When it comes to Customer Satisfaction and Profitability, the Airline Industry is to be found at the bottom of the log when industries are ranked.
Profitability-wise, the industry’s struggle is illustrated by its returns on capital being 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 airline 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 relative to other industries.
From the perspective of Customer Satisfaction, the latest authoritative American Consumer Satisfaction Index (ACSI) statistics indicate that the Airline Industry again ranks 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 airline business’ profitability challenge is well understood and has been explained from an industry structure perspective whereby all the stakeholders in the value chain make bigger profits relative to airlines. The dismal score in customer satisfaction is however a surprise occurrence considering 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.
The Great Achievements Airlines Score Daily
Profitability and Customer Satisfaction aside, there are feats the airline industry achieves on a daily basis that are almost unimaginable. 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 in a car. 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; both 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 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.
The Puzzling Paradox
So with all of the feats discussed above, why does the airline industry struggle so significantly to meet the “satisfaction” needs of the passengers they fly safely all over the world? We will attempt to answer this question by focusing our analysis on two areas; The Anatomy of the Airline Customers’ Complaints and The industry’s Management Orientation.
Deep analysis of the Customer Complaints characterizing the industry will help us identify the areas where the industry falls short. Solutions can therefrom be prescribed. We will also examine the Industry’s Management Orientation and our focus during this analysis will chiefly be on the Marketing Function and the Chief Commercial Officer role. This focus on marketing is driven by the fact that marketing is directly responsible for Customer Satisfaction in any business setting.
Where do Airlines Fall Short in Customers’ View?
A review of the problem areas pointed out by customers in their evaluation of airlines at the Airline Quality website (www.airlinequality.com) reveals a common thread; a thread that cuts across the customer service failings of the industry and accounts for nearly two thirds of all the industry issues. Product Design and Service Execution is the industry’s number one issue.
The following are the top four areas where airlines fall short as pointed out by customers
- Inappropriate / Poor Quality Catering
- Poor Service by In-flight Attendants
- Inappropriate Leg Room or Seat / Cabin Comfort
- Inappropriate / Poor Quality In-flight Entertainment
The origin of all of the top failings listed above can be traced to Product Design. In fact 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 appears to be the byproduct of the industry’s focus on Cost and Resource Efficiency as the key drivers of airline business profitability. The goal it appears is to attain profitability by creating as practical a product as may be possible at the lowest cost possible and then passing on the cost savings to the end customers in the form of lower pricing (in the interest of being competitive) which in turn will stimulate volume leading to higher revenues. The downside of this approach however is its singular focus on cost and price reduction at the expense of consideration for customer needs. The resulting product ends up functional and fairly priced but out of touch with the needs of the people it is intended for; the customers.
A Look at Airlines Management Orientation
As an industry besieged with business model complexities and significant performance challenges, it is no suprise that that concepts (and to some extent fads!) such as Operational Efficiency, Rationalization, Turnaround Management, Consolidation, Productivity Improvement and Customer Resource Management (CRM) have characterized the industry’s management paradigm over the recent decades.
With the exception of CRM, the common ground for all these concepts (and maybe fads) is the fact that they all tend to look inwards from the airline’s perspective. They are efforts geared towards improving the operational and economic performance of airline chiefly by focusing on the operations of the internal environment. These initiatives really have no direct focus on helping the system to achieve an improved position for other stakeholders such as the industry’s end customers.
Moreover, from a product point of view, the focus of these initiatives seems to be to lower costs while retaining the product’s functional performance “as is”. No consideration is given to improving the product to better meet customers’ needs and market opportunities.
Could it be that the airline business’ complexity and its operational, safety and economic challenges are so great that they have effectively preoccuppied the industry’s management practice and left no spare capacity for the pursuit of other facets of management such as marketing? In my view, a market oriented business philosophy is what the industry needs if it is to improve its customer satisfaction rating.
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 Failures and Management Orientation towards Internal Focus, 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 undisputable from the preceding observations however 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 as such, it is critical that airlines have market orientation as a significant success element in their business philosophies and strategies.
Whose Responsibility is it to Fix the Problem?
Ultimately, the solution to the airline industry’s customer satisfaction challenge can be defined in terms of the need to fix the Product Design and Business Philosophy flaws. The desire to fix these shortcomings has seen the industry pursue internally focused strategies when focus should be on the external market. The fact that focus should be on the external market puts responsibility onto the shoulders of the Marketing function and the Chief Commercial Officer function where it reports.
On the road to the desired end, the Chief Commercial Officer must play his/her role in shaping the airline’s business philosophy to embody customer value creation as the core success element. The product must be designed with customer needs in mind and must be packed with value that is capable of sustaining profitability when extracted back from the market by the airline. In my view the formula looks something like this;
- Get it right on Network and Schedule: Here in lies the fundamental value potential. Focus should be on issues such as Total Market Value on Offer, Product QSI and potential Market Share, Aircraft Economics, Schedule Integrity etc.
- Get it right on Physical/Hard Aspects of the Product: Areas of focus include Seat Comfort, Leg Room, Cabin Configuration, etc
- Get it right with Soft Aspects of the Product e.g. Service OnGround and On-board
- Get it right in Marketing and Sales: The sales and marketing philosophy must be value driven, i.e it should be centered on extracting from the market the maximum value possible for the product; the value that was intentionally packed into the product at the design stage.
In my view, the keys to resolving the industry’s customer service issue are in the hands of the Chief Commercial Officers in the industry. They must play the roles required of them to help 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 product would remain as problematic as it has been and needless to say, there would be no end in sight for the customer satisfaction problem that has plagued the industry in the recent decades.