According to research information available from reputable sources, the Airline Industry’s position would generally be at the bottom of the log if industries were to be ranked on the basis of profitability and Customer Satisfaction.
Profitability-wise, the industry’s struggle is illustrated by its returns on capital that are consistently below the cost of capital. According to IATA’s report titled “profitability and the air transport value chain” which was released in June 2013, the industry achieved a weighted average return on invested capital (ROIC) of 4.1% against a weighted average cost of capital (WACC) of 7-9%. The report also points out the fact that the airline industry has one of the lowest ROICs of all industries.
From the perspective of Customer Satisfaction, the latest authoritative American Consumer Satisfaction Index (ACSI) statistics indicate that the Airline Industry again ranks at the bottom in the industries list with a performance that betters only the Cable TV Industry. That the industry’s score is well below 70 on a 100 point scale is a clear indication of the magnitude of the problem.
The industry’s profitability challenge is well documented and has been explained from an industry structure perspective whereby all the stakeholders in the value chain make bigger profits compared to airlines. The dismal score in customer satisfaction is however a surprise occurrence. The surprise is on the basis of the fact that air travel is one of the leading symbols of the tremendous technological and scientific progress the world has gone through; progress that has so transformed the quality of life in the world we live in today. One would therefore expect air travel to be a pleasurable indulgence.
The Great Achievements Airlines Score Daily
Profitability and Customer Satisfaction aside, the airline industry achieves a number of nearly unimaginable feats on a daily basis. For instance, between 3 to 4 million passengers fly safely on nearly 100,000 flights worldwide every day! Moreover, the level of safety airline travel has attained is so great that it is today considered safer to fly than to drive. To illustrate the safety feat, Arnold Barnett, a professor of statistics at MIT asserts that in the last five years, the death risk for airline passengers in the United States has been one in 45 million flights! Put another way, this statistic means flying in the US has become so safe to the extent that one could take one flight every day for an average of 123,000 years before jumping on board a flight that will be involved in a fatal crash. That is just plain astonishing.
The chief instruments of today’s air travel, the jet airliners are in themselves very sophisticated machines. That a 650 tons behemoth can take off with several hundreds of souls on board and fly over 15,000 kilometers non-stop is no mean achievement from a scientific and design perspective. The flagship airliners of today’s jet age can fly high above bad weather; fly further and faster for convenience and are equipped with the technology and features that are intended to make flying as comfortable and as user friendly as may be possible for passengers. It is practically possible today for one to travel thousands of miles without experiencing any significant disruption to the daily flow of life.
Why would a Modern Sophisticated Industry Struggle to Satisfy Customer Needs
With all of the feats and technological advances discussed above, why would the airline industry struggle so significantly to satisfy the needs of her customers? We will attempt to answer this question by splitting our analysis into two streams. The first stream will delve into the Anatomy of the Airline Customers’ Complaints while the second will dissect the industry’s Management Orientation. The analysis of the Customer Complaints characterizing the industry will help us identify the areas where the industry falls short and therefrom enable us to prescribe solutions. The examination of the industry’s Management practice will focus on the Marketing function and the Chief Commercial Officer role since they are directly responsible for Customer Satisfaction.
Where do Airlines Fall Short in Customers View?
An analysis of the customer service challenges raised by customers in their evaluation of airlines at the Airline Quality website (www.airlinequality.com) reveals a common thread that cuts across and accounts for nearly two thirds of the industry’s customer service failings. This common thread is Product design.
The following are the top four areas where airlines fall short as raised by customers at the Airline Quality website;
- Inappropriate / Poor Quality Catering
- Poor Service by In-flight Attendants
- Inappropriate Leg Room or Seat / Cabin Comfort
- Inappropriate / Poor Quality In-flight Entertainment
All of the above service failings can be traced to product design. As previously mentioned, nearly two thirds of all the failings pointed out by customers at the Airline Quality website arise out of inappropriately or poorly designed product!
