Delta says customer service isn’t dependent upon costs

by Tom Johansmeyer on

It looks like Delta has some strong thoughts on airfare and customer service. The airline identified as the worst in the United States is now saying that customer service shouldn’t be related to operating expenses – well, at least that’s the implication of the new ad the airline is running on New York City subways: “Customer service shouldn’t fluctuate with the price of oil.”

The fact that airlines generally aren’t famous for customer service is well-established, and many excuses reasons are given, ranging from regulatory constraints to a lack of cooperation from passengers. Of course, cost always comes into the equation, too. Despite a strong year for air carriers in 2010, history shows that this is a volatile industry, and it’s always necessary to keep an eye on expenses.

It isn’t unusual to see airline industry employees cite cheap flights as a reason for the decline in customer service: what else do passengers expect, right?
This is what makes Delta’s move so interesting. A direct statement that service shouldn’t be constrained by underlying expenses (and thus profit margins), the ad I saw on the 3 train yesterday morning takes a bold stand. Delta is taking conventional wisdom head-on (well, airline industry conventional wisdom) in a very public way.

It should be interesting to see if this leads to a change in the airline industry employee population’s position on the relationship between cheap tickets and passenger expectations. For Delta employees, leaning on the traditional rationale results in a direct contradiction with the company’s stated message. Though the sentiment may not trickle down to employees of other carriers, their being vocal about the informal “expense-to-service” ratio inherently puts them at a disadvantage relative to Delta’s claim. The subtlety may not reach the average consumer (especially those who don’t come into contact with Delta’s ads), but the implication is clear.

Doubtless, it makes sense to draw distinctions between advertisements and expectations, and any change at Delta based on this messaging will take time to implement (let’s be realistic – big companies do tend to move slowly). Nonetheless, it will be interesting to see how this situation unfolds.

So, tell us what you think: do you think customer service expectations in the airline business should be linked to the price you pay for a seat? Leave a comment below!

Airlines and hotels: the travails of accommodating a recovery

by Tom Johansmeyer on

Market conditions are turning for the travel and hospitality industry. More people are leaving home behind for a while, and they are again willing to open their wallets to do so. Especially in the highly coveted business travel sector, seats are filling and rooms are being occupied. So, it would stand to reason that airlines and hotels would move to address the increase in demand. Unfortunately, accommodating growth can be risky in these industries. Every step must be made carefully and deliberately, with a plan for taking existing demand to a higher level.

Think about your local grocery store. If cans of corn start to sell aggressively, the store can examine the trend and order more for the following week. It may have to allocate a bit of extra shelf space, perhaps at the expense of canned peas The risk isn’t that high, though, because demand can be handled in smaller increments.

The core product isn’t as flexible in the travel and hospitality business. As people look to book more rooms or flights, a hotel or airline can’t simply add a bed or a seat. Airlines can add routes (or restore those that have been cut), but that creates a new problem.
Assume that demand for a particular route has grown from the norm to the point that another one third of a plane’s seats would be filled. New revenue is coming in the door, but cash is also going out to cover the cost of operating the flights. To make this growth profitable, the airline may have to fill more of the seats on that new flight. To accommodate demand, essentially, the airline will have to create even more.

This is the reasoning behind United Continental CEO Jeff Smisek’s remark on an earnings call recently, as reported by the Associated Press, “We will not grow for growth’s sake, but only if we can maximize our profitability by doing so.”

For the hospitality industry, the challenge can be even greater. A major chain may see an opportunity to take on more guests by adding another property, but this doesn’t happen overnight. It takes time, effort and capital to get a hotel up and operational, especially in a major city. During the time it takes to plan and execute an expansion, market conditions can change substantially, as the hospitality industry learned with the credit crisis of 2008. Real estate and financial market conditions can have a magnified impact on the hotel business, and the underlying drivers move far more quickly than those supporting increases in rooms capacity.

Projects already in the works in 2008 left the industry with more supply than it needed in 2009 and 2010, and demand for rooms, according to travel industry research firm PhoCusWright, isn’t expected to return to 2007 levels until next year. This means that net growth won’t begin until 2008.

Think about it: plans that may have begun to be executed in 2007 won’t deliver results for at least four years, maybe even five.

