What the Airline Industry could learn from Retailers

It’s happened to all of us. You arrive at the airport after having spent hundreds or even thousands of dollars on an airline ticket only to have them demand $25, $35 or even $50 more just to store you bags on board. Then they ask you if you want to upgrade your seat location or boarding priority for another $25 to $40. Once you get on board, they want $6 for a drink, $10 for a snack and $5 for headphones. And of course, all of those charges are repeated for your return flight. There is talk now that some airlines may even start charging you just to put your carry-on bag in the overhead compartment.

Suddenly your ‘bargain price’ $359 ticket (which includes one stop that is way out of your way and takes two hours longer than the higher priced non-stop) just cost you $459—or $559 including the return flight extra charges. Worse yet, after shelling out all of that additional cash, how many times has your flight been late or cancelled? Or the delayed flight caused you to miss your connection? Or they lost your luggage? These are not what anyone would call superior customer experiences.

Let’s contrast this airline example with what retailers provide for a pleasing customer experience. It starts with competitive pricing, of course, just like the airlines. But let’s imagine you bought an item online and want to pick it up at your local store on your way home from work. No problem—it will be ready when you arrive, and there is no charge for this service. Or you decide you would like the item delivered to your home. Usually that’s free too if you are a member of their loyalty program such as Amazon Prime, or if your order is over a certain dollar amount, or for special promotions and holidays.

Or maybe the item is a gift and you want it giftwrapped and sent to a friend or loved one’s home within the next day or two. That’s often free too under a loyalty program, or at most, there is a modest giftwrap charge. And if the gift doesn’t fit, they can return or exchange it for free as well.

There are plenty of other examples of how retailers are doing everything they can to provide the best possible omni-channel shopping experience for their customers. It’s not just about offering free services. Retailers are redesigning store layouts, incorporating new customer experiences such as restaurants, entertainment, cooking demonstrations, fashion shows and celebrity events, and are training and equipping store associates to provide these new experiences, pick and ship orders, and handle returns from any channel. The airline industry, in contrast, seems solely focused on the bottom line.

Of course, the airlines will counter that the Great Recession and the huge surge in fuel costs resulted in billions of losses that has forced their bottom line focus. But the recession is over, fuel costs are back down, yet they are still making billions off of these extra charges with no signs of any changes. Retailers were hit hard by the recession, too, and they didn’t respond by nickel and diming customers to abstraction, they added more services and bigger promotions with a clearer focus on what the customer really wants.

The airlines may counter that what customers want is low fares and that they are struggling to compete with low-fare airlines. I get that. But I also know as soon as one airline lowers or raises fares, or adds extra charges like baggage fees, all the others quickly follow suit.

What if one airline was brave enough to actually raise fares, but truly focus on what the customer wants and cut out all the extra fees? It wouldn’t be easy at first and there would be losses for a while. The public would have to be educated on value and corporate travel agents would have to start looking at total cost rather than just ticket pricing. Perhaps I am too optimistic and the airline industry has travelled too far down the fees road to alter course now, but focusing on the customer is working well for leading retailers and I think the airlines can learn a lot from that.

  38 Comments   Comment

  1. Great article! We can bring innovations of one industries to improvise efficiency of another industry.

    However, I strongly feel that comparing Retail to Airline is not that easy. Airlines that are affected by several other factors (Airport costs, delays/penalties caused due to weather conditions, cost to take care of passengers when such delays happen etc.) Also, the fundamental difference in Retail and Airlines is that of a product nature. It is Perishable vs non-perishable.

    The distribution costs in Airlines are quite high. However, in Retail, Online Retail and Large Retailers were successful in reducing costs by opting DSD (direct store delivery).

    But I still agree with you. We must look forward to take learnings from cross-industry. And try to see how we can implement such strategies that result in greater customer satisfaction, reduced cost and higher margins.

    Reply
    • Jim LeTart

      I agree that retail and airlines are not a perfect comparison. My main point was that retailers quickly realized that low price alone was not the only, or many times even the main, factor affecting purchase decisions. Service and an appealing shopping experience often trumps price. The airlines have not yet seemed to understand this.

      Thanks for your comment.

      Reply
  2. It seems that the focus on lowering prices comes at cost of the quality of service. That rises a whole new set of challenges for all service providers and one of the ways to solve this is through innovative technological solutions such as mobile apps or central demand planning. Price aware customers will continue to pressure both retailers and airlines, eventually they will have to get both smarter and customer centric.

