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Business Journal

Skirmish in the Skies

Airlines are waging an intense war for customers, but they’re using the wrong weapons

by William J. McEwen

A recent article in USA Today highlights the ongoing struggle that pits the traditionally dominant major airlines against the now-powerful lower-fare carriers. It's no longer a competition simply for market share. For airlines such as United and American, it's a fight for survival.

The latest salvo in this battle has been fired with the arrival of JetBlue, AirTran, and America West. These carriers are scrappy, aggressive competitors for the nonstop coast-to-coast business that had previously been the sole -- and profitable -- province of the larger, sometimes called "legacy," airlines. The discounters haven't merely tiptoed into this fray. They've leapt into it, determined to carve out a large piece of the transcontinental market. The discounters now reportedly command about one-third of the long-haul passenger business in the corridors from New York to San Francisco or Los Angeles.

To meet the new competition, the big airlines have sharply cut their prices and increased the numbers of discounted and free seats offered to frequent fliers. In short, they are fighting price with price. The majors have gone toe-to-toe with the low-fare carriers, engaging in a transcontinental discount battle that, on average, has travelers spending 30% to 40% less for their flights than they did three years ago. Add to that a number of "fly two roundtrips, get a free ticket" promotions, and it's clear that the majors are determined to fight back with all their weapons.

Or are they?

The big airlines have added capacity, increasing the number of daily coast-to-coast flights. They are clearly driven to match or beat their new competition on every front, while seemingly ensuring that everyone loses money in what has become a Darwinian struggle. They have pulled out all the stops.

Or have they?

As previously reported in the Gallup Management Journal, scientists at The Gallup Organization have found, in two separate studies, that there is something considerably more important than flight schedule frequency and even more important than price -- not to suggest that these two factors are trivial. (See "The Power of the Fifth P," "The Constant Customer," and "Can United Soar Again?" in See Also.) To build enduring relationships with fliers, airlines must create an overall experience capable of consistently engaging their customers -- and not merely carrying them from Los Angeles to New York. Lowering prices and increasing the number of daily flights are not enough.

Creating or destroying relationships

What creates a truly engagement-enhancing customer experience? It's something more important than the color of the planes, the availability of free headsets, or the quality of the food (read: pretzels). Gallup's surveys of recent fliers indicated that flight attendants and ground staff were more than twice as important as on-time reliability -- and considerably more important than schedule convenience -- when it comes to creating a real connection with customers. What's more, the airlines' people are even more crucial to fliers than ticket prices, according to Gallup's research.

Why? Because an airline's people -- not parity offerings or price -- determine the nature of the customer experience. And an airline's people, in many cases, create a customer service experience that will enhance the customer relationship -- or destroy it.

In a review of the performance of some of the major and discount carriers, as well as the new discount versions that some major carriers have launched (for example, United's "Ted" and Delta's "Song"), Los Angeles Times travel reporter Jane Engel highlighted what all carriers, whether large or small, must bear in mind. "I hope the airlines are listening to customers," Engel says. "Flying, after all, was once fun. As Song and JetBlue prove, it still can be, even when done on the cheap."

What matters to a travel writer also matters to the many thousands who climb aboard the planes to settle (or squeeze) into their seats. In the words of one low-fare airline customer quoted in Engel's review, "I like the people . . . It makes a huge difference."

It's been widely reported that frequent fliers are now much more price sensitive. If that's indeed the case, the major carriers have only themselves to blame. That's because, in their efforts to compete against low-price alternatives, they've largely abandoned any attempt to meaningfully differentiate their offerings based on quality of personal service.

Although price reductions may be necessary to put you in the game, they're not what wins it. The only reason that price has taken on increased importance is because other, more important, customer service dimensions have been minimized. Price becomes crucial when other differences disappear. That's a characteristic of commodities, where all options are essentially interchangeable.

Interestingly, the airlines that appear to be winning the battle in the skies are the ones that have recognized that a low price is only the beginning. JetBlue has seen its revenue miles jump 42% in one year, not because it has cheap fares but because it accompanies those low fares with a promise of more legroom ("not a bad seat in the house"), leather seats, and DIRECTV. In the words of JetBlue's CEO, the carrier aims to "bring humanity back to air travel." And the key to returning "humanity" to air travel is, as Southwest has been quick to affirm, customer service "delivered with a sense of warmth, friendliness, individual pride, and company spirit." Southwest, once a quirky upstart, has now become the fourth-largest airline in America, and its revenues continue to grow.

The legacy carriers have chosen to focus on price, not because it matters most, but because they acknowledge that they can't win on service. And that's a shame. They are fighting this battle without their most important weapons, simply because they've forgotten how to use them.
William J. McEwen, Ph.D., is the author of Married to the Brand.

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