Managing supply and demand in the travel industry is, to say the least, a tricky business. Traveler purse strings are starting to ease, making life much rosier for airline and hotel company income statements. Taking advantage of this opportunity, however, is easier in theory than in practice. This year and next, we’ll see how the hotels and air carriers manage the perils of potential.

[photo by disparkys via Flickr]

Airline profits may mean more elbow room for a little while

by Tom Johansmeyer on

The airline industry wants to thank you. Last year, it was mired in despair. The post-financial crisis recession left the carriers beleaguered and desperate for a turn of fortune. Corporate and leisure travel had fallen precipitously, and doubling down on extra fees, though prudent for profits, alienated both those considering a flight and the passengers with little choice but to hit the road. The brutality of 2009 was evident, and it seemed as though all there was for 2010 was the hope for something better.

Well, hope paid off.

Three quarters into this year, money is again beginning to flow, as a result of (finally) climbing fares, additional fees and an increase in passenger traffic. United Continental, Southwest and JetBlue have reported strong profits for the third quarter using a variety of tactics, but an increase in sales and higher prices appear to be the universal driver. And, this may translate to a bit more elbow room for you.
According to the Associated Press, airlines are beginning to bring back some of the routes they cut last year, as indicated by decisions at Delta and American Airlines to hire more flight attendants. The challenge, however, will be to increase capacity (and thus headcount) without imperiling this year’ hard-won profits.

The business of satisfying pent-up demand isn’t easy for the airline sector. After all, capacity can’t be added one seat at a time. Restoring a route to handle more passengers comes with it the obligation to fill the plane (to the extent possible) each time, in accordance with revenue per available seat mile (RASM) targets.

Nonetheless, the carriers seem ready to rise to the challenge. JetBlue is amping up fourth quarter capacity by up to 10 percent, with Delta looking at an increase of 5 percent to 10 percent. This follows even faster growth in September, according to the Associated Press:

Still, most of the airlines saw traffic rise even faster than capacity in September suggesting they have enough business to support the additional flights. The only exception was Delta, which added capacity slightly faster than traffic rose.

The moves come in anticipation of a strong 2011, according to Ray Neidl, an analyst for Maxim Group. He tells the associated press that the growth in capacity “is a little more long-term,” adding that “[d]espite the lackluster economy, it’s going to be a big year for airlines, especially as consolidation kicks in.”

So, what does this mean for the flying public?

Well, you may not have to occupy that middle seat for a little while, and the odds that someone else will be in it may be improving. The increase in capacity necessarily precedes an increase in sufficient demand to make it profitable, so enjoy it while you can! If the airlines can’t fill those new seats, a return to austerity could send you back to sharing an armrest.

[photo by Joe Shlabotnik via Flickr]

ExpressJet pilot refuses body scan, puts privacy over safety?

by Tom Johansmeyer on

ExpressJet Airlines pilot Michael Roberts wasn’t at all interested in getting a body scan, and now he’s wondering how long he’ll have his job.

Roberts was selected to be scanned at Memphis International Airport last Friday. He refused. He was offered a pat-down. He refused that, too. Then, he went home, according to an Associated Press report.

The pilot says he doesn’t want to be “harassed or molested without cause.” Meanwhile, the TSA is citing “federal security procedures,” the Associated Press reports.

How do you feel about this? Is Roberts some kind of obstinate nut? Or, does he have a real point about privacy in the workplace? Drop a comment below, and let us know.

[photo by quinn.anya via Flickr]

Airline fees never going away, $1.2 billion in first half

by Tom Johansmeyer on

In the first six months of 2010, U.S. airlines raked in $1.2 billion – and that’s just from change and cancellation fees. The industry is on track to see $2 billion in revenue just on ticket-related fees this year.

According to the Bureau of Transportation Statistics, here’s where the money’s going:

  1. Delta had the most at $347.1 million in the first half of 2010
  2. American Airlines was a distant second at $235.3 million in ticket related change fees
  3. United Airlines pulled in $158.3 million
  4. US Airways generated $128.3 million from ticket fees
  5. Continental Airlines picked up $120 million

JetBlue didn’t hit the top five (finishing sixth), but it did lead the low-cost category in change and cancellation fees, with $55.7 million.

[photo by cliff1066 via Flickr]