your behavior, well then they probably should do just that. It’s in their interest.

If you aren’t going to move your business to products offering you better value propositions, then you get exactly the program and fee structures you deserve. No sense complaining.

Of course there’s a collective action problem: you may move your business, but unless enough business moves then it’s not going to matter. You need to do more than move your business — you need to move the needle. So you need to amplify your voice.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. The “you’re at fault” angle doesn’t work as well, methinks, in an industry (domestic aviation) where there are only four major carriers. It’s just too easy for them all to do the same thing

  2. James, you’re right–the government approvals of all the various mergers did cause a drop in competition, which does allow the 3 major international carriers (DL, UA, and AA) and the major domestic carrier (WN) to simply mimic each other in a vague monopolistic approach. However, before the mergers, the airlines were CONSTANTLY in and out of bankruptcy since they are so prone to economic recession and fuel price hikes. In most other nations, there is only 1 major carrier; in the USA, there are 4 majors and numerous others providing domestic service. Only China has as many if not more, and that is a country with a much larger population and exploding middle class that outnumbers the entire US population.

    Americans always SAY they prefer competition, but their behavior at the voting polls shows that they do not vote to make that happen–usually because they think other things are bigger priorities. Those who vote GOP tend to support the anti-competitive environment, since the GOP supports less government and less regulation and oversight of the many practices that lead to anti-competitive behavior, believing that the free market will resolve all issues despite overwhelming evidence to the contrary in both the USA and historically in all countries in the world. Voting for the GOP thereby reinforces to the Democrats that it isn’t worth fighting against these big mergers–which has allowed our banks, telecoms, and airlines to all merge into bigger and bigger entities with less and less competition.

    People blame the government and airlines, but the people doing the voting are the most responsible. People who don’t even vote are even more responsible. Ultimately, those who vote Republican and who don’t vote are giving support to the now ever-present corporate oligarchies in all of the industries that people love to complain behave badly. They behave badly or less competitively because voters have supported the mechanisms that allow it.

  3. Bill, I feel sorry you that you have nothing better to do than talk one sided politics on a travel blog.

  4. The largest bank consolidation bill ever passed was the Dodd Frank act. Passed by A Democrat congress, senate, and a Democrat president. It has forced small banks to merge and big banks to get bigger. I know they said it was passed to do the opposite, “too big to fail”. It also seems to me that a little bill nicknamed “Obamacare” is forcing consolidation of independent doctors and hospitals. How much Republican support did that get?

  5. WTF Bill! You really twisted that into an anti GOP rant?

    This type of analysis goes on (or should go on) at every business at every level from the corner hot dog cart to Apple.

  6. Sorry Charlie, I agree with Bill. We allowed the mergers to happen. Nobody really did any complaining about it. Compare this with “net neutrality”, with almost 4 million Americans wrote to the FCC. That decision proved that when people protest, things will change. But the airlines got what they wanted, the American public got screwed. Because, we bought into the bigger is better meme. What is happening was predicted by many airline analysts. I just keep hoping that the “revenue model” doesn’t pan out as predicted by Delta and United.

  7. Not sure what your source is on this, but United is not Skymiles and unless they also started copying Delta’s org chart I find this statement to be non-credible

    “I used to do Strategy and Analytics for an [Online Travel Agency] and had an offer for a similar title [tp General Manager, SkyMiles Strategy & Analysis] at United Mileage Plus.”

    Skymiles strategy at United Mileage Plus?

    We know that United copies Delta’s strategies and earnings chart and is in lock step with Delta on requirements for elite status except for being able to attain top tier by credit card spend only, but I think copying job titles is probably not very credible.

  8. But the “big 4” domestic airlines are NOT in lockstep. Southwest believes they’re better off with “bags fly free” and “no change fees”, the other 3 believe charging these fees makes them more profitable even if they lose some business. I suspect they’re both right, as fee-sensitive passengers have moved to WN and those willing to pay the fees have stayed with the other legacies.

  9. I agree with Bill and JohnB. And, to their point, if Americans flew as much as they use the Internet, there WOULD have been outrage at all the mergers. But, the vast majority of Americans fly either rarely or on their company’s dime, so that $50 baggage fee is just one more pain in the ass cost of flying for most of us.

  10. > Inconvenient truth: customers like fees. Maybe that sentence would be better received if we had said “customers like paying only for what they use.”

    More untrue words could not have been written. Witness the trend of hotels to bundle Wi-Fi in the base rate. And that’s not new either. Those who are old enough rember that TV (HBO especially) used to have a fee at hotels as well. Customers liked fees so much that HBO I don’t think a single hotel charges for HBO anymore, and soon will be the same for Wi-Fi.

    So much for analysts. Airlines charge for fees for two reasons: they have an unsophisticated mathematically ignorant customer base (Spirit) or they’re a network carrier part of an oligopoly (where the educated customer has no other option). No customer ever likes a fee for something he needs.

    BTW who likes paying for the internet by the minute? Or the kilobyte? Both fee models were prevalent in the 90s. Where are they now? Bundling always wins in real life.

  11. The point you didn’t emphasize enough is that the devaluations aren’t based on “what we will do”, they’re based on the airlines’ model of what we will do. Two often very different things.

    I wonder if Delta’s model predicted less use of for buying tickets, and increased payments to Chase for selling Delta tickets? (Still use to make sure I have the lowest price, of course.) 🙂

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