Profits Ain’t Peanuts (Part Two: Nuts for Business)

Let’s Talk Business

Business travellers are core customers to all airlines.  While they are also affected by changing economic conditions, they are far more resilient than tourist traffic.  New technologies and changing workplaces aside, face to face meetings are still more effective than video conferences.  You can separate business travellers into entrepreneurs who pay their own tickets, those who work for companies with closely monitored travel budgets, and those who travel on other people’s money with few restrictions.  This divide has defined the variety of services for all airlines.

Low-Cost Carriers have always been an attractive flight option for budget-conscious business travellers.

From their inception, Southwest Airlines attracted savvy business travellers who either have limited travel budgets or simply don’t see the point in spending a great deal of money on a short-haul flight.  Other Low-Cost Carriers who followed Southwest’s tailwinds have attracted this same customer base.  Business travellers constitute a significant part of the customer mix for all Low-Cost Carriers, and that is at the heart of the changes we see in the Low-Cost Carrier model today.

The major airlines have long made efforts to attract and retain that desirable business travel base by lowering some of their ticket prices, and by pulling rabbits out of their collective hats to keep business travellers loyal.

Frequent-Flyer programs revolutionised the travel industry and they are an important source of revenue for airlines. 

Because of their prevalence, however, they do little to differentiate one airline from another.  Major carriers have stretched the limitations of this service by combining their frequent flyer programs under the umbrella of their collaborative network.  The proliferation of these loyalty programs, increasing competition, and rising customer expectations, have meant that airlines need to do more than give miles away to attract customers.

In fact, a recent article entitled Lifetime loyalty loses luster which Seth Miller (who blogs as the Wandering Aramean) wrote for the Runway Girl Network, indicates that passengers find waning value in loyalty programs; especially as airlines become more sophisticated at issuing rewards based on revenue-miles, not miles alone.  He points out that while there are still some benefits from such programs especially for business travellers, the cost of remaining loyal to one airline may not always be the best use of the travel dollar.  You can hear him say it in his own words by listening to his interview on the Runway Girl Network’s weekly #PaxEx Podcast.

This is in line with passenger comments I’ve seen on the LinkedIn Group Jet: The Business Travel Network, Powered by Capital One.  There are a great number of interesting discussions in that group, and anyone interested can join.  I find there is a lot to learn from these frequent travellers who express their likes and dislikes with little hesitation.

Some of the conversations deal specifically with loyalty programs, ranging from a particular airline to other travel-services such as memberships with major hotel chains.  Over the past month, there has been some commentary which reveals how invested passengers are in these programs, and how disenchanted some passengers have become.

Particularly problematic to the long-term success of loyalty programs is a sudden shift in benefits, as has recently occurred with the American Airlines and USAirways merger.

The merger of these two airlines, who were each part of competing alliances, has created a challenge for the loyalty programs of both airlines; leaving member passengers confused and distressed.  The Ultramar travel blog explains the implications for passengers of this merger, particularly in terms of shifts in loyalty benefits.  Reading the whole of this article leaves you a bit dizzy, as the ripple-effect for loyalty programs throughout the former partner airline networks are considerable.  In this article Ultramar quotes USAirways:

“Currently, we won’t match elite status levels between the two programs. Beginning in early January 2014, Dividend Miles Preferred members will receive select benefits when traveling on American and vice versa. Decisions about elite status under a combined program have yet to be made, but we’ll keep you updated and will provide plenty of notice for any decisions that impact our members.”

For passengers on either network, loyal to any of the partner airlines around the world, this merger represents a major disruption to what they have grown to expect from their membership.  Consider that hotel memberships and credit card based loyalty programs also cross-pollinate with airline programs (something the airlines promoted from the beginning when American Airlines introduced AAdvantage).  Suddenly, what were useful miles reaped from a variety of sources yesterday, may not prove to be as useful after March 30th when USAirways officially leaves Star Alliance and joins OneWorld.

This merger has had so much impact to our industry (not just to loyalty programs) that I’ll dedicate a separate post on that topic to be published in January.

