Cost-Cutting Airlines – Headed for Trouble!

I’ve been flying major airlines for a long time, and like everyone else, I’ve noticed the changes – and not in a good way. The checked baggage fees. The snacks we don’t get anymore. Exorbitant fees to change an itinerary and seats that are way too cramped.

At one point, carriers said these changes were necessary to stay afloat amid skyrocketing fuel prices. But these days, there’s a different, and more troubling, reason that flying isn’t as pleasant as it used to be.

As the New York Times recently reported, “Rich bonus packages for top executives are now largely tied to short-term income targets and fatter profit margins instead of customer service.” At American Airlines, for example, incentive payments for top executives are now determined exclusively by income and cost savings. Five years ago, incentives were also tied to customer-related metrics like on-time arrivals, lost baggage claims and traveler complaints.

One reason for this, the Times reports, is that airlines and other industries are under pressure from Wall Street to return strong profits each year. Some expenses – like fuel prices – can’t be controlled, so executives try to slash costs elsewhere to deliver on profit expectations.

What this means, quite bluntly, is that airline top management has no reason to care about you or your customer experience, so long as you don’t impact the airline’s bottom line, credit rating or standing in the stock market.

What’s So Bad about Focusing on Profits?

The airlines are taking a completely retrograde approach that is going to hurt them in the long run.

As I’ve said many times, to build long-term value in a company, you MUST focus on the customer and deliver a positive customer experience. Of course, you also need to earn profits, otherwise you couldn’t keep operating. There is always going to be a certain amount of tension between these two goals, but that’s healthy and appropriate.

A profit-making perspective benefits the customer experience because it helps you target the things your customers want most and the initiatives that will give you the greatest value for the cost. Focusing on the customer helps you creatively cut costs in ways that won’t diminish the customer’s overall experience with your company.

The airlines, in my opinion, are headed for trouble because they are cutting costs without considering how their customers will be affected. When airlines chip away at benefits until passengers feel like cattle being herded onto a truck, they’re creating negative customer reactions like irritation, anxiety and anger. These emotions drive loyalty and long-term value much more than rational factors like price. When customers feel negative emotions around a product or service, they don’t want to come back, and the company suffers over the long term.

Employees Suffer Too

Cost cutting at the expense of everything else also sends a bad message to employees who are on the front lines of providing customer service. First, it increases their workload, forcing them to shove bags into overhead bins, collect payments for drinks and snacks, and print extra boarding passes. Secondly, when top management doesn’t care about the customer experience, it’s hard for front-facing employees to care either, or to feel appreciated when they do their job well.

If airlines continue to emphasize cost above all else, they’ll end up in the same trap as department stores like Macy’s. Big department stores have been dropping prices and slashing services to compete with discount brands, but they offer no reason for customers to be loyal to them. And they are struggling: Macy’s closed 68 stores earlier this year and JC Penney is closing 138!

It doesn’t have to be this way. You only need to look at Disney to see that a company can be large and profitable AND go out of its way to deliver a great customer experience. And in fairness, airlines do claim that they are going to focus more on customer satisfaction in the future. It will be interesting to see whether they mean it.

Where do you think this is headed? Will air travel feel more and more like a stripped-down budget service? Share your thoughts in the comments box below.

To learn more about providing positive memories for your customers at the same time as driving profit, read our new book The Intuitive Customer: 7 imperatives for moving your Customer Experience to the next level.

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Colin Shaw is the founder and CEO of Beyond Philosophy, one of the world’s leading Customer experience consultancy & training organizations. Colin is an international author of six bestselling books and an engaging keynote speaker.

Follow Colin Shaw on Twitter @ColinShaw_CX