Thursday, May 3, 2012
Southwest Airlines Operations - A Strategic Perspective
Background:
Southwest Airlines is the largest airline measured by number of passengers carried each year within the United States. It is also known as a ‘discount airline’ compared with its large rivals in the industry. Rollin King and Herb Kelleher founded Southwest Airlines on June 18, 1971. Its first flights were from Love Field in Dallas to Houston and San Antonio, short hops with no-frills service and a simple fare structure. The airline began with one simple strategy: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.” This approach has been the key to Southwest’s success. Currently, Southwest serves about 60 cities (in 31 states) with 71 million total passengers carried (in 2004) and with a total operating revenue of $6.5 billion. Southwest is traded publicly under the symbol “LUV” on NYSE.
Facts:
* The first major airline to fly a single type of aircraft (Boeing 737s)
* The first major airline to offer ticketless travel system wide including a frequent flier program based on number of trips and not number of miles flown.
* The first airline to offer a profit-sharing program to its Employees (instituted in 1973).
* The first major airline to develop a Web site and offer online booking. In 2001, about 40 percent ($2.1 billion) of its passenger revenue was generated through online bookings at [http://www.southwest.com]. Southwest's cost per booking via the Internet is about $1, compared to a cost per booking through travel agents of $6 to $8.
Key competitive advantages:
* Low Operational costs / High Operational Efficiency
* Award winning customer service
* Human Resource practices / Work culture
Operations Analysis – Competitive Dimensions:
Southwest clearly has a distinct advantage compared to other airlines in the industry by executing an effective and efficient operations strategy that forms an important pillar of its overall corporate strategy. Given below are some competitive dimensions that will be studied in this paper.
1. Operational Costs and Efficiency
2. Customer Service
3. Employee/Labor Relations
4. Technology
1. Operational Costs and Efficiency
After all, the airline industry overall is in shambles. But, how does Southwest Airlines stay profitable? Southwest Airlines has the lowest costs and strongest balance sheet in its industry, according to its chairman Kelleher. The two biggest operating costs for any airline are – labor costs (approx 40%) followed by fuel costs (approx 18%). Some other ways that Southwest is able to keep their operational costs low is - flying point-to-point routes, choosing secondary (smaller) airports, carrying consistent aircraft, maintaining high aircraft utilization, encouraging e-ticketing etc.
Labor Costs
The labor costs for Southwest typically accounts for about 37% of its operating costs. Perhaps the most critical element of the successful low-fare airline business model is achieving significantly higher labor productivity. According to a recent HBS Case Study, southwest airlines is the “most heavily unionized” US airline (about 81% of its employees belong to an union) and its salary rates are considered to be at or above average compared to the US airline industry. The low-fare carrier labor advantage is in much more flexible work rules that allow cross-utilization of virtually all employees (except where disallowed by licensing and safety standards). Such cross-utilization and a long-standing culture of cooperation among labor groups translate into lower unit labor costs. At Southwest in 4th quarter 2000, total labor expense per available seat mile (ASM) was more than 25% below that of United and American, and 58% less than US Airways.
Carriers like Southwest have a tremendous cost advantage over network airlines simply because their workforce generates more output per employee. In a study in 2001, the productivity of Southwest employees was over 45% higher than at American and United, despite the substantially longer flight lengths and larger average aircraft size of these network carriers. Therefore by its relentless pursuit for lowest labor costs, Southwest is able to positively impact its bottom line revenues.
Fuel Costs
Fuel costs is the second-largest expense for airlines after labor and accounts for about 18 percent of the carrier's operating costs. Airlines that want to prevent huge swings in operating expenses and bottom line profitability choose to hedge fuel prices. If airlines can control the cost of fuel, they can more accurately estimate budgets and forecast earnings. With growing competition and air travel becoming a commodity business, being competitive on price was key to any airline’s survival and success. It became hard to pass higher fuel costs on to passengers by raising ticket prices due to the highly competitive nature of the industry.
Southwest has been able to successfully implement its fuel hedging strategy to save on fuel expenses in a big way and has the largest hedging position among other carriers. In the second quarter of 2005, Southwest’s unit costs fell by 3.5% despite a 25% increase in jet fuel costs. During Fiscal year 2003, Southwest had much lower fuel expense (0.012 per ASM) compared to the other airlines with the exception of JetBlue as illustrated in exhibit 1 below. In 2005, 85 per cent of the airline’s fuel needs has been hedged at $26 per barrel. World oil prices in August 2005 reached $68 per barrel. In the second quarter of 2005 alone, Southwest achieved fuel savings of $196 million. The state of the industry also suggests that airlines that are hedged have a competitive advantage over the non-hedging airlines. Southwest announced in 2003 that it would add performance-enhancing Blended Winglets to its current and future fleet of Boeing 737-700’s. The visually distinctive Winglets will improve performance by extending the airplane’s range, saving fuel, lowering engine maintenance costs, and reducing takeoff noise.
