United Airlines’ four miscalculations — and the $200 million impact.

Just how many mistakes did United Airlines make in “re-accommodating” four of its booked passengers recently? Oh, let us count the ways …

Miscalculation #1

Despite some reports to the contrary, technically United Airlines wasn’t in an overbooking or oversold situation. The flight boarded full; then some crew assigned to a future flight from the destination city turned up suddenly.

The airline’s first mistake was failure by its managers or staff to correctly anticipate the crew that needed to travel on this flight.

 Miscalculation #2

Their second mistake was to implement an operating procedure which gives crew higher priority than paying customers.

Because all customers had already taken their seats on the airplane, and no more seats were available, this meant that the airline’s staff had to ask — or coerce — some seated customers to leave.

Miscalculation #3

United’s third mistake was management’s failure to empower the airline’s gate agents to offer higher compensation in order to entice customers to leave voluntarily.

This miscalculation guaranteed that the victims would be “paying customers” who had done nothing wrong, rather than the airline’s managers and staff who had made all the mistakes.

Miscalculation #4

When choosing its victims, everything else being equal apparently, United Airlines and its regional partners like United Express go after the lowest-paying customers first. That too is a miscalculation.

Let’s explore this a bit further. According to the latest published data I could find, on average around 40% of passengers on the typical flight are traveling using heavily-discounted tickets.  Most of those tickets are non-refundable, and prepaid.  They can be changed ahead of time, but only if the customer pays change fees which can be very costly.

This means:

  • If the passenger doesn’t change his or her booking early enough, and doesn’t show up for the flight, the airline keeps all the revenue – and has the possibility of re-selling the seat to a different passenger.
  • Otherwise, the airline keeps the original revenue, plus the change fee. For United, this amounted to $800 million of additional revenue in the year 2015 alone.

Phony Risk?

Airlines justify their overbooking and overselling tactics as a way of reducing the risk of revenue lost from no-shows. Published data indicates that approximately 15% of confirmed reservations are no-shows. Assuming that the airline bears the full risk of revenue lost from no-shows, overbooking mitigates that risk by allowing other passengers to claim and pay for seats that would otherwise fly empty.

Airlines typically overbook about 12% of their seats, counting on no-shows to match load-to-seats, or later cancellations to reduce bookings. (Failure to correctly anticipate the number of no-shows would also qualify as a mistake by the airline’s management or staff.)

All that being said, however, in most discounting situations there is no “risk” to reduce, because most customers who buy discounted tickets already bear all the financial risks from a failure to show up for flights. If passengers are unable to fly when originally planned, they must either pay steep change fees … or they forfeit the entire fare paid.

The Real Risk

In fact, the airlines’ biggest risk of revenue loss from no-shows arises from passengers paying first class, business class or full-fare economy.

These types of tickets account for approximately 25% of passengers and 50% of ticket revenues.  Yet those passengers typically incur few if any cancellation fees or penalties if or when they don’t show up.

When enterprises like United try to have it both ways – by putting themselves ahead of their customers and gaming the system to maximize revenues without incurring any apparent financial risks – is it any wonder the end result is ghastly spectacles like passengers being forcibly dragged off airplanes?

Scenes like that are the predictable consequences of greed overtaking sound business management and ethics. You don’t have to think too hard to come up with other examples of precisely the same thing — Wells Fargo’s “faux” bank account setups being another recent corporate black-eye.

I’m sure if United Airlines had it to do all over again, it would have cheerfully offered up to $10,000 per ticketed passenger to get its four flight crew members off to Louisville, rather than suffer more than a $200 million net loss in share value of its company stock over the past week.

But instead, United Airlines decided on a pennywise/pound-foolish approach.

How wonderful that turned out to be for everyone.

Habits die hard … but there are ways to change buyer expectations.

What’s the easiest way to change time-honored expectations? With dollar signs.

Humans are creatures of habit. Even little kids gravitate towards the “patterns” of daily life such as bedtime rituals.

These forces are what make it so challenging for companies and brands to introduce changes that go against habit.

We’ve seen this play out recently in two segments of the travel industry: airlines and hotels.

Challenging in both cases … but the changes in one are being accepted, while summarily rejected in the other.

untitledLet’s start with the initiative that’s flamed out. This past November, Hilton Worldwide launched a pilot at a number of its hotel properties where it began charging guests a penalty of $50 if a reservation needed to be canceled any time after booking.

The rationale for the initiative was the notion that hotels should join the rest of the world when it comes to the way its products are sold. After all, for most any product, once someone purchases it they’ve committed to buy it.

Not so with hotel reservations, where über-flexible cancellation policies have been the modus operandi seemingly forever.

The way that some in the industry see it, the practice of hoteliers tying up inventory at no cost or penalty seems illogical.

It’s why some chains have introduced stricter 24-hour policies wherein the first night room cost is charged to customers who fail to cancel before midnight the day before their arrival, instead of the afternoon of their planned arrival.

hlBut Hilton’s pilot went even further than this, because the cancellation fee would be charged regardless of when the cancellation was requested – even if it was days or weeks before.

Predictably, customers totally hated it.

So much so, Hilton canned the policy less than three months in.

Putting the best spin on things, CEO Christopher Nassetta remarked that Hilton “did get some nuanced intelligence out of the experience.”

Perhaps that intelligence was not quite as nuanced as Nassetta infers! At the bottom of this customer fail is a fundamental axiom:  If you mess with time