High Airline Fees and Lacking Customer Service- What’s Going On? by Kane Minks

by Kane Minks

Airlines should be doing everything in their power to better serve their customers in these turbulent economic times. Many air carriers have not. Extra fees and charges are disliked by passengers, but are increasing as a way for traditional air carriers to counter low-cost airlines and rising costs.  Low-cost carriers are competing on cost leadership and traditional carriers are trying new ways to differentiate their services from their competitors to attract business.

Sky Jet Kane MinksLow-cost air carriers typically operate no-frills flights at a price point comfortable to the masses. To differentiate from low-cost air carriers, traditional carriers offer products and services not typically offered by discount carriers.  Increased leg-room, First and Business classes, premium in-flight entertainment, internet, first-rate food and beverage selections, clubs, and more can cost traditional carriers and their passengers more. Many of the added fees and upgrades are “options” passengers have to make their travel experience superior to flying with a low-cost airline.

This is not to say low-cost airlines do not have additional fees, and do not offer added products and services. Traditional carriers have to strategically do what low-cost carriers are not doing, which is usually a product and service that increases costs, but provides an overall flight experience unmatched, to some extent, by low-cost carriers.

According to the August 2012 U.S. Department of Transportation (DOT) Air Travel Consumer Report, overall passenger complaints have increased from 1,128 complaints in 2011 to 1,653 complaints in 2012. This is a considerable jump of nearly 47% in only one year. Specifically, customer service complaints alone doubled, from 142 in 2011 to 284 in 2012.  This should be a clear indication airlines may not be paying enough attention to passengers.

To break it down even further, low-cost and traditional carriers differ greatly in customer satisfaction.  The 2012 J.D. Power and Associates North America Airline Study results show low-cost carriers rate higher in customer satisfaction than traditional carriers. Traditional carriers averaged 647 on a 1,000 point scale versus an average low-cost carrier score of 754.  Low-cost carriers averaged 14% higher.

From these studies, traditional airlines are not just battling low-cost carrier prices, but also their customer satisfaction. Traditional carriers should, theoretically, excel in customer satisfaction. They supposedly offer some of the highest quality products and services as a competitive edge, yet they rank lower than discount airlines. Many low-cost carriers have excelled not only in customer service, but also in low prices- this has proven a winning low-cost combination for years.

When airlines should be vying for every competitive edge available, it seems some airlines may be overlooking good old-fashioned customer service and satisfaction. No matter how an airline operates, there is no reason customer service should be thrown over a cliff. It is an absolutely essential strategic component in any business today. Many businesses only have one chance per customer to do customer service right. Opportunity lost can be more costly than the price of a great customer experience. Traditional airlines have a real opportunity to improve for the benefit of their customers and their own bottom-lines.

Kane Minks

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Spirit Airlines hit with lawsuit over fees – Business – MiamiHerald.com by Kane Minks

English: Spirit Airlines N587NK (an A321-231) ... Kane Minks

Spirit Airlines hit with lawsuit over fees – Business – MiamiHerald.com.

Kane Minks

Interesting story. Spirit is an Ultra Low Cost Carrier that makes their profits from exorbitant fees. The only thing included in their basic ticket price is the seat and the ability to carry on one personal item (like a purse or backpack). Everything else incurs a fee. This lawsuit is in reference to a certain fee they have been charging their customers for years. Their passengers love to hate them for their fare structure, but in the end they always come back. They simply offer the cheapest fares to some of the most popular destinations in the U.S., Central America, and South America. A Spirit Airlines Case Study will follow shortly……

 

Kane Minks

Airline Industry in a Quandary Over Fuel Surcharges and the Search for More Efficient Planes by Kane Minks

Aircraft leaves a contrail in sky. Kane Minks

by Kane Minks

The airline industry has been adding fuel surcharges to the tickets of passengers for some years, and increasing them as fuel costs jump. Yet, there have been no reduction in charges since 2009 despite decreases in fuel costs.

A study by Carlson Wagonlit Travel found these facts and more, demonstrating that the airline industry has been profiting off their customers through unreasonable fuel surcharge fees. The study found that fuel surcharges have risen 53 percent since 2011, a stark contrast to the 24 percent increase in airline fuel costs in the same study time frame. Clearly the airlines are using the fuel fees as a way to increase profits. They may find it more difficult to justify the exorbitant charges going forward.

A new law requires all airlines based in the U.S. advertise the full fare, which includes all of the components that make up the ticket price. The fuel surcharges must be disclosed, making it more difficult for airlines to justify the exorbitant charges. The new transparency rules may turn passengers off to the idea of taking vacations that require air travel.

Airlines are using hidden fuel fees as a way to stay competitive in tighter markets, and lowering fares in order to lure in more passengers. However, the fuel fees can make up to half of a ticket price for international flights, which may lead to a reduction in the amount of passengers for those flights.

