Southwest Reports Q4 Loss on Hedges
Hedges and other “special items” brought Southwest down to a Q4 loss, but it was the announcement on growth that had people turning their heads.

Southwest Sees Strong Revenue Performance in Fourth Quarter
Is that no-fee strategy working for Southwest? The airline has definitely seen some strong revenue gains.

Allegiant Sees 23.4 Percent Operating Margin in Fourth Quarter
When your net income increases by more than 300 percent, you’re probably on the right track. Allegiant has put out some strong results.

Delta Has Substantial Fuel Hedges for 2009
Other airlines are backing out, but Delta still has the majority of its fuel hedges for 2009.

November Complaints Show Specific Airline Weaknesses
Complaint numbers weren’t huge in November, but there were some areas that stood out for different airlines. Let’s take a look.

DOT Denies Virgin America Request for Confidentiality
Virgin America has now officially been denied confidentiality for its traffic numbers. Within the next few days, we’ll see how they’re really doing.

New Indianapolis Terminal a Burden In the Short Term
Indianapolis has its brand new terminal, but airlines are cutting flights. Is it simply the economy or is there more to it? I say there’s more.

Changing Demographics of the Orange County – San Francisco Route
Southwest and Virgin America will dramatically increase capacity between Orange County and San Francisco, so we’re going to see some big changes on this route.

Airline Earnings Reports Require a Foreign Language Translator
With all the special charges these days, it’s not easy to get to the bottom of an airline’s earning report.

I saw an op-ed in the New York Times over the holidays from a former TWA flight attendant that got me so riled up, I had to write a response. I sent it in to the NYT, but it was way too long to be considered as a letter to the editor, and my email to the op-ed team went ignored. So, I thought I would post it here, especially since some similar discussion has been brewing in the comments section lately. This is what I sent.

---

Ann Hood’s op-ed entitled “Up, Up, and Go Away,” published last week was difficult enough for me to read that I thought it worthy of a response. The days of glamorous air travel in coach are, as Ms Hood noted, certainly long gone. And with their disappearance we’ve also seen a decline in customer service, but there’s a good reason for that. Deregulation enabled fares to plummet, and people have been hooked on a cheap fare ever since. Until that changes, we won’t see a dramatic increase in customer service.

I should certainly hope that service was better back in the old days. Planes were half full and there were more flight attendants onboard. That means that each flight attendant could devote more time to each individual onboard; enough to serve elaborate dinners. Schedules weren’t nearly as demanding on flight attendants either, so they could enjoy their longer layovers more than they can today. They really did get to travel instead of simply passing out from exhaustion in some random hotel for a few hours until their next flight.

Once the industry was deregulated in the late 1970s, it all began to change. Why? Airlines could finally compete on price. That was prohibited in the past, so airlines did their best to compete on product. But once that restriction was lifted, fares went down quickly.

A TWA timetable from 1962 shows that a 707 could get me nonstop from LA to New York in roughly the same amount of time it would take today, but all those fancy amenities were quite costly. A roundtrip fare would have cost me $290.20. That’s about $2,000 in today’s dollars. Were I willing to take the “slow boat” and fly a prop across the country, I could get it for the bargain-basement price of $224.90 roundtrip, a “mere” $1,500 today.

If the airlines still charged those rates today, I wouldn’t be traveling very often and neither would most Americans. The industry would be a lot smaller, but I’m sure service would be outstanding . . . for those who could afford it. Instead of keeping fares so high, the airlines realized that if they brought fares down, they could get more people onboard. Today, flying is no longer a luxury enjoyed by elites. It’s something that’s within nearly everyone’s grasp.

As fare competition increased, the airlines began to look toward costs so they could continue to push fares lower. Now flights were more full, and the number of flight attendants onboard shrunk to reduce costs. Airlines also worked hard to get more productivity from their flight attendants to keep costs down. The days of the glamorous airline job ended when the craving for low fares grew.

Today, most people flying domestically in coach choose their flights based on price and schedule. Until people begin choosing airlines based on product and service, even if costs more, we aren’t going to see airlines willing to go above and beyond on that side of the business. So for now, we’ll continue to hear horror stories from time to time when things go wrong.

While the news constantly reports when things go wrong, we never hear when things go right. If an airline has fewer than 7 out of 10 flights arriving on time, it’s considered terrible performance. This fall, as a result of good weather and reduced flying, airlines had some of the lowest cancellation and highest on-time numbers they’ve had in years. Yes, when bad weather rolls in, things get bad quickly. But would a smile or some peanuts really make you feel better at that point? I doubt it. Getting where you need to go as quickly as possible is the only thing that matters then.

