Profiting from poor service is unsustainable

An article titled Some Absurd Airline Rules in the August 18, 2016 Wall Street Journal caught my attention. What stood out to me was that each of the six rules highlighted in the article increased airlines’ ancillary revenues at the expense of overall customer satisfaction.

North America’s airlines charged nearly $11B in a la carte fees in 2015 and this number is only projected to rise. Meanwhile, services that used to be provided in the ticket price are being withheld. And I’m not simply referring to baggage handling and meals. Most airlines now charge at least $25 to buy a ticket from an agent over the phone – even if customers feel they need help with reservations that can’t be found online.

With all that added revenue contributing to record profits, why should airlines bother to consider the effect on overall customer satisfaction?

I have two thoughts regarding this question, both of which can be attributed to Stephen Covey’s book, The 7 Habits of Highly Effective People. My first thought is that airlines, cable providers, banks, insurance carriers, and other companies that willfully subordinate customer service quality to profits are in violation of principles – natural laws that are timeless and self-evident – such as justice, fairness, integrity, honesty, service, quality, and excellence. Of the principles contained in his monumental movie, The Ten Commandments, Cecil B. deMille observed, “It is impossible for us to break the law. We can only break ourselves against the law.” Profits that are earned in violation of principles – natural laws – are unsustainable. (Think: Enron, Lehman Brothers, MF Global, Barings Bank, Martha Stewart, Leona Helmsley, Bernie Madoff…)

My second thought is rooted in Covey’s theory of Production (P)/Production Capability (PC) Balance. While the P/PC Balance theory may sound boring, it’s quite interesting – and quite true. Essentially, it’s the principle behind the popular Aesop’s fable of the goose and the golden eggs. As you may recall, the greedy farmer, in his attempt to achieve great wealth quickly, killed the goose (PC) that laid the golden eggs (P). Alas, there was no stockpile of golden eggs…only a dead goose.

Every business, including airlines, can take shortcuts to profitability at the expense of customer service quality and, as a result, perform better financially in the near term. Over time, however, companies that violate principles and exploit customers (PC) in their myopic pursuit of profits (P) learn, as did the greedy farmer, that this strategy is unsustainable.

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Illustration by Aaron McKissen.

Add value, not fees

crowded airportAccording to this article, all major U.S. carriers, aside from Continental and Southwest, have added a $10 surcharge to most of their fares for travel on three busy days around the Thanksgiving and New Year’s holidays: Nov. 29, the Sunday after Thanksgiving, as well as Jan. 2 and 3.

Rick Seaney, CEO of FareCompare.com, said the airlines likely added the charge because it was a quick, targeted way to charge more on peak travel days. The Sunday after Thanksgiving is one of the busiest travel days of the year, while the two dates in January are popular with holiday travelers as well.

So the airlines are charging passengers a $10 surcharge for the privilege of enduring congested airport traffic, fewer parking options, longer lines at the terminal and security, packed gates and airplanes, and the inevitable delayed flights and mishandled bags that result from seasonal volume.

Revenue-focused companies are really good at identifying and creatively labeling fees and surcharges and the asterisk keys on the keyboards of their legal departments are commonly worn from excessive use. If these companies would channel the same energy and ingenuity into customer satisfaction that they use to identify and apply extra fees and surcharges, they would more than recover the revenues gained from this irritating practice.

Customer-focused companies deal with seasonal spikes in business by adding value, not fees. When Disney is extra busy over the holidays or during spring break, it doesn’t charge its guests fees or surcharges to offset its increased costs. Instead Disney adds value by offering packages that bundle airfare, lodging, and theme park admissions. Disney also adds staff to minimize delays and provides additional entertainment by its characters to amuse children as they wait in line to enjoy another ride. That’s how a customer-focused company deals with volume—not by charging extra for it.

Anytime making money becomes more important than properly serving customers, the business ultimately suffers. When the bottom line drives a company, it will resort to added fees and surcharges while cutting back on service and quality in order to improve its near-term operating statement at the expense of long-term customer goodwill and loyalty.

There should be a litmus test for any such charge. If a board of directors would vote for it unanimously while a group of customers would oppose it unanimously, get rid of it. Instead, make your money the old fashioned way: Earn it by providing value to customers by delivering exceptional product and service quality that justifies the price you’re charging.