    Reply
  3. Joshua Joy

    One thing which any airline company would fear the most is the unpredictable oil price.

    The trick here is to provide the minimum fare amount and then fluctuate the prices of extra service based on the oil price.

    Reply
  4. Excellent article. I personally fly as little as I can possibly get away with, because of the layers of charges you referenced. Traveling as a family is cost-prohibitive with all the added fees. I would also say that flights aren’t really all that cheap unless you are going to a highly traveled destination.

    Thanks for your insights!

    Reply
  5. That’s right! Sticky prices are a Passe these days with lot of businesses trying to attract and retain new customers with their offers and deals.
    Smarter customers ensure to offer quality products and services and still maintain those reasonable prices thereby having customers walk into their doors versus the rest.

    Reply
  6. Airline industries are trying to attract customers on the basis of low-fair. But there are too much hidden cost, which are like cheating to customers.

    The article rightly pointed out the connection about the Airline strategy and factors related with it.

    Reply
  7. Agree, I hate the add on fees. Give me a price and give me good service and I’ll be back.

    Reply
  8. Noel Sequeira

    The idea of connecting Retailers leanings/best practices to Airlines Industry is amazing!

    Reply
  9. Brian Armstrong

    Interesting that Southwest continues to thrive (largely alone) as a low cost carrier with no or minimal add on fees. Too bad most carriers follow each other rather than following Southwest!

    Reply
  10. Frontier does actually charge for carry on bags for overhead storage from $30 if purchased immediately when booking online using the airlines website to $50 for ‘Gate Checked’ carry on bags. My company uses a popular online company for booking flights rather than a travel agency. This online service is not selective in seating choices and company policy does not allow upgrades period. So I just ‘upgraded’ my seat using personal credit card so that I am not in a middle seat in row 28 for a 4 hour flight! How far off are fees for using the restroom?

    Reply
  11. Well stated. They act like they want to entertain “customer service” but in reality its all about the $$

    Reply
  12. At work we have stopped flying Frontier because the poor customer service and extra fees are not with the headache. Personally I love Southwest because traveling with 3 kids in car seats is insanely expensive with any other airline.

    Reply
  13. This was interesting read. As an associate for a specialty retailer, I can attest that once the recession hit, we did start looking for ways to enhance the user experience and drive traffic and conversion. It was a necessary step as the consumer was reluctant to spend money on anything perceived to be a “luxury”. Without impacting these KPIs, there’s little that can be done to secure sales and profitability.

    As a consumer, I agree that the airlines, with few exceptions, do not target the customer experience. I’m in hopes that this will change, however, since the majority of travel is necessary and doesn’t fall into a “luxury” experience, no matter what the price or the experience, a majority of consumer money is already locked in.

    Reply
  14. Davide Mopera

    I hate baggage fees! Most people who fly have to bring luggage including a carry on. It can be more convenient to check in a bag to avoid taking space in the cabin but paying fees to store something is outrageous. Taxi cabs and buses do not charge fees to store bags.

    Reply
  15. Ed Heinzelman

    Midwest Airlines (nee Midwest Express) offered superior service including wider seats and meals with real silverware. And the prices weren’t that much higher but apparently high enough that they were eventually bought out.

    But the advantage of retail is exactly the flexibility of multi-channels which when done will is a hallmark of service. Airlines don’t have that luxury so you would think that outstanding personal service would need to be their goal.

    Reply
  16. Ranganathan Nagarajan

    Interesting one. Quality of service improvement without affecting the distribution cost to trend high can help.

    Reply
  17. Great thought !! Its not that airline industry haven’t tried lowering the price (low cost airlines) but it has been done at the cost of quality of service.
    Also mode of transport like airline is a necessity of life when products sold by retailers are need based consumption or do away with.

    Reply
  18. Durga Prasad

    Retailers best practices towards customer satisfaction is well compared to airline industry. good insight.

    Reply
  19. High set-up cost to start an airline business ensures that they will never go the retail way. With less number of players, market can never be competitive enough the way retail sector is.

    Reply
  20. Airlines are not selling a product but a servi e and the service has many moving factures. Yes, some ways the retialers ethics could support a better airline product. But we still hav emany factors that effect airlines that do not effect physical products.

    Reply

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