Airlines are on a roll. They have managed to get the Department of Justice (DOJ) and the Department of Transportation (DOT) to allow them to create a near monopoly — there has never been so little competition. Airfares have never been so hard to understand. Airfares have never been so hard to find. Airline extra fees have never been so many and so expensive. Airline seats have never been so packed together. Customer service has never been so abysmal. Airline meals have never been so few.
The key factor in the list of airline superlatives is the lack of competition and the airlines’ openly admitted practice of collusion when it comes to capacity discipline.
One airline, Southwest Airlines, has been bucking much of the above trend. Its reward, according to CNN Money, “The stock has soared 110 percent this year, making it the best performer in the S&P 500.”
Even before this year’s #1 performance, Southwest Airlines has managed to be the only airline to make an annual profit every year for its investors (and, I believe, every quarter except one).
[Southwest] managed to do so without loading up on passenger fees. “Bags Fly Free” is a mantra for Southwest.
Customer satisfaction: Even with the headaches of modern day air travel, Southwest seems to be getting something right. The airline ranked second only to JetBlue (JBLU) in an airline customer satisfaction survey earlier this year from the American Customer Satisfaction Index.
“The flying public seems to like the product,” said Dan Veru of Palisade Capital Management. “There’s a culture there that’s very customer centric. Some of the airlines you feel like they’re at war with the customer.”
The airline has a fanatical customer base. And, the airline doesn’t charge for carrying first and second checked bags nor for changing or canceling flights and it operates with an easily understood airfare system. Simply put — Southwest treats customers fairly.
This news about Southwest’s soaring stock price, its year-after-year profitability, its loyal customers, its lack of irritating extra fees, seems to fall on deaf ears at other US airlines. There, management that managed to lose billions of dollars with their approach to the airline business cheers efforts to add more ancillary fees and squeeze seats together in order to generate more profits.
In the same week that Southwest received an economic trophy as the best-performing stock in the S&P 500, JetBlue decides to follow the management path of airline losers by eliminating their first-checked-bag-flies-free policy, making their airfares more opaque and squeezing more seats into their new aircraft.
JetBlue also will add more seats to its Airbus A320 aircraft, with the retrofitting expected to begin in mid-2016, according to the airline. Once refitted with newer, slimmer seats, the capacity of those planes will jump to 165 from the current 150. The average “seat pitch” — a standard measure of distance between seats — will decline to about 33 inches, down from more than 34 inches currently.
It is astounding that with a stellar example to follow, JetBlue decides to follow the failed policies of American, Delta and United Airlines rather than sticking to its customer service guns and providing some additional customer service to win more customers.
Wall Street, according to the USA Today article is cheering. The stock “shares of the New York-based airline were up 55 cents, or 4.3 percent, to $13.27. They hit a 52-week high of $13.48 earlier in the session.”
What a short-sighted and anti-customer service vision. The JetBlue experience that has been winning customer support for years in the American Customer Satisfaction Index is now being degraded, seriously degraded, from the customer service and comfort standpoint. The first checked bag kept the overhead bins emptier and kept the cabin feeling larger. The extra room was noticed by JetBlue customers who appreciated the better service and were often willing to go out of their way to fly on JetBlue. These factors are not reflected in a Wall Street model that is focused on only the financial bottom line.
The airline industry has been a graveyard for airlines that ignored customers. Even the three remaining legacy airlines, that are currently squeezing more passengers into planes and squeezing more money out of each traveler, were founded on great customer service. They survived while their brethren did not.
Unfortunately, the airlines, with their near-monopoly position, are doubling down on punishing customers in their race to the bottom of customer service, rather than raising prices and investing in their customers. During the airlines’ long downturn, investment in customers was forgotten.
Now, when these airlines are raking in profits unimaginable only two years ago, they are not focused on reinvesting in customer service, but rather in maximizing profits, growing their dividends and pandering to Wall Street traders who ply the skies in first class cabins while drinking exotic wines and enjoying celebrity-chef-prepared meals.
New planes that offer better fuel efficiency are not being used as a means to improve the passenger experience but as a method to pad profits. Southwest Airlines, which has added more seats to its planes, has done so by reducing the size of the seat and changing the design, rather than by simply moving their seats closer together.
Plus, in order to keep passengers from being able to easily comparison shop for airline tickets, the airlines have focused on a regime of price obscurity. They have “unbundled” their airfares and added a litany of fees that seem to never end. Some airlines have even stooped so low that they are actively restricting the distribution of their prices to sites that offer comparison-shopping, such as Hipmunk, TripAdvisor, Skyscanner, Fly.com and a handful of others. These actions are taken with the clear intent to limit the passenger’s ability to compare airfares.
In TV interviews and in congressional hearings, airline CEOs and spokespeople claim that their pricing practices are fully transparent, while they fight every effort to force them to advertise complete prices and disclose their extra fees through lobbyists and in the courts.
I have heard that airlines have even suggested in discussions with Capitol Hill staffers that by lying to the public about the true price of airline tickets, they will be able to draw more travelers into flying and thus improve the aviation market. Even worse, our own elected representatives have in some cases attempted to pass laws that would overturn years of consumer-protection regulations against bait-and-switch pricing and drip pricing.
It is an amazing world we are living in. Rather than following the management practices and customer service standards of the leading airline in the country and the most successful stock in the entire S&P 500 — Southwest Airlines — the managers of other airlines are choosing to bet on airline management models that have failed over and over and produced bankruptcy after bankruptcy.
These airline models that put their customers last and their investors first cannot exist in an open and free market, as has been borne out over the past two decades of bankruptcy and consolidation. These airlines can only prosper when they restrict trade and collude, and when customers have neither choice nor the ability to properly comparison shop.
This new airline world is not healthy for consumers or our economy. And, in the longer run, it will not be maintainable by today’s American carriers as new competition enters the marketplace and DOT readjusts to the changing, deceptive and misleading airline world.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