I’ll say this much for now: airlines may not be able to count on loyalty programs alone in order to retain their clients.  I think the model is maturing; not becoming irrelevant but rather evolving.  It will require greater level of support from other functional and service elements of the airline’s operations to yield results in customer satisfaction, retention, and actual loyalty.  Actual loyalty defined as passengers flying an airline for no other reason than they like it far better than others, irrespective of the fare.

To succeed, airlines must continue to innovate and ensure passengers continue to win.

What Matters Most?

While all passengers are important to airlines, the satisfaction of business travellers drive airline design trends and passenger experience innovations.  This is true of all carriers, Low-Cost or Legacy Airlines.

You could argue that all aircraft interiors changes are made to attract the various classes of business travellers, with tourist passengers benefiting by default.

Luxurious first-class offerings are intended as much to suit the needs of top-executives as they are to attract affluent tourists.  More comfortable and “smart” economy seating, which includes features like chargers for electronic devices, are also economy business-traveller focused.  Award-winning aircraft lounges are heavily populated with business travellers needing an extra bit of comfort and somewhere pleasant to work between flights.

But what has been enough before is not enough today.  The workplace itself has changed, with many spending little time in their offices and work hours extending far beyond the hours spent at work.  Technology has made all of that possible and technology has evolved with great speed.

The battle in the air today (and for the time being) is for air-based data exchange.  Again, this is mostly focused on keeping busy business travellers happy.  I’ll be taking an in-depth look at those services in Part Three of this series Profits Ain’t Peanuts: Take a Byte, to be published this Friday, January 3rd.

The best response I’ve seen so far to What Matters Most, was a comment I received on the Jet Business Travel Network yesterday from a frequent flyer in response to my discussion on cabin comfort:

“The most comfortable seat isn’t going to help with the poor investment the major airlines are making in customer service.”

There is no substitute for service.

We’ll be talking seats in Part Four of this series Profits Ain’t Peanuts: Nutty Seating, to be published next Monday, January 6th.

ONE FINAL NOTE:

Say what you like; Ryanair gets a lot of slack for being the meanest, trimmest, roughest, scraggliest, in-your-faceyest, rabble-rousing, gun-slingers this side of Cork…  BUT while they haven’t tried to win any popularity contests (in any of the obvious ways) they are impressively popular as proven by their bottom line.  

I confess an admiration for Ryanair, and fondness.  They’ve taken-on the establishment, made their own grain, obtained entry into airports when no one wanted them there, and expanded their market reach impressively.

They were also a dear and loyal customer to me when I worked on the supplier side.  They may get people talking trash about their safety standards, but I know for a fact that safety matters to Ryanair.  It was Ryanair, of all the international airlines we worked with, who found a minor fault in one of our products and brought it to our attention so we could repair every unit out there, ensuring the safety of countless passengers.  They found it because they were performing routine safety training of their cabin safety staff, which Ryanair take very seriously.  They aren’t conventional, but they are professional.

Now that you ask, yes, I have flown them several times.  I have no complaints.  I received the product I paid for at a fair price with good service and arrived at my destination consistently pleased.  My experiences are my own, and I know others have had their own stories to share, but that is true of any airline experience.

So why do I give them special mention here?  No, they are not paying me to write this.  Though, as you mention it, I may send a copy to Michael O’Leary and see if he wants to send a penny my way.  (He’ll probably tell me to go boil some cabbage.)

It’s always good to look at what the best and the worst are doing.

Those who everyone agrees are leaders in world-class comfort, who enhance the passenger experience throughout, consistently raise the bar to improve our industry.

Those who have the bad-rep (as many LCCs have had and some LCCs still do) but continue to succeed year after year are doing plenty right.  It might not be clear just how they’re doing it.  They might approach the industry from a whole different angle, but in business profits speak louder than words.

Even Ryanair is ready to switch their focus back on the customer.  Recently, Ryanair announced a campaign to improve their customer service, soften their rough edges, offer passengers more benefits and services, and in short, be nicer.

Why?  Has Michael O’Leary had a sudden conversion?  Is this like that Christmas Carol thing?  No.

Ryanair wants your business.  Your business business.  Watch out.  They’ll likely get it.