Point-to-Point Service
Southwest operates its flight point-to-point service to maximize its operational efficiency and stay cost-effective. Most of its flights are short hauls averaging about 590 miles. It uses the strategy to keep its flights in the air more often and therefore achieve better capacity utilization.
Secondary Airports
Southwest flies to secondary/smaller airports in an effort to reduce travel delays and therefore provide excellent service to its customers. It has led the industry in on-time performance. Southwest has also been able to trim down its airport operations costs relatively better than its rival airlines.
Consistent aircraft
At the heart of Southwest's success is its single aircraft strategy: Its fleet consists exclusively of Boeing 737 jets. Having common fleet significantly simplifies scheduling, operations and flight maintenance. The training costs for pilots, ground crew and mechanics are lower, because there's only a single aircraft to learn. Purchasing, provisioning, and other operations are also vastly simplified, thereby lowering costs. Consistent aircraft also enables Southwest to utilize its pilot crew more efficiently.
E-Ticketing
The idea of ticketless travel was a major advantage to Southwest because it could lower its distribution costs. Southwest became electronic or ticketless back in the mid-1990s, and today they are about 90-95% ticketless. Customers who use credit cards are eligible for online transactions, and today Southwest.com bookings account for about 65% of total revenue. The CEO Gary Kelly thinks that this idea would grow further and that he wouldn't be surprised if e-ticketing accounted for 75% of Southwest’s revenues by end of 2005. In the past, when there was a 10% travel agency commission paid, it used to cost about $8 a booking. But currently, Southwest is paying between 50 cents and $1 per booking for electronic transactions that translate to huge cost savings.
2. Employee and Labor Relations
Southwest has been highly regarded for its innovative management style. It maintains a relentless focus on high-performance relationships and its people-management practices have been the key to its unparalleled success in the airline industry.
Mission Statement
To Our Employees
“We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.”
The Southwest mission statement shows that the company has a strong commitment to its employees. The company affords the same respect to its employees that is provided to its customers. The Southwest mission statement is unique in that it recognizes the importance of its employees within the broader business strategy, which emphasizes superb customer service and operational efficiency. The employees reciprocate the respect, loyalty and trust that Southwest demonstrates. Southwest employees are known for their loyalty, dedication, attitude and innovation. The employees are the distinguishing factor between Southwest and the rest of the airline industry.
Hiring
Southwest hiring policy is unique not only within the airline industry, but also more broadly, and revolves around finding people with the right attitude that will thrive in the Southwest culture. Extensive procedures are employed to hire for positive attitude and dedication. Those who do not posses those qualities are weeded out. Colleen Barrett, a non-operational officer at Southwest, states that
“Hiring is critical, because you cannot institutionalize behavior. Instead, you must identify those people who already practice the behaviors you are looking for. Then you can allow Employees to be themselves and make decisions about Customer service based on common sense and their natural inclinations.” 1
Recruiting and interviewing at Southwest is a two-step process. The first step is a group interview, conducted by employees, where communication skills of potential candidates are evaluated. The next steps in this process are one on one interview, where the candidates' attitudes and orientation toward serving others are evaluated. These hiring criteria apply to all job functions since all Employees at Southwest play a customer service role. A critical part of Southwest operational strategy is that every job at Southwest is a customer service position, whether it directly applies to the customer or whether it is internal.
The table below shows that even though Southwest is the most heavily unionized airline, at approximately 80%, that contract negotiations between the unions and Southwest are much shorter in duration than of the other major carriers. This shows the quality of relationship that Southwest has with its employees and with the unions that represent them.
Culture
Southwest was created as a different kind of company and from its beginnings a unique culture was nurtured. In 1990 Colleen Barrett formed the Southwest Culture Committee. This is unique within the industry and among all large companies. The committee also has a mission statement:
“This group's goal is to help create the Southwest spirit and culture where needed; to enrich it and make it better where it already exists; and to liven it up in places where it might be "floundering". In short, this group's goal is to do "whatever it takes" to create, enhance, and enrich the special Southwest spirit and culture that has made this such a wonderful Company/Family.”
It is this unique approach to company values that has created a culture that differentiates itself from others. Southwest’s culture is the reason why it is successful.
3. Customer Service
The Mission of Southwest Airlines
The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.
