Airline Fees: A Race to the Bottom

February 28, 2010

A recent NYT article touched on the issue of charging airline passengers fees for small components of the service experience.  How close are we to the world that a Southwest commercial famously parodied, where customers have to scrounge for quarters to open up the overhead bins?  Not far, it seems.  Airlines have an emotional hurdle to charging extra for carry-on bags, but virtually everything else is fair game.

The economics of this decision are understandable.  Airlines have been losing money on ticket prices, claiming that the prices the market will bear are not enough to cover their unyielding costs.  The revenue they get from fees drops almost directly to the bottom line.  Fees translate into “pure profit” because there is very little incremental cost in, say, sitting in an aisle seat.

But as airlines chase each other down the fees rabbit hole, customer goodwill is likely to follow.  Customers hate being nickled and dimed in-flight, particularly those who fly regularly.  So why do so many airlines think they’ll prevail by giving their best customers a reason to hate them?  It feels like an entire industry is throwing in the towel.

The game is over when service executives assume that customers don’t value the difference between good and bad service. When this happens, whole industries can get stuck in a competitive death spiral where they try to get a larger and larger piece of a fixed pie they share with their customers.  This is happening with airlines today, but it doesn’t have to be this way.  Competing on service can increase the size of the pie and make everyone better off (customers, employees and owners), even in low-margin businesses.

Why is it so difficult to make this leap?  Because differentiating, by definition, requires doing things differently.  Managers with things to lose (a career in a conservative culture) have powerful incentives to keep doing the same things only harder, to run faster than their competitors rather than create a whole new game.

Most airlines are not just running the same, tired race — they’re now asking their customers and employees to do the running for them.  That’s what the proliferation of fees represents.  Rather than delivering an exceptional experience or innovating on costs, airlines are designing elaborate schemes to charge customers extra without giving them anything in return.  And then they’re throwing their frontline employees out there to deal with customers’ angry response.  My advice is to reroute the creativity from fee schemes to service.  We’re getting close to the point where most airlines have nothing to lose from trying.


United Breaks Guitars

July 13, 2009

United Airlines baggage handlers broke Dave Carroll’s guitar.  Google United Airlines these days and two links dominate:  United’s official site and a video of a song Carroll wrote called, “United Breaks Guitars.”  The video has been watched over a million times.

Carroll reports that he actually witnessed the instrument’s demise, when fellow passengers on his United flight looked out their windows and yelled, “they’re throwing guitars out there.”  He then began a fruitless campaign of trying to get the airline to reimburse him, a nine-month ordeal captured in the video by a parade of apathetic employees.  United’s explanation?  As reported by the Chicago Tribune, Carroll had made a procedural misstep by not filing a claim within 24 hours.  There was nothing they could do. Sorry.  And so Carroll wrote a song.

There is no question that the video is a PR problem of the worst kind.  As a friend of mine said, “I’ve seen more press about this song than actual United ads.”  Bad service and United Airlines are now powerfully linked in the minds of consumers. But United’s bigger problem is lurking in the hundreds of comments posted everywhere this story is being told, from individual blogs to pillars of the mainstream media.  These comments make a compelling case that indifference towards customers is business as usual at United.

United spokespeople now say that they’re going to use the video to help the company improve its service, and my prediction is that these efforts will fail.  The company’s language is tentative.  If Carroll’s experience illustrates a systematic pattern of failing customers — and the anecdotal evidence suggests that it does — then United’s leadership will need to do something much bigger than launch a superficial service initiative.  They will need to find the courage to return to the blueprints of the business model and take responsibility for the fact that they created a system that reliably produces mediocrity.

Having no direct experience with United’s service design, here’s my guess as to what drove the behaviors that infuriated Carroll:

1. A United call center agent in India turned down Carroll’s request for making good on the damaged guitar.  The agent was selected and trained to comply with an increasingly complex set of procedures, and he was likely measured by his ability to follow these procedures precisely and efficiently.  Did he do a good job?  The policy clearly states that claims must be filed within 24 hours, and he likely had no authority to override them.  His performance is probably also measured by the number of calls he can handle in a day and perhaps even the number of calls he can handle without passing them off.  Now put this individual —  probably the lowest paid employee at United — in a situation where customers are justified in yelling at him all day long, and it’s not difficult to predict the outcome.  In fact, the agent did his job well as the system’s architects designed it.  He followed the rules and handled the call quickly, without bothering his manager.

2. What about the baggage handler seen throwing the guitar?  It is not difficult to imagine his crew being told earlier that day that plane turnaround time is the most important driver of the airline’s success, that times had been creeping up, and that low employee effort was at least partially to blame.  What’s a reasonable response to these messages?  Getting the luggage off the cart and onto the plane as quickly as possible.  This would almost certainly require throwing bags, particularly if the time guidelines made it all but impossible to meet the turnaround goals by respecting each piece of luggage.

3. And the front-line service team on the planes and in the airports, the ones who likely fielded Carroll’s original complaint?  These teams are also responsible for all-important turnaround times, which in their case requires managing an incredible range of customer variance, from disabled passengers to families with screaming children and excessive baggage.  They probably regretted the damage to the guitar, but their jobs were on the line in a climate of declining resources to manage the problems within their direct control.  They were probably eager to return to the urgent challenge of getting passengers to their destination with fewer planes and fewer colleagues, to say nothing of fewer tools  (lunch, anyone?) to reduce the growing discomfort of  air travel today.

My point here is that if you’re committed to changing a service experience, try to understand why reasonable, well-intentioned employees are behaving in existing ways.  Only then can you expose the underlying causes of the service failure.  Most change initiatives come up short because they start with Carroll’s basic premise — that employees aren’t trying hard enough or don’t care enough.  In these situations, managers often conclude that inspiration, brow-beating and tweaks to the incentive structure will shame or motivate employees to perform better.  But employees are rarely the problem.  The problem is usually the service model in which employees are operating, which has set them up to fail systematically.

United’s leaders must take responsibility for their central role in frustrating their customers.  This means redesigning the system so that employees can succeed on a regular basis.  If the company follows Carroll’s lead and blames employees for the problem, I suspect that little will change, except the rising level of customer dissatisfaction.  For those with less musical talent than Carroll, this will mean voting with their feet not their voices.  In the absence of accountability at the top, United’s customers will desert them.