Lets assume you are a budding entrepreneur, and you decide to open a lemonade stand. You find a good recipe that people like, and you greet your customers with a smile and good service. And business is good. Perhaps because of global warming people are thirsty – but the fact is that you are busy. And soon competitors open lemonade stands too – but there is plenty of business for all of you. In fact, you are all so busy that you cannot keep up with demand. People are lined up to buy everyone’s lemonade, and it is difficult for all of you to serve everyone. You have more demand than capacity – and you don’t really want to expand capacity – so what do you do?
Well, business 101 would tell you to raise your prices. Determine the price elasticity of your product. What is the highest price you can charge while still selling the maximum amount of your product, while still maintaining the quality and customer service that has made your lemonade stand so popular?
Here is what you probably would not do unless you are insane or crave failure. Lower your prices until you were losing money on every glass of lemonade you sell. Your low prices bring in more money-losing business – and soon you have lines of dissatisfied, thirsty customers. You begin to scream at them to “shut up and quit complaining” about the long lines. Since you are losing money you change your recipe to lower costs and begin to use an inferior grade of lemonade mix that is manufactured in a Chinese factory with questionable hygienic practices. Instead of using good clean tap water to make your product, you make a deal with a local sewage treatment plant to buy “recycled water” at a discount. You implement a policy of charging customers separately for the cup that holds their lemonade. A few customers get sick, many complain about your business practices, but instead of improving your process and addressing the complaints you initially blame the terrorist attacks of 9/11 for your business issues (“I just haven’t been able to concentrate on making good lemonade since those pesky terrorists came here”, you lament.) After a few years when that excuse runs thin, you blame the high cost of lemonade mix. And then you go bankrupt.
OK – I realize running an airline is much more complicated than operating a lemonade stand, but they both do share the same business foundation; provide a good product at a price that allows you to make a profit while still in reach of your consumer, and offer customer service commensurate with your price and brand.
The last few weeks have been a tough time for many airlines. Many smaller operators have gone bankrupt. Several of the majors are bleeding money fast due to their lapsed maintenance policies. And the consumer continues to pay the price.
As a very frequent flyer (I hold Gold or Platinum status on five airlines, and have flown almost two million miles on Delta) I am perhaps not the most sympathetic one to the plight of the airlines. The last few years have been miserable for flyers on most airlines. Flights are packed. Service is terrible. The planes are often filthy and not properly maintained. Airlines charge extra for substandard food. And perhaps the worst aspect is the complete lack of customer service. Since 9/11 airlines have plied on our sympathy, and frequently used the disaster as an excuse for their poor management. Airline employees are often unabashed in their distaste for passengers and customer service.
Two weeks ago I witnessed three Continental employees joyfully abuse a passenger until she was in tears. They lied about laws governing airline travel, refused to offer any reasonable level of service, and when I threatened to report one of the employees she took off her badge and hid it in her pocket in an attempt to withhold her identity. When I later complained to Continental management, they offered a lame apology, but primarily offered inane excuses and quoted policy to avoid taking any responsibility. It was clear to me that their obvious antagonism for their customers came from the top down.
None of this has made any sense. With flights packed, how is it that airlines don’t make money? I don’t know of any other business that operates at capacity and still fails. Of course now they blame fuel costs. But why not raise rates to reflect higher costs?
Most airlines miss the basic opportunity of business. The very lowest price is not the only available market. Not all of us eat every meal at McDonalds or stay at the Super 8. Most frequent flyers would happily pay more for a better experience. I am a big fan of Alaska Airlines, and will happily pay more to fly their airline if the schedule even remotely works for me. I want a clean, roomy, well-maintained plane that lands on time, decent food, and my bags delivered in a timely fashion. I want good customer service that recognizes my rights as a passenger and a human being. I don’t really want to fly with a plane load of families heading to Disneyland that the airline is losing money on because they sold them tickets at 1/3rd what I paid.
Airlines have only themselves to blame for the price pressure they battle. And when most of them opt to lose money to stay full, it impacts the really good airlines that attempt to maintain a brand but get sucked into a price war. Perhaps these financial problems with the airlines will flush out some of the mediocrity, and make them operate smarter and with more regard for their customers.