The airline industry is also facing pressure in areas related to the use of jet fuel in the form of carbon taxes from the European Union. The European Union is requiring all flights taking off or landing in Europe pay for carbon dioxide (CO2) generated by aircraft. The program begins next year, and initially provides 85 percent of the cost of required permits for free. The rest can be traded off with less polluting airliners. Countries around the world are balking at the requirement by the EU, and the issue is still not settled. It’s a sure bet the extra charges are going to be passed onto passengers.

Volatility in the cost of fuel and threats of carbon taxes is causing the airline industry to purchase new, more fuel efficient planes. The goal is to reduce the amount of inefficient, older planes that are in the current fleets, and move to planes that get better fuel mileage. Some of the redesigns are expected to get anywhere between 13 to 15 percent improvement in efficiency, reducing the amount of fuel used.

The current state of the airline industry is a tenuous one; especially with the cost of fuel cutting sharply into already low profit margins. The amount of flights initiated around the world is increasing on an annual basis, but it only takes a small action to dramatically affect success and passenger satisfaction.

Article By: Kane Minks

Airline Regulation or Deregulation…the Great Debate?! A Quick Good, Bad, and Ugly by Kane Minks

A Boeing 747 of Pan Am at Zurich Airport regulation Kane Minksby Kane Minks

Regulated or not, the airline industry has many intense and relentless pressures always bearing down on it.  Deregulation was a success by many calculations, including increased efficiency, lower prices, and increased service.  The evolution of the airline industry is what some experts point to as the best proof of why deregulation, for all its troubles, ultimately is better than a regulated environment.  While more regulation may have increased stability to an extent, the industry would have never grown as much as it did if the tight regulations of the past remained.

Back before 1978, the CAB had control (to a large extent) of the winners and the losers, as far as who could compete and how they competed.  After deregulation, just as in any other free-market industry or company, winners and losers are based on the decisions they make and how they run their businesses.  The airline industry and airlines figure themselves out based on what customers demand and what customers are willing to pay for.  Despite the era of airline deregulation, the U.S. federal government still regulates safety and the air traffic control system, and steps in whenever either seems threatened.

Further Reading: Did ending regulation help fliers?

Kane Minks

The Foundation of Low-Cost Air Carrier Price Structures prior to Airline Deregulation in the United States by Kane Minks

by Kane Minks

The U.S airline industry has come a long way from the days of government regulation and oversight.  In the November 1964 Air Transport World article “Let’s not give the store away!” many of the top minds in aviation at that time shared ideas and viewpoints on what the future may hold for aviation.  They may have speculated, but really had no idea what was to come.

Before U.S. airline deregulation, those in the aviation world continued to wonder what might become of their ever-changing industry, in the age of airline regulation.  Many domestic and international airline fare structure strategies were considered, including the implications of price elasticity.  The thought of overzealous marketers moving toward low-cost structures had many in the U.S. fearing the industry would head in the wrong direction.

The domestic and international markets were headed in two totally different directions.  The low-cost fares of the international airline market made sense since these fares provided greater load factor by increasing passenger volume.  At the same time, the U.S. domestic market was not yet convinced since they could not find the optimal point of price elasticity; whether or not fares should be increased or lowered and the point where passenger traffic would be reduced.

Many airlines grew frustrated with dull and unproductive fare structures in a regulated environment.  Low-cost and special advanced fares seemed to be the rational direction for airlines.  Passengers may have been paying different fares, but airlines could expand the market to price-sensitive passengers and others not flying.

The fears of discounted fares were largely based on what happened after the U.S. World Wars in the electronic housewares industry.  Americans were war-weary and found a new ability to buy.  There was a huge demand for goods.  Companies sought to beat out competitors by expanding production.  Supply outgrew demand and sales began to drop.  Conventional and discount retailers alike began to suffer.  Price wars erupted to capture as much of the remaining demand as possible, which slashed company profits.  Similarly, airlines had an over-supply of seats to fill, but adjusting fare structures set to reshape the airline industry for good.

The low cost fares and price wars of today are making flying increasingly accessible to people around the world.  Airlines that cannot afford to wage price-wars have to find new and unique ways of attracting business.  Customer-service, incentives, technology, and the overall travel experience are ways some airlines are gaining steam to retake market share from low-cost airlines. Some of these strategies have proven successful in regaining market shares.  Many things will continue to change.  The highly dynamic world of aviation around the globe will further shift and evolve as new strategies and factors appear. What the future holds for airline price structures may rely more on fees and less on volume.  Only time will tell.

delta dc aircraft regulation structures Kane Minks

Delta DC-6

A retrospective from Air Transport World’s “Let’s not give the store away!” November 1964

Kane Minks