Airline mergers could lead to fare “creep”

by Tom Johansmeyer on

The Southwest/AirTran merger isn’t expected to push fares much higher. The disappearance of seats that comes with airline consolidation would make you think that prices are about to rise, as the fundamental commodity of the airline industry becomes increasingly scarce. But, we’re not close to that point yet, notes USA Today:

“We’re not at the tipping point,” says George Hobica, founder of Airfarewatchdog.com. “I don’t think fares will be impacted much until we have three legacy carriers and one discount carrier remaining.”

The number of seats, however, is shrinking across the airline industry. Since September 2007, the number of domestic seats available has fallen 10 percent.

According to Hobica, look for fares to “creep upward,” but not at a rate that will horrify customers, a position supported by Frank Werner, associate professor of finance at Fordham University. He tells USA Today: “Generally, airline mergers remove competition from the skies, leading to higher prices. This will happen in markets where the combined Southwest/AirTran will not have a dominant market share.”

[photo by SkilliShots via Flickr]

Customer service supreme, even on a bad day

by Tom Johansmeyer on

Whose bad day matters more? When a customer and an employee are both struggling with foul moods, endless work headaches or even distracting personal problems, the tie always goes to the person paying – not the person being paid. For most businesses, this is a common sense approach to managing customer relationships. I know that when I was frustrated or annoyed with a client, back in my corporate days, even hinting at my mood would invariably make my day far worse … as I’d wind up on the receiving end of my boss’s ire.

We routinely avoid restaurants and bars, hotels and professionals (e.g., doctors, lawyers and accountants) because of both actual and perceived slights. For this reason, especially in the professional services space, every effort is made to hide the symptoms of a bad day – and to tolerate those shown by clients. It’s the nature of the beast: making money matters more than expressing your frustration.So, I do find it strange when airline employees use this as an excuse for poor service. There have been plenty of examples of frustrated airline employees who have garnered support from their peers, from the orange juice meltdown on American Airlines to Steven Slater‘s recent slide to infamy. The level of sympathy in the industry, it seems, ranges from “bad day” to “I’ve always wanted to do that but never had the nerve.”

It’s time for the airlines to do what the rest of the business world has endured for years: deal with it. Everyone who’s worked in a customer- or client-facing position has had to soldier through a tough day when his client is unhappy. It may be painful, and we may know that we’re right … but ultimately, the business relationship comes first. Eventually, the customer emerges from his funk, and the investment made in tolerating the temporary difficulty pays off.

The first step toward being treated like a professional is acting like one. Endure customer madness with a smile, even if you’re having an awful day too, and the world will start to change.

[photo by Maks Karochkin via Flickr]

Are airline fees about to go higher?

by Tom Johansmeyer on

What could possibly be next? Absent Ryanair-style fee insanity, there seems to be little the airlines can do to our wallets now. Blankets, bags and beverages are just the tip of the iceberg: it seems anything that can come at a price does. The only thing missing is a seemingly well-intentioned Congress that wants its share of the airlines’ recently found largess.

Make no mistake about it: extra fees translate to real money for airlines. Last year, they amounted to $7.9 billion in the United States, and in the second quarter of 2010, the top six airlines in the country picked up $2.1 billion. Following the effects of the 2008 financial crisis, this is cash these companies desperately needed to collect.

This is where Congress enters the picture. Right now, the government scores a 7.5 percent on fares. By effectively unbundling certain “amenities” – like checked baggage – from the fares, the airlines can charge lower prices, with the ancillary stuff charged on a pay-to-play basis. In the end, the feds are stuck with a smaller revenue base to tax. And, the airlines are able to bypass the excise tax, and boost their profits a bit.To plug the hole, Senator Jim Webb of Virginia has proposed legislation that would subject the additional fees to the same 7.5 percent tax as the fares, restoring at least some of the lost tax revenue. From the perspective of Congress, this makes sense. The feds took it on the chin financially when the airlines unbundled, and they need to make up for it (because cutting spending just doesn’t seem to be an option).

For the airlines, this poses a problem. Either they can swallow the pill and take the 7.5 percent it against their revenues, or they can pass the additional cost along to their customers. Since 2011 is likely to be a tougher year for the sector than 2010, it looks to me like the writing is on the wall. Why absorb it when you can pass it along, right?

The tax is being proposed, so give it some time. But, if it hits, I’d expect we’ll feel it, too.

JetBlue in-flight internet access coming in 2012, worth the wait?

by Tom Johansmeyer on

JetBlue is going to offer in-flight internet access! This is exciting news, right? JetBlue is one of the more exciting airlines in the market right now, having figured out how to offer solid customer service without jacking up fares (a combination the major carriers believe is impossible to attain … despite the fact that JetBlue has done so). So, the airline is getting into the internet game, a space in which it has lagged many other carriers.

Unfortunately, JetBlue isn’t going to begin installing the equipment until the middle of 2012, as it needs to be checked out and approved by the FAA before the airline can put it into production, according to FlightGlobal. The slow start might actually work to JetBlue’s advantage.

Rather than implement the solutions already out on the market, JetBlue has selected a different type of internet access technology, which should translate to better internet service for its passengers – which pairs well with the high levels of customer service the airline already offers. Unlike existing internet access systems, which interact with the ground, the JetBlue system will hit satellites. JetBlue CEO Dave Barger explains to FlightGlobal:

“In just the three years since we launched BetaBlue, the first commercial aircraft with simple messaging capability, technology has advanced by generations. Rather than invest in current technology, designed to transmit broadcast video and audio, we elected to partner with ViaSat to create broadband functionality worthy of today’s interactive personal technology needs.”

Barger also says, “This system will be designed for the 21st century, not just for today’s personal connectivity needs, but with the bandwidth to expand to meet tomorrow’s needs as well.”

[Via Business Insider]

Airlines continued to cut jobs – 25 months in a row

by Tom Johansmeyer on

There’s a reason why airlines have positioned themselves for a solid performance in 2010: in addition to charging all those extra fees, they have been cutting positions (and thus expenses). In July alone, the industry in the United States trimmed 2.3 percent of its workforce relative to July 2009. That made 25 consecutive months of net job losses in the domestic airline sector.

According to the Department of Transportation‘s Bureau of Transportation Statistics, 378,100 people were employed full-time by the airline industry in the United States in July 2010, a decline of 8,700 from July 2009. Five of the six network carriers cut positions, with Delta adding headcount only because of its Northwest acquisition. Only two low-cost carries reported net cuts for this period (Southwest and AirTran).

According to the Associated Press, maintenance and ticket agent positions are getting hit most:

While the number of in-flight airline employees like pilots and flight attendants is regulated by the Federal Aviation Administration, the bulk of airline employees-maintenance crews, reservations and ticket agents-work on the ground and aren’t subject to federal minimums. Airlines are operating with less staff to save money, but they’re also outsourcing maintenance and other work to other countries where labor is cheaper.

[photo by aflcio via Flickr]