Approach
Herb Kelleher, founder of Southwest, has been quoted as saying that "We're in the Customer service business; we just happen to provide airline transportation".2 Award winning customer service is a distinguishing characteristic of Southwest and it is referred to internally as “Positively Outrageous Service”. It means that from the top to bottom everyone does whatever he or she can to satisfy the customer. This includes Herb Kelleher, who has been known for helping out baggage handlers on Thanksgiving. It is through emphasizing the customer and employee that Southwest is able to differentiate itself from others in the airline industry. On a more technical level, each employee or group within Southwest has his or her own customer. This means that every employee ‘serves’ in one way or another despite not being directly involved with the passenger. The mechanic’s customer is the pilot and the caterer’s is the flight attendant.
Results
It can be said that the "Positively Outrageous Service" that is unique to Southwest “is not the result of a department, or a program, or a mandate from management. It is not secondary to the product; it is the product.” This approach creates the conditions where Employees are more likely to treat customers in ways that distinguish the company from others. There are numerous accounts of passengers who have received exceptional treatment from Southwest employees.
The question that needs to be answered is how Southwest’s customer service is different and why? Is it common for customers of other airlines to rave about their special service? The answer is that it is not. While Southwest does not have a monopoly on people who are kind and who are willing to go above and beyond to satisfy a customer, such behavior is nurtured at Southwest to a much greater extent.
It can then be concluded that the customer service that is inherent to Southwest is a part of its culture. This culture is supported through employee encouragement to do the extra to satisfy the customer. This approach inspires people who would ordinarily only on occasion go out of their way to help someone, to become consistent performers that offer exceptional service all the time. Southwest employees are what differentiate its customer service from the other airlines.
4. Technology
Southwest utilizes technology in many ways to fulfill its business objectives and maintain its efficient operations. According to its CEO, technology equals productivity. Launched in 1996, ticketless travel was first introduced by Southwest. On May 1st 2000, Southwest Airlines introduces "SWABIZ," a portal that assists company travel managers in booking and tracking trips made through its web site [http://www.southwest.com]. There are many new technology initiatives being undertaken currently and some are in the pipeline.
Bar codes in Boarding Passes
Southwest Airlines has invested $12 million during the past three years to standardize corporate and terminal operations on about 10,000 Dell OptiPlex desktop and Latitude notebook computers according to its company executives. Southwest wanted to replace its well known, brightly colored plastic boarding passes with an electronic system with bar-code paper boarding passes. So it installed about 350 touch screen ticket readers powered by Dell OptiPlex desktops. The bar code gives Southwest more information to automatically reconcile the number of boarding passes with the number of passengers that actually board the plane.
Although the technology will help Southwest Airlines remain efficient by consolidating passenger information for the company's 3,000 daily flights, there were concerns it could lengthen the time to get travelers on board. However it was found that scanning each bar code on the boarding passes didn't increase or shorten boarding schedules, but it did take minutes from administrative processes, such as looking up customer records. The new paper bar code system is giving Southwest ticket agents the ability to match a customer record within having to scroll through and log into multiple software screens. The process is much more automated. Once the bar code on the boarding pass is scanned at the terminal gate it checks off the person from the passenger list in real time.
The old process was manual that involved finding the information, scrolling through several software screens from reservations to check-in to boarding. The bar code hardware to scan the boarding passes has been deployed. The company is in the process of replacing customer service back-office equipment at airports including at its headquarters in Dallas.
Software Upgrades
Software applications, such as those used by clerks to check in passengers, are being replaced. Southwest Airlines' internally written "Airport Application Suite" is expected to rollout next year as the company transitions from green screens to Window-based user interface. Similar to Wal-Mart Stores Inc., Southwest Airlines believes in developing in-house the software that runs its operations. The company uses very little off-the-shelf software. There are between 75 and 100 projects in the works each year supported by approximately 900 IT employees.
RFID
Radio frequency identification technology, a favorable alternative to bar-coding for luggage identification, is also on Southwest's radar. It plans to test RFID technology sometime in 2006. Even though, Southwest is playing a little catch-up with other airlines such as Air Tran, Alaska and Champion Airlines, in many cases they are able leapfrog to more sophisticated applications easily having waited longer.
Challenges:
Southwest has emerged very successful, despite the most troubled times in the airline market. However, it faces new challenges in the face of increasing competition from other low fare airlines such as JetBlue, ATA airlines, America West.
Reserved Seating
Due to increasing security guidelines since September 2001, Southwest would need to prepare for assigned (reserved) seating to track its in-flight passengers. This change will involve large technology investments and may impact its gate operations negatively since the current way of unassigned seating has helped in quick gate turnarounds.
