Trouble in the Air

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The airline industry may adore the sensibility behind the old Sinatra tune "Come Fly With Me" -- but frequent flyers can be forgiven for finding the invitation a little hollow lately, if not downright bittersweet. On April 8, American Airlines announced the cancellation of more than a thousand out of its 2,300 daily flights due to inspection and rewiring on a range of MD-80 aircraft. Around the same time, a series of small-scale airlines (Aloha, ATA, SkyBus, and Skyway) suddenly shut down. As passengers scrambled to reschedule flights, alter vacation plans, and embrace extra time in stiff airport chairs, what were the airlines doing to maintain customer loyalty and restore customer service?

"Maybe there's no good solution, but there's got to be a better one," says Rick Seaney, chief executive officer of Farecompare.com, a consumer Web site for airline-ticket research. "It's about coming clean with consumers and saying, 'We are having troubles.' To some degree automation and technology can -- and should -- help them do this." Seaney points out that when chaos erupts due to federal regulations, high fuel costs, and internal airline politics, the passenger ends up bearing the brunt. In the case of the 250,000 passengers American Airlines left stranded in early April, it would be easy to assume that the company immediately alerted passengers about the scale and scope of the cancellations, but surprisingly, on April 9, the American Airlines Web site had not been updated with news of the cancellations. Seaney refers to this CRM response as being "tone-deaf."

Even before the chaos of bankruptcy, shutdowns, and cancellations in the spring, customer service ratings for the airline industry were lower than they'd been in two decades. Brand loyalty also remains low, with only 29 percent of leisure travelers and 37 percent of business travelers claiming they're loyal to any single airline brand. And the people are talking: The number of consumer complaints went up 60 percent last year.

One factor isn't likely to lose altitude any time soon: the price of jet fuel. Customers can expect airlines to blame exorbitant fuel costs for vanishing creature comforts. With fuel now representing as much as 40 percent of an airline's cost for a coast-to-coast flight, it's no wonder they're searching for additional revenue sources. "Airlines have changed the business model," says Henry Harteveldt, vice president and principal analyst at Forrester Research. "Like the movies -- in coach you can soon expect fees for everything. This is to bring in more revenues for airlines -- but it's also going to be a problem for airlines." Harteveldt points out that any passenger paying $900 for a seat but getting a $200 experience is going to be furious.

"Airlines have traded in price for customer service," Seaney says. "The next level is to ration down any type of service and charge a [fee] for things that used to be free."

Some airlines, in fact, are trying to capitalize on the same service disruptions that passengers may hold them accountable for. Air Canada, for one, is adding what it calls a customer-service "innovation" with a new program called "On My Way," providing -- for a price, of course -- additional support and flexibility when passengers face flight changes due to weather and other issues. Harteveldt estimates that it's possible U.S. airlines will explore similar plans. "As airlines face extraordinarily high fuel costs, they are exploring every option to generate revenue beyond ticket prices," he says.

Provided the expected spate of consolidation doesn't derail the trend toward competitive pricing, customers can continue to expect low airfares, but no sudden reordering of customer service seems likely. "The fact is that airlines are not charging enough for their product," points out George Hobica, founder of AirFareWatchDog.com. "They have no pricing power and they have not been able to charge what the product is worth."

Hobica predicts that what he calls the "cheapo" airlines will soon disappear -- similar to the fate of Aloha and SkyBus -- and that, down the road, there will be five major airlines providing service in the U.S. But what happens to customer data, frequent-flyer information, and loyalty programs when airlines suddenly disappear? (See "Lollipop Loyalty," page 22, for more on the sorry state of today's loyalty programs.) Harteveldt says that customers can rest assured that their data is not going anywhere -- unless a shut-down airline is acquired, which he says is not likely to happen.

Hobica compares the airline industry to the glamor of the movie business: Every little boy, he says, dreams of being a pilot someday. That may be true, but travelers don't really care about those dreams -- they just want to get from Point A to Point B, and not feel like cattle in the process.

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