Why the Airlines are doomed unless they adopt Value Added Service

For my final 2008 post, I wanted to do something fun.  And what is more fun than predicting the demise of an industry I don’t know that much about (except as a customer)?

I was reading Wendy Perrin‘s 2009 predictions in Conde Nast Traveler over the weekend, and the outlook isn’t good for airline passengers who value an excellent customer experience.  She discussed how the name of the game today–as anyone who has flown in the last year knows–is nickle and diming customers to death.  Most amenities have disappeared (like American adding back all those seats they removed a few years ago to give everyone in coach more room), and the few that remain you must pay for (pillows, blankets, food).

I’ve flown well over a million miles in the last decade, so I consider myself a savvy traveler.  I am a happy survivor of the tech boom, when money flowed like water, and everyone flew across the country for one hour meetings without a second thought.  Since that travel boom started in the 90s the airlines have competed on price not service, demand has continued to climb from leisure travelers taking advantage of low fares, and after a decade of this model, today’s flying experience is about on par with a cross country bus trip. If the airlines continue down this path, they are doomed.  Why?

• Business demand will disappear.  Short term: Road warriors I know are now avoiding trips when possible because the overall  airline experience and schedule reliability are so terrible.  You can’t treat your high-fare-paying business travelers like dirt for too long and expect them to keep coming back.  Longer term:  If you aren’t familiar with Cisco’s TelePresence, check it out.  Today’s technology for virtual meetings, once adopted, will eliminate the need for most face to face meetings, and today’s huge business travel market will evaporate.
• Prices will rise.  We’re seeing this already, with global energy shortages and corrupt energy policies driving up fuel costs. But as full-fare business travel slows, leisure rates will rise even more and suddenly flying the family to Disney for summer vacation isn’t an option.
• Consumer demand will wane.  As prices rise, leisure travelers will stop booking tickets.  And looking ahead, Generation Y has a very different attitude toward travel.  Not only do they think the carbon footprint of flying is excessive, but they are able to interact online with people all over the world via the Web and gaming–making travel seem less necessary.

For the industry to succeed long term, the airlines need to completely reinvent themselves, and I think they would be wise to take a page from the service and support industry, with particular emphasis on Value Added Services. For example:

• Compete on service.  What the high tech industry learned is that competing on product and price was hard in mature markets, but competing on service offered real differentiation.  For the airlines, after a decade of competing on price, today’s terrible flying experience isn’t even profitable. Wendy Perrin found out that most flights today lose money, even with cut services and add-on amenities.  Flying needs to be repositioned as affordable luxury, not a bus terminal.
• Fewer flights, higher quality. Tech companies learned that giving away support was a losing proposition.  The support delivered for free or low cost was lower in quality, and customers weren’t happy…and unhappy customers don’t repurchase.  Now, tech firms acknowledge the complexity of products and sell Value Added Services to help companies consume the technology.  You pay for the support you get, but the ownership experience is better as a result.  For the travel industry, a huge change needs to take place in the minds of the flying public.  The majority of travelers don’t have to travel, they are doing it to help close a deal, cement a relationship (business) or experience a new place or culture (leisure).  Flying needs to be branded as scarce and valuable–a quality thing you are willing to pay for.  In other words, flying should be part of the perfect travel experience, not some horrible ordeal you must endure in order to start and end a trip.  
• Deliver an exceptional experience.  This should be the easy part, but decades of deregulation, union shenanigans and a blind thirst for profits makes me wonder if the airline industry is even capable of delivering an exceptional experience. But let’s assume they are capable.  This was a hard shift for tech companies too.  After decades of selling products, they had to start selling solutions and services.  But they did it.  With focus on Net Promoter, customer satisfaction, customer feedback management, etc., SSPA member companies are exceeding customer expectations every day.  We know that happy customers recommend your products and services, and repurchase at a faster rate.  This is what the airline industry desperately needs to understand.

Our industry takes a lot of heat.  One laptop battery recall, or one offshored failure, and everyone tsks tsks about high tech.  But our industry understands innovation better than anyone.  I’d love to see what would happen if Steve Jobs ran American Airlines, or Larry Ellison ran GM.  They may have to kill a few thousand politicians, bureaucrats and union thugs, but in the end you would see some new amazing new products designed with customers in mind.  And services would be embedded.  And both companies would be profitable.

Thank you all for reading, and for your continued support.  Happy New Year!

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Tags: airlines, TelePresence, Value-Added Support, Wendy Perrin

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