Passenger Demand
The keep-it-simple philosophy has served Southwest well. But as its own business grows and grows more complex, with plans to purchase dozens of new aircraft and an expected upsurge in passenger traffic to about 80 million boarding’s a year, the simplicity strategy that has been reflected in the airline's IT philosophy is evolving. The CIO Tom Nealon says that "It's time to adapt our business processes for efficiency. As our airline scales for us to provide the same kind of high-touch customer service, we have to automate a lot of things we've been able to do without technology previously. The challenge is doing that without conceding the customer touch." Southwest is also aggressively pursuing customer relationship management (CRM) techniques and has applications to get insight into customer’s wants and dislikes. According to an interview with its CEO Gary Keller, Southwest has its focus on improving in two areas - customer’s airport experience and in-flight experience.
In-Flight Entertainment
In an overall effort to improve customer’s in-flight experience, in-flight entertainment is something that Southwest is currently evaluating and which JetBlue has been very successful at already because of its introduction in its long-haul flights. In comparison, Southwest has 415 airplanes to consider and that represents an investment decision at a whole new dimension. Additionally, Southwest has to consider how things may fit into their environment. At this point, 60% of its service is still very short haul. Southwest needs to be mindful of the fact that a certain approach that has been successful for its competitor may not be necessarily work to its advantage.
Summary:
Southwest has long been regarded as a benchmark in its industry for operational excellence. Southwest Airlines is a fine example of a company that is committed to its core competencies - efficient operations to drive its low cost structure, outstanding delivery of customer service and innovative HR management practices. We hope this paper provided a good insight into Southwest operations, as part of its overall strategy, to achieve success and gain competitive advantage.
References:
1. [http://www.southwest.com] (Southwest airlines official web site)
2. “Southwest keeps it simple” - Air Transport World, April 2005, Pg 36
3. “Around the World on $48 (or So): How High Can Discount Airlines Fly?“ Strategy Management - Knowledge@ Wharton Newsletter Oct 5, 2005
4. TechWeb - [http://www.techweb.com/wire/ebiz/173601227]
5. “Southwest's Strategy for Success: Consolidate!” - Oracle Magazine (Sept/Oct 2004 edition) http://www.oracle.com/technology/oramag/oracle/04-sep/o54swest.html
6. “Southwest Airlines: High Tech, Low Costs” - Eweek.com, April 2005
7. “Jet Fuel Hedging Strategies: Options Available for Airlines and a Survey of Industry Practices” – Kellogg School of Management Research Paper, Spring 2004
8. Winning Behavior: What the Smartest, Most Successful Companies Do Differently, Terry R. Bacon and David G. Pugh, 2003
9. Time Magazine, Oct 28th 2002 issue, Vol. 160 Issue 18, p. 45
10. “Wings Of Change”,Information Week, March 28, 2005,
11. Labor Contract Negotiations in the Airline Industry, Monthly Labor Review, July 2003, page 24
History of Airline Credit Cards
Airline credit cards have not been around for as long as you may think. In fact, they are a fairly new option available to credit cardholders. Nonetheless, airline credit cards have quickly gained in popularity and can be found partnered with every major airline.
The First Airline Credit Card
The first airline credit card to be offered to consumers was the City AAdvantage MasterCard. When it came out, the card allowed consumers to earn miles with every purchase made. These miles could then be redeemed for free air travel through a variety of airlines. This card remains one of the major players in the airline credit card industry. Today, you can redeem your airline miles at over 25 different airlines. In addition, you can redeem miles for discounts at numerous hotels and car rental companies.
Airlines Follow Suit
Realizing what a great idea airline miles credit cards was, airlines started following suit and partnering with credit card companies to create their own airline credit card. The United Airlines Plus card was next. This card was the first airline credit card to be specific to an airline. Although the card did not offer the flexibility of receiving discounted tickets with numerous airlines, those who frequently traveled on United Airlines enthusiastically embraced this United Airlines credit card.
Not to be outdone, Continental Airlines unveiled its airline credit card, the Continental Airlines World MasterCard, shortly after United Airlines. Both airlines still offer their own airline miles credit cards, but provide their own special incentives to set them apart from the competition. Today, the United Airlines Plus Signature Visa Credit Card offers 17,500 bonus miles after the first purchase with the card, a certificate for a free one-way 1,000 mile one-class upgrade, and a $25 certificate for discount travel. The Continental Airlines World MasterCard offers 15,000 OnePass bonus miles after completing your first purchase. In addition, you can earn double OnePass miles with purchases made at Continental Airlines and with partner merchants and a 5% discount on Continental Fares purchased at their website using the card.
Airline Miles Credit Cards Today
Today, airline credit cards are in abundance. Every major airline has partnered with a credit card company in order to bring their own airline credit card to the consumer. In addition, competition to gain and to retain flying customers is fierce. Therefore, airline credit cards offer a number of incentives, bonuses, and special deals to entice customers into acquiring their credit card.