I’m not saying the airlines are perfect. There are always things they can do to improve. But I can fly somewhere exotic once a year and domestically a few more times during the year without breaking the bank. I’d much rather be able to fly somewhere with a surly crew than not be able to fly at all.

It’s been a long but interesting few days here at PhoCusWright. Mostly, I’m here to meet with people and learn more about their companies, so I haven’t been attending too many of the sessions. That being said, there was one presentation I absolutely had to attend: “Customer Experience and Flying: Not an Oxymoron.” Oh yeah, and this was presented by United. I figured it would get ugly, and I was right.

Tim Simonds, Managing Director, Customer Strategy and Metrics, first gave a presentation that was entirely focused on the premium experience that United is trying to create. He used many of the buzzwords out there – they want to be “best in class” and they have a “bias for action,” and yes, he even pulled out the “purchase funnel.” Let me try to translate.

United is trying to provide an excellent premium product on its international fleet. The airline wants to really excel at delivering when the customer experiences the product, and this includes everything from the right seat/bed to little things as well . . . for the premium customer. The airline has a first class lobby at O’Hare to create a great experience on the ground, and they’ve even taken the agents that work there to the Disney Institute to give them training on customer service.

We were also shown a video with, as I jotted in my notes, “dramatic piano music and backdrops of Chicago.” This was all about the premium seat, and it made me wonder why they even bothered putting it together.

And that was that. Sounds good, right? Yeah, well if you’re flying international premium class then it is pretty good but there are a couple problems that came to mind immediately.

1. Not once was the back of the plane mentioned in the presentation
2. On time performance didn’t come up in the prepared remarks

I thought it was rather odd that these wouldn’t be discussed, but fear not, it came up immediately after the presentation was done. See, PhoCusWright has a Talkback feature where two people from the industry come in after the presentation to gang up and ask questions. This time, we had Josh Weiss, Delta’s Managing Director of delta.com and Self-Service alongside Jim Young, Frontier’s Vice President of Marketing, Sales, and Distribution (though he has a much longer history in the industry with other companies).

Apparently, Josh and I were on the same page, because he immediately addressed my first point above. He said something to the effect of, “I see a lot about the premium product but what about everyone else?”

Tim then clarified that United’s strategy is to provide a good experience for everyone and a great experience for premium passengers, but we didn’t get any details of what that might mean other than saying that good service was important.

Jim then jumped in and said that everything United appears to be doing is playing catch up. What are they doing to differentiate themselves?

Tim said that service would be the differentiator.

Josh wanted to know what else they were doing besides sending 200 people to Disney for training. What are they doing to help everyone else at the airline?

Tim said they’re having meetings with people every day and they’re really trying to make sure that management is setting them up to succeed. I’d guess few employees would say management is doing a good job of that right now, so there’s a lot of work to be done here.

On time performance did finally come up in discussion and Tim said they were making progress on that. I certainly hope so, because while the details didn’t come up on stage, I looked it up and found that they were 17th out of 19 airlines in September and they’re in 18th place for the full year. They’re also in the bottom half of the pack for lost bags (12 out of 19 in September) and they have well above the average level of complaints. So again, there’s a ton of work to do.

Josh had a good question that seemed to be almost an afterthought, but it was important that it was asked. He wanted to know what “class” the airline was trying to be in when it said it wanted to be “best in class.” Were airlines like Singapore and Lufthansa included?

Tim responded that no, they weren’t. They’re only looking at North American carriers. And then he said, “For us to say we want to be as good as foreign flag carriers is overstretching.” Ouch. So they want to be the best of the worst, apparently.

At this point, everyone started piling on. An SMS showed up on the screen that said, “All this focus on the customer but where were they in that video? I only saw a bunch of suits in downtown Chicago.” Good point.

Then an audience member noted that the magic of Disney is that they treat everyone well while United is “abandoning the back.” Tim tried to respond that you get a very different experience at the Grand Floridian then you do at Port Orleans (at DisneyWorld), but in my eyes that isn’t comparing apples to apples here. I thought about this as the session ended and we all left the room.

