What You Can Learn from the Airline Industry

This article is something of a eulogy.  It is a tribute to the ghosts of an industry whose leaders have followed a rapid descent to the bottom – of service, creativity, and innovation.  It’s also an opportunity to vent a little, after yet another first-hand observation of the decimated state of the domestic commercial air travel industry.

Rather than a luxurious, enjoyable experience, air travel has become a drudgery.  Unimaginative leadership, a commoditized product, and a weakened service infrastructure have converged to drive the industry deeper into the pit of commoditization.  Here are three lessons you should apply in your own organization:

Don’t use regulation as an excuse

Before the Airline Deregulation Act of 1978, airlines in the United States had a rather easy task of delivering sustained profitability.  Unfortunately, this led to complacency and, worse, a deadening lack of creativity.  There is nothing quite like a government mandate to ensure a business-as-usual attitude.

The airlines in the worst financial trouble today are the ones which lack a creative, entrepreneurial culture.  They long for the days of a government endorsed system of easier success.  Without an infrastructure that supports true innovation in service delivery, they resort to constant cost-cutting measures, which typically strip away any true competitive advantage.  A better strategy is to imagine that any advantage due to regulation will eventually evaporate and thus to plan ahead for that day.

Know which customers matter most to your profitability

It is a widely held belief in the industry that the most desirable customers are frequent business travelers.  They tend to be creatures of habit, buying more expensive tickets more often, with a desire to stay with an air carrier and route system that reduce travel surprises.

Shockingly, the worst performing domestic airlines have taken many steps in recent years to frustrate and discourage those same customers.   Repeated devaluation of airline loyalty programs and the imposition of fees targeting the services these high-value travelers use routinely, has encouraged defection to competitors.  This leaves carriers with empty seats, to be sold at reduced prices.

Never look at cost as your best weapon

Above any other attitude, the persistently myopic view of cost-cutting as the only viable strategy to achieve profitability has been the industry’s downfall.  In the mad dash to cut costs, airlines have also disenfranchised their own employees, often leading to noticeably lackluster service delivery, along with a thoroughly commoditized product.

Cost containment itself is not a vice.  The negative consequences arise when it is the only strategy employed.  For example, Southwest has masterfully contained its fuel costs with successful price hedging practices.  However, its service delivery system is typically of a higher caliber than those of competitors, including a Proactive Customer Service Communications department that apologizes (and compensates) for service deficiencies before a customer complains.  Such practices ensure it would still be successful, even without fuel hedging.