This product design problem looks to be the result of the industry’s productivity and efficiency improvement initiatives that are exerting so much pressure and pushing the industry out of balance in its efforts to create as practical a product (functionality wise) as may be possible at the lowest cost. The upside of these productivity and efficiency driven initiatives is that the resulting cost savings generate competitive advantage and also get passed on to customers in the form of lower pricing. Their downside is that the overwhelming focus on cost and price reduction push things off balance and the industry pays a price in the form of an end product which is fairly priced but which is of reduced functional quality and misaligned with respect to customer needs.
A Look at Airlines Management Orientation
As an industry besieged with business model complexities and significant performance challenges, it is only natural that concepts (and to some extent fads) such as Operational Efficiency, Rationalization, Turnaround Management, Consolidation, Productivity Improvement and Customer Resource Management (CRM) have been the buzz words that have characterized the industry’s management paradigm over the years.
With the exception of CRM, the common ground for all these concepts is the fact that they all look inwards. They are efforts geared towards improving operational and economic performance and they focus on the operations of the internal environment. These initiatives have no direct interest on helping the system to achieve an improved position for other stakeholders, the end customers included.
Moreover, from an “impact on product” point of view, such concepts normally aim at lowering costs while maintaining functional performance and product features as is. Product improvement so as to better meet customers’ needs and market opportunities are normally not be part of such initiatives.
The question to ask then is whether it could be that the airline industry’s internal complexities (such as its complicated business model along with its safety and economic demands) are so great that they can engage the full capacity of the industry’s management resource and effectively prevent it from being able to focus across the full spectrum as is required to pursue a balanced business philosophy; a philosophy that is market and customer oriented?
Is it a Case of Marketing Myopia?
In his widely acclaimed ‘Marketing Myopia’ article, Levitt (1960) suggested that businesses need to be market oriented rather than product centered. Based on our preceding observations on the industry’s product design shortcoming and inward-focused management orientation, could we safely conclude that the airline industry is guilty of marketing myopia?
Levitt’s judgment that business has to be viewed as a customer satisfying process endured for decades but has of late been challenged with a number of marketing literature pointing out its weaknesses and putting forward improvements to the concept. In ‘Balancing Internal and External Marketing’, Lings (1999) argues that the chief weakness in Levitt’s concept is its lack of an internal marketing dimension. According to Lings, a conceptual model which balances internal and external marketing orientations is necessary for today’s service markets where managers have to compete for scarce resources both in the internal and external markets.
What is indisputable from the preceding observations is the fact that a market oriented business philosophy is necessary for success in today’s competitive markets. The airline industry itself is characterized by stiff competition and this makes it critical that players desiring success in the industry adopt a well balanced philosophy that gives market orientation the commensurate consideration it deserves in their business strategy.
Whose Responsibility is it?
Ultimately, the solution to the airline industry’s customer satisfaction challenge can be defined as the need to fix the Product Design and Business Philosophy flaws. It is the business philosophy flaw which has seen the industry go off-balance, putting more weight on internally focus relative to external market focus. The same contributes to the product design flaw. The responsibility to fix this can be said to fall on the shoulders of the Strategy Function. The Strategy Function in turn would depend significantly on the inputs of the Marketing function and the Chief Commercial Officer role where it reports.
On the road to the desired end, the following deliverables should be targeted and realized;
- Business model reviewed with the aim to reduce the complexities associated with the traditional airline business model
- Any remaining complexities from 1 above are managed so that they don’t interfere with Product Design
- Lastly, balance must be struck between internal and external orientation in business philosophy.
The keys to resolving the industry’s customer satisfaction issue as well as the industry’s profitability challenge to a good extent lie in the hands of the Chief Marketing Officer role and the Chief Commercial Officer role where it reports. These senior officers have a significant part to play in helping the industry overcome the strong and negative influence that the complexity of the traditional airline business model has had on the industry’s product and business philosophy through the years. In the absence of their technical product knowledge and market oriented inputs, the industry’s business philosophy would remain overwhelmingly internally focused and the end product problematic and misaligned with customer needs.