In addition, the number of "generic" airline miles credit cards is on the rise. It is not unheard of for an airline credit card to allow the consumer to choose from over 200 different airlines when redeeming earned miles. Many of these airline credit cards also offer other discount options, such as hotel, car rental, and vacation package discounts that can be purchased with earned miles.
The Future of Airline Credit Cards
With the competition being so strong when it comes to airline customers and credit card customers, the future of airline credit cards looks bright for consumers. In all likelihood, the number of incentives and bonuses will continue to rise in order to draw in new cardholders. A trend that is currently starting to develop are special low APRs and annual fees. Traditionally, airline miles credit cards have had annual fees and high APRs when compared to credit cards without rewards programs. While this remains true, more and more airline credit cards are starting to offer competitive APRs and waiving annual fees in an attempt to attract more customers.
One thing is for certain: airline miles credit cards will continue to be popular among consumers, particularly for those that can pay off their balance in full at the end of each month and take full advantage of the special rewards.
For more on airline credit cards, Robert Alan recommends that you visit CreditCardAssist.com
Airline Customer Service - A New Morality Tale For Businesses Large And Small
There really does come a time when, as a pair of trains are getting close to each other and picking up speed, that you know you should turn away, or at least wince meaningfully, in anticipation of the crash and explosion of flames and flying metal that you know is just moments away. You know you should, a part of you wants to, but you cannot turn away.
That is the feeling that I have these days as I watch the airline industry. There they are, flying along with absolute, reckless abandon and it is just a matter of time before they hit something. I am not sure what they will hit-reregulation, economic reality, unlooked-for competition from upstart airship companies-but I do know that when they hit it, it will be spectacular.
So what is fueling all this talk of crashing trains and dire predictions vis-à-vis the airlines? Two words: Customer Service.
Any good businessman understands one thing-if he understands nothing else-that customer service is vitally important to the continued survival of a company. In fact, ask any small business owner the secret of his success and the answer will usually have something to do with customer service. You can have the greatest product in the world, but if you don't work on customer service-making the customer's experience as good as it can be-then you are not going to sell very much. If a recent survey from the University of Michigan is correct, this seems to be a lesson lost on the majority of airline executives these days. In fact, with the lowest scores since 2001, this is the worst of three straight years of decline.
The worst in terms of customer satisfaction were United Airlines and US Airways, finishing next-to-last and last, respectively. Continental and US Airways had the largest overall decline with double digit percentage drops. At the other end of the spectrum, Southwest remained on top, a position it has enjoyed for the last 15 years.
What's Wrong?
The problem is about living up to expectations. According to Claes Fornell, a University of Michigan business professor and the director of the research center that compiled the data, "There's no other industry anywhere that has so many basic mishaps in terms of not delivering the basics. They're supposed to deliver passengers with their luggage to a particular destination within a certain timeframe, and they frequently fail to do that."
Unhappiness with the airlines is nothing new, but the terrible results from this year's survey have put the spotlight on management in spite of the problems of higher fuel prices, crowded airports and other factors that are legitimately out of their control.
The Low-cost Business Model
Unlike many other goods and services, airline passengers shop primarily according to price. This leads to a business model where cost-cutting to allow reduced fares is simply more practical than a model that supports improvements in service and amenities that would help justify more realistic ticket prices. While this may seem like a case of blaming the victim, one must remember that the airlines are very sensitive to why people fly on certain flights and carriers and why they don't and the choice usually comes down to price. However, while this may be the seed of the problem, it does not excuse airline management for some terrible lapses that have made the existing systemic problems worse.
Fees, Fees and More Fees
The airlines have learned that cut-throat price-cutting on tickets often means that the throat being cut is their own. After all, you do reach a point of diminishing returns and you have to make up lost income somewhere else. There are two ways of doing that: honestly and openly or under the table. In-flight meals were curtailed on many flights and soon other amenities either vanished or were assigned fees (remember when you got your earphones for free?). Once those things happened and the pressure of unrealistically low airfares was not eased, under the table tactics was the way the airline executives chose to go. This explains why such a big part of the outrage that travelers are feeling toward the airline industry comes from the hidden cost of travel, the unadvertised fees that take the bloom off the bargain ticket prices. Aviation.com and airfarewatchdog.com worked together to come up with the "Top 10 Most Obnoxious Hidden Airline Fees." According to the results on Aviation.com, they include:
10. Making a reservation on the phone or in person. Fee: $5-$20. US Airways is among the greediest on this count: $10 to book over the phone, or $20 to book at the airport or at a city ticket office (if you can find one). Can it possibly cost US Airways that much for a simple 10-minute call? Surely the airline doesn't pay its reservationists that much. United levies $15 for the privilege of speaking to a human. American, JetBlue, and Southwest $10 (for internet-only fares in Southwest's case, but we're told Southwest does make exceptions). Northwest and Virgin America charge just $5.
9. Cashing in frequent flyer miles without sufficient advance notice. Fee: $0-100. Who says frequent flyer tickets are free? Some airlines will let you book a frequent-flyer seat even up to the day of travel with no fee. These include Airtran, JetBlue, Northwest and Southwest. But others (Continental, Delta, and United) charge $75 if you book without enough notice (defined as 3 days on Continental but an unreasonable 22 days on Delta); and American charges an insane $100 if you book 6 days or fewer before departure.
8. Bringing a pet onboard in the cabin. Fee: $50-85 (each way). These fees have skyrocketed lately. Muffy and Buffy won't be ringing the call button for a glass of milk, and they won't be carrying bags or imposing on the airline's bottom line in any way; but their fare might end up costing more than yours. Most airlines now charge $80 each way. On United you'll pay $85, on JetBlue 'just' $50.
7. Re-banking frequent flyer miles. Fee: $50-100. If you cash in your miles and decide not to use your ticket, you'll be hit with a fee to place the miles back into your account. Why? What cost exactly is involved here on the airlines' part? These tickets are issued electronically, so what's the big deal?
6. Checking luggage. Fee: $3-$25 (each way). We're talking here just about checking even one bag, even if they're not oversized or overweight (that's a whole other story). Spirit Airlines charges $5 for each of the first two bags if paid for online, $10 each otherwise. The third bag costs a whopping $100, more if it's oversized or overweight. Skybus also charges $5 for the first two, and $50 for each additional. Allegiant charges $3 for the first, $5 for the second. Air Canada gives you a discount for not checking baggage, which is a sneaky way of charging you if you do. It's not like the airlines are giving us bigger overhead bins, so that's the big idea here? Don't be surprised if you see other airlines following suit.
5. Getting a refund when a fare goes down. Fee: $25 to $200 or more. If you bought a TV from Costco or BestBuy and they lowered the price the following week, chances are you could get a refund, no questions asked. Even Apple gave credits when it dropped the price of its iPhone soon after launching it. But most airlines either will refund nothing (British Airways and most other international carriers) or they'll charge an 'administrative fee' of up to $100 on a domestic ticket, and even more on an international one. What justifies this? Does it actually cost them $100 to spend a few minutes to rewrite your electronic ticket? I doubt it.
4. Flying standby on the same day of travel. Fee: $0-50. Time was, if there were empty seats on a later or earlier flight on the same day as your original, the airline would confirm you for free. But now, most airlines charge to take an earlier or later flight on the same day as your original flight if you want a confirmed seat (you can still take your chances on many airlines and standby without a confirmation for free, but that's not the same thing). Only AirTran, among the larger airlines, charges no fee if you show up at the airport before your original departure and wish to take an earlier flight, or ask to change to a later departure. American, Continental, JetBlue, Northwest, and US Air charge $25; Delta (always the fee leader) and United sock you for $50. Southwest is a different animal altogether: there's no fee to fly standby as such, but you'll have to pay the 'walk up' last minute fare, which could be hundreds of dollars more than your original discount fare
3. Paying for lap children. Fee: $10 to 10 percent of the adult fare (international flights). What on earth is the meaning of this? Your kid isn't taking up a seat, and certainly isn't partaking of the free food and booze (if any). Is the little tyke responsible for consuming extra jet fuel? On a fare of say, $1,200, you'll be billed $120 or more for the privilege of holding the child in your lap for 10 hours (on a business class fare of, say, $5,000 you'll pay $500). Domestically, Skybus, never to miss the chance to line its pockets, charges a $10 'administrative fee' for lap children. Is that to compensate for the oxygen your infant will be breathing during the flight? By the way, if there's a fuel surcharge on your flight, your kiddie will pay that too: as much as $90 each way.
2. Getting a seat assignment. Fee: $5-$11 each way. Air Canada, AirTran and Allegiant are some of the carriers that now charge for this 'perk.' AirTran charges $5 if you're on a discounted coach ticket; Allegiant charges $11. AirTran charges $15 if you want to grab an exit-row seat and Northwest recently upped the charge from $15 to $20 (but I still think it's worth it).
1. Using the lavatory. Fee: OK, airlines are not installing pay toilets. Yet. But the way things are going...
Sure, that last may be a prediction, but it is not beyond the realm of possibility. Add these and other fees to the fact that the Airlines have, according to the U.S. Department of Transportation's Inspector General, failed to live up to the commitments they made in 1999 to improve customer service-low fares, a decent level of service, treating people right-and you can see how customer satisfaction can take a real hit.
Crowds, Delays, and Maintenance Issues
It is a rare thing to see an empty terminal at a major airport in this country and it is a rarer thing these days to see an empty seat on an aircraft. Many airlines are cutting back on the number of flights they offer and stuffing their remaining flights to capacity. It goes back to the forces that drive airline tickets down: The less you charge per seat, the more seats you need to break even. This, of course, makes the flight experience, which was once such a luxury regardless of what class seat you had, into something more akin to pigs stuffed into a railcar. This trend has led to other problems as well, including delays for the additional luggage on each flight, lost bags and so forth.
One reason for these cutbacks is fuel, but there is another reason as well-maintenance. America's airliners are not exactly new. Statistics from the U.S. Department of Transportation shows that the average age of a commercial aircraft in the U.S. is 11.7 years. That is the average. Some are considerably younger and others are much older. Older planes are not, in and of themselves dangerous, but they do tend to require more maintenance than newer aircraft. Consider that the modern airliner is, perhaps, the most complex machine ever built with numerous structures, systems and subsystems, most of which can have an effect of the airworthiness of the aircraft.
The major problem here was identified by Consumer Reports in their investigation entitled "An Accident Waiting to Happen?" which detailed the way major airlines were outsourcing more than half of their repair and maintenance activities, often to foreign repair stations. However, to make matters worse, they discovered that the FAA was relying on the airlines themselves to inspect the aircraft. That, and a very cozy relationship between the airlines and the FAA made for a dangerous situation for the flying public and an expensive problem for the airlines.
For example, on March 6, 2008, the FAA levied a record $10.2 million penalty against Southwest Airlines. The reason was maintenance failures. They had operated 46 aircraft without performing mandatory inspections on the fuselage for fatigue cracking. The FAA's investigations found fatigue cracks in 6 of the 46 airplanes, which could have proven disastrous. Later, the FAA launched a review of Southwest's maintenance practices. At the same time, Southwest grounded 41 airliners to verify that they had been inspected correctly in response to an "ambiguity related to required testing" that they had discovered. More recently, American Airlines and Delta inspected more than 400 of their respective aircraft, canceling more than 700 flights.
The Bottom Line: Resentment
Consider the following comment, found on consumerist.com:
Airlines seem to have been waging a war of attrition on the whole idea of customer service for the last 20 or 30 years. When it gets to the point that it's less painful to take two days to drive across the country with all of horrors of inflated gas prices, fast food, nothing on the radio but Rush Limbaugh and country music, and the state of Nebraska, you know something is terribly, terribly wrong.
The author of this comment is right, there is something terribly wrong-not just with a single airline but with the entire industry and their captive audience, the flying public, is getting sick and tired of it. With every new cut or fee, the airlines cry "poverty" and yet United was one of the top 10 most profitable companies for the first quarter of 2008. The airlines (with the notable exception of Southwest) have, in their drive to squeeze every last dollar from their customers, forgotten that business is more than that. It is about building a mutually beneficial relationship with customers that keeps them coming back. There was once a time when people had brand-loyalty to airlines the way they had with cars and other products. You had people like my parents who would only fly United; others would only fly American, or Delta or Continental. Those days are gone.
What are you doing to keep your customers? How are you enhancing their experience and turning them from "one-timers" into repeat business? The lesson of the airlines, an industry that once enjoyed tremendous prestige and has now become one of the most despised, is that without a concerted effort to create repeat customers, to create a great customer experience, you soon change from being the solution to a problem to being the problem itself.
Which one would you like to be?
Charles Cooper is the Web Editor and blogger for http://www.gowithabc.com, the Web site for America's Best Companies. He is also a staff writer for America's Best: The Magazine for Small Business Owners.
Understanding Airline Credit Cards
Airline credit cards are credit cards that are associated with either numerous airlines or with one specific airline. For those that frequently travel by air, airline credit cards can provide an excellent means for saving on travel expenses. At the same time, it is necessary to research a variety of airline credit cards before selecting one in order to ensure you get the best deal possible.
Benefits of Airline Credit Cards
Airline miles credit cards have a number of benefits for frequent travelers. The exact benefits and how they work can vary among airline credit cards. For the most part, however, airline credit cards use a points system. With this system, every dollar you spend is worth a certain number of points. The number of points you earn is not necessarily the same from card to card. In addition, many airline credit cards provide bonus points for making certain types of purchases, such as purchases made through the airline the card is associated with.
After earning a certain number of points, you can trade the points in for airline miles. Many airline miles credit cards will even allow you to transfer the points you earn to a frequent flyer account. In addition to receiving free or reduced travel with the points earned from airline credit cards, most offer a variety of additional travel-related benefits. For example, you might receive free upgrades with your card. Or, you might get one free ticket per year or a free companion ticket with membership. Airline credit cards also tend to provide services such as lost luggage insurance, car rental insurance, and travel accident insurance. While it is not unusual for a credit card to offer travel accident insurance, airline credit cards generally provide a greater amount of coverage.