United (along with most legacy airlines) doesn’t understand which of its travelers are premium, so it’s pretty ridiculous for them to focus so intently on that area. It rewards its frequent fliers, but those people could have bought the cheapie fares for all their flights. Meanwhile, someone who has never flown United but buys a full fare walkup ticket won’t even get to sit in Economy Plus.

Putting it in DisneyWorld terms, you could have one traveler who goes to DisneyWorld 25 times a year, pays $80, and gets to stay in the Grand Floridian since he comes in so often. Meanwhile, you could have another customer who pays $500 for his only visit of the year and gets put in Port Orleans. That’s not how Disney treats its customers and it’s not how airlines should either. I won’t even get into the fact that even the lowest paying Disney guests are treated very well whereas United has a lot of work to do all around.

In the end, Tim took all the shots pretty well considering that his employer deserved them all, but I ended up almost feeling sorry for the guy. United has a lot of work to do, and they probably shouldn’t be giving a presentation with this title until they get all the basics in order.

I received an email from the author of the blog, “Think for a Moment,” suggesting that I take a look at the letter to airline CEOs that he (she?) had written. I’m always happy to read people’s takes on the industry, because often I think those who are surrounded by the industry don’t really step back to see what people on the outside, customers, are thinking and feeling often enough.

So I read through the letter, and it was full of a lot of the same stuff that we often hear about the industry. Flying should be fun, but it’s not. Airlines need to treat passengers better. Like I said, it’s the usual stuff. But he does go into specifics, so thought I would address each one to try to get a good discussion going.

Communicate with Your Customers
How many times have we heard the complaint about airlines not keeping customers informed when things go wrong? It’s happened enough that the airlines even put a rule in their customer commitments that they would communicate every 15 minutes during delays. But we all know it still doesn’t happen as frequently as it should on a broad scale.

Is there any way to fix this? I’d think the only way to truly fix it is to make sure that the front line has a portion of their compensation based on it. Would the unions ever allow something like this into a contract? I highly doubt it, but it makes sense. Put some performance-based compensation in there and you fix it quickly.

I’m not saying that you rate a captain on her landings and then pay based on that. And I don’t like the idea of paying based on punctuality, because that encourages pilots to fly in unsafe conditions just to make some extra money. I do, however, like paying for basics like communicating delays to passengers. It shouldn’t be that hard, but oftentimes there isn’t a huge motivation for it to happen.

Stop Nickel and Diming Customers
This is one that has been shouted from the rooftops, but I have to disagree. There’s nothing inherently wrong with nickel-and-diming if that’s the strategy you want to pursue. That doesn’t mean it’s right for every airline (hint: it’s not), but it’s right for some. Historically, you’ve received a meal and a drink for free, so now everyone assumes it should be that way for eternity. If an airline wants to pursue an all-in type of strategy, that’s fine (and more should be looking at this). But who is to say that an a la carte strategy is bad?

There are plenty of people out there who don’t want a meal, and as US Airways has found, when you charge for drinks, people don’t want them either. So why shouldn’t people pay for what they want to have? Why should someone who doesn’t need to check a bag have to pay for a fare that includes two checked bags?

Of course, I absolutely hate that I can’t just decide this up front on most airlines. I may know at the time of booking what I want to have, and I should be able to include that in my original purchase. But I should also be able to add on at the airport and on the plane if I want to. Choice is good.

So where would I draw the line here? It drives me nuts to see airlines charge for something that you can’t really avoid. Look at Allegiant, for example. They charge an $11.50 booking fee per person for any booking you make unless it’s made at the airport ticket counter. That’s a frustrating fee that should just be rolled into the base fare because it’s so difficult to avoid it.

The worst is probably when you aren’t capable of making a booking online for a certain type of itinerary, but the airline will still charge you a fee to use the call center. Those types of fees are maddening and should not be charged. But everything else is fair game for those airlines who choose to purse this strategy. I just wish more airlines opted not to go a la carte so that passengers would have more choice. For now, Southwest gets the brunt of the benefit.

Create a Good Customer Experience
Obviously this one needs some more explanation, because it’s a big topic. So let’s take some snippets.

And you know what would have guaranteed my loyalty and undying love? If one of these carriers had demonstrated the foresight to put into a database that I am six feet, five inches tall and well over 200 pounds. To what end, you may ask? To ensure that I always get priority for (1) the emergency aisle or (2) an aisle seat or (3) at a minimum, to ensure that you don’t put some behemoth next to me.

