No wonder airlines are in trouble. As I write this, Southwest Airlines is offering another big sale - fly round trip anywhere in the Continental U.S. for under $200. That's a ridiculously low price. In fact, it is less than the cost of a coast-to-coast round trip ticket was almost forty years ago!
Today, airlines seem to spend most of their time complaining about the fact that they're losing money. But none of them seems to be doing anything about it. The airline deregulation of the 1980s gave them the freedom to get creative in the pricing and packaging of services offered. Instead, like a bunch of lemmings, all of them began cutting prices. This escalated into a full-scale price war. Then, as their profit margins shrank, airlines responded by cutting services - cramming more seats into each airliner and cutting passenger legroom, cutting back on meals and other services, putting fewer flight attendants on planes, etc.
UAL, the parent company of United, reorganized, offering employees a 'piece of the action' through an employee stock program. It seems to have backfired on them - producing nothing but more frequent strikes and surly flight attendants. All to the detriment of their customers - the paying passengers. Then United went bankrupt. Was anyone surprised?
Forty years ago, everyone I knew loved to fly. It was a fun adventure. Drinks were generous, meals were good and the flight attendants helped make everyone happy. (One cross-country flight actually had a piano on board with a keyboardist-in-residence.)
Today, everyone I know hates to fly. It's a stripped-down, unpleasant experience.
A recent lengthy flight on United Airlines featured a First Class dinner offering of a cold turkey sandwich served by a grouchy, uncaring flight attendant. Kind of makes the word 'attendant' an oxymoron, doesn't it? (Based on the reception I received when I asked for a refill of my wine glass, you'd think I asked her to crawl out on the wing and bring back a carafe of hydraulic fluid. And a handful of CherryMax rivets.) It was the final straw, topping off a series of ghastly experiences with this once-great carrier. We no longer fly The Friendly (sic) Skies.
This is no way to run a business. But, the mistakes made by the airlines can be offered as examples of What Not To Do in your own business:
1. Don't get in a price war with competitors. No one wins. If just a few of the airlines had responded to the first round of price-cutting by increasing their services and holding or increasing prices, the industry would be in better shape today. The hotel/motel industry offers a wide range of prices (and amenities) to appeal to distinct market segments - from the $49.99 per night Red Roof Inn/Motel Six segment to the $499.99 per night Four Seasons.
2. If declining margins are a fact of life in your industry, find a more profitable segment or get out. Once again, the hotel/motel and rental car business provide good examples. In major U.S. cities, there are rental car firms that only rent luxury cars. At luxury prices. These firms have given up on playing the apparently-unprofitable $19.95-a-day game. They've exited the low-end of the market and are concentrating on upper-end business, which, presumably, is more profitable.
3. If you cut your services to improve margins, your service-oriented customers will leave and you'll be left with a bunch of customers who only buy on price. And these are the worst kind of customers to have - a bunch of cheapskates with no sense of loyalty. They'll leave the moment a competitor underprices you by a penny. And the idea of airlines charging $25 extra for a paper ticket (which every other business calls a 'receipt') seems to me to be the ultimate outrage from an industry which has lost its way.
Emphasizing service over price remains the best way to differentiate yourself from your competitors while preserving your profit margins.
Remember the old adage: Cut your prices; cut your service; (then, you might as well) cut your throat.