Selecting Airline Credit Cards
If you frequently travel with a certain airline, choosing an airline credit card most likely will not be difficult. Obviously, the card you will want will be the one that coincides with the airline you utilize. If you tend to vary the airline you use, however, you should select choose one of the airline credit cards that allows more flexibility in its rewards system.
You should also pay attention to the interest rates on the airline credit cards you consider. Airline miles credit cards tend to have a higher interest rate, which equals higher finance charges if you carry a balance on your card from month to month. Therefore, you should look for the card with the lowest rate if you don't plan on paying the card off each month. You also need to consider the annual fees, which can become quite costly and negate the savings airline credit cards can provide.
Many people also forget to look at all of the benefits airline credit cards provide. Consider perks other than just the points system used by the credit card. You should also think about benefits such as purchase protection, extended warranties, auto rental insurance, and fraud protection. All of these perks can be extremely valuable and can make one card better suited to your lifestyle and needs than another.
Using Airline Credit Cards
Airline credit cards are used just like any other credit card. But, to get the most out of the card, you should use it carefully. For example, if you can only afford to spend a certain amount each month toward paying the balance on your airline credit card, be sure to only spend that amount. Otherwise, you will most likely pay a high amount in finance charges because of the high interest rate typically associated with airline credit cards.
In addition, choose your purchases carefully with airline credit cards. Often, you will get points for every purchase made with the card, but you will get additional points for specific purchases. Be sure to use your airline credit card for the purchases that count and use another credit card for those that do not. This way, you don't have to worry about accumulating a large balance on the card.
For more free information and tips on how to find airline credit cards, Rob Willard recommends that you visit CreditCardAssist.com
Airline Miles Credit Cards Comparison
At one time, there were not many airline credit cards available for you to choose from. The first of the airline miles credit cards was the Citi AAdvantage MasterCard, which is still available today. Though this card had plenty to offer, it wasn't necessarily the best airline credit card for everyone.
The Evolution of Airline Credit Cards
Over time, airline miles credit cards began to evolve. Soon after the Citi AAdvantage MasterCard hit the market, the United Airlines Mileage Plus card was offered through a partnership with United Airlines. Shortly after, Continental Airlines followed suit with the Continental Airlines World MasterCard. These leaders in the airline miles credit card industry started what has become a widespread credit card option for frequent travelers.
Partnering with Airlines
The partnerships formed between credit card companies and airlines put a new face on airline credit cards. Today, there are just as many airline credit cards to choose from as there are airlines. The majority of these airline credit cards are pretty much the same, though the subtle nuances can vary from card to card. With all of these cards, the miles you earn are good for use with just the airline named on the card. The only exception to this is if the airline has sister companies. In this case, the miles may be good with the sister airlines as well.
Generic Airline Credit Cards
In addition to the vast number of airline credit cards that are formed in partnership with airlines, there are many generic credit cards. In this case, the word "generic" doesn't stand for off brand or low quality. Rather, these cards allow you to earn airline miles that you can use with any airline of your choice. Usually, these cards work by assigning each airline mile a monetary value, usually 1 or 2 cents per mile. You can then use these miles to purchase a ticket through the credit card company that the company has acquired from the airline at a discounted price.
With generic airline credit cards, you are provided far more freedom in deciding which airline to use. This allows you to select the airline that is running a flight at the time and location that is best for you. It also allows you to take advantage of market fluctuations in ticket prices from one airline to the next.
Additional Perks
In addition to the number of miles it takes to earn free travel with airline credit cards, you should consider the additional perks offered. For example, so airline credit cards only provide special discounts for air travel. On the other hand, some cards allow you to redeem your points for other travel related necessities, such as car rentals, cruises, hotel stays, and vacation packages.
You should also pay attention to the special incentives offered by airline miles credit cards. Some allow you to earn bonus miles through certain purchases. For example, you might be able to earn bonus miles with a credit card that has partnered with a specific airline if you make purchases from that airline on the credit card.
In addition to incentives, some airline credit cards provide sign up bonuses. It is fairly common for an airline credit card to offer 5,000 bonus miles after using the card for the first time. The Gold Delta Skymiles Credit Card and American Express Credit Cards offer 10,000 bonus miles. Of course, you need to look out for how many miles it takes to earn a free ticket. The average number of miles needed with airline credit cards is 25,000, but you should always read all of the fine print first before making a decision.
For more information on mileage rewards and airline miles credit cards in general, Robert Alan recommends that you visit CreditCardAssist.com.