I find it funny to see this comment come right after the nickel-and-diming one, because they’re actually tied together. Many airlines are now charging for the best seats on the plane. JetBlue will give you more legroom for a few bucks, and the legacy carriers sell their best seats on the plane as well. So the invention of nickel-and-diming actually lets the tall person self-select into the better seats by paying more. And that’s how it should be. If you just want to buy a rock bottom fare, you shouldn’t be entitled to the exit row if someone else is willing to pay for it.

do not want to overhear one more time about hours being cut, schedules being changed, routes being altered. Aren’t there other hours in the day to discuss and share these thoughts other than during work on the plane and in ear shot of passengers?

This one is a pet peeve of mine as well, and I’d say it points back to the idea of pay for performance that I discussed earlier. How do you know if a flight attendant is complaining loudly in the cabin? Look for complaints from passengers. Put a survey out to every single person on every plane and ask for feedback. Now that airlines often have in-seat video and many are installing wi-fi, this would be an easy thing to do electronically. Then employees can receive a portion of their pay based upon customer feedback. I know . . . the unions will never go for this.

Show Heart

Again, this needs further explanation. The author is referring to the airline’s rigid fare rules. He was traveling last minute for a funeral, and the fare was, in his opinion, too high. This of course is not something that a reservations agent can change. They don’t have the authority, and it is a difficult situation. So what could an airline do? These types of situations are not something that can be resolved with a blanket corporate policy. These are things that have to be handled on individual cases, but nobody is ever empowered to handle them.

So how do you get around it? Well, it’s hard. Airlines are afraid to give more power to the front line employees because they don’t trust them with that power. It’s sad but true, and it’s a reflection of the state of the airlines today. Maybe the airlines could create a central customer resolution desk. But the problem with that is there are thousands and thousands of people traveling to funerals, hospitals, etc every single day. There’s no way to handle the flood of requests that would inevitably follow.

I don’t see this as something that can change without a complete alteration of employee relations. And that’s something that isn’t going to happen very easily, but it would be great to see.

Create a Real Customer Loyalty Program
The author suggests a frequent flier program that offers the following:

• Discounted fares as a frequent flyer
• Lowest fare matching
• Automated upgrade to Economy Plus (United’s “better than Coach but clearly not Business” class) that has more leg room
• Noting that I should always have an aisle

I hate to break it to him, but this already exists, for the most part. Elite members of United’s program do get automatic access to Economy Plus, and they have aisle seats that are set aside for them to reserve. They also get exclusive discounts that United sends out to only the frequent fliers. Every legacy carrier has this. The one thing they don’t get? Automatic low fare matching. And why should they? They shouldn’t. If you’re building up all of these benefits to flying one airline, then you should be willing to pay more for it.

Summary
What I see in this message is that a lot of people want a lot of stuff without paying for it. Yes, the customer service issues need to be addressed. I have no disagreement, but the best way I see that it can be addressed is via a method that no union contract will support (I’m guessing). So that relies upon an improvement in labor/management relations to build trust. That’ s not easy either. Most of the other complaints, however, seem to forget that people pay very little to fly. I mean, the author was complaining about a $399 roundtrip ticket on AirTran. I do not know what route he was flying, but paying $399 to fly roundtrip somewhere is not that high if you think about it. You’d pay that for two nights at a mid-level hotel.

So I can see airlines looking to significantly improve service only if they can profit from it. Southwest is trying to show that it can do it by avoiding fees. Other airlines (including Southwest) will add things like onboard internet because they can make money on it. If people start voting for those airlines that provide better amenities and service, then ultimately the other airlines will opt to compete. But if people continue to choose the lowest price around, then airlines are never going to make improvements.

Stay with me here. Michael O’Leary, Ryanair’s fearless leader and king of publicity, has announced his plans for a transatlantic airline. And yes, it will apparently include blowjobs.

His plan? A bunch of economy class seats that will sell for 10 euros or something really cheap like that as well as a business class that’ll run you 4,000 to 5,000 euros. Why would you pay that much? “Beds and blowjobs.” Now THAT’s a value proposition. Don’t believe me? Watch for yourself (sorry, but the video is blowjob free):

I’m actually surprised that he gets that you need to have a premium cabin to make this work, but it’s his spin on the product that makes this blogworthy. Will it happen? Probably not, but he’ll get all kinds of people to write about it. Heck who knows if he’ll ever get this thing off the ground at all, but who cares? Just watching his translator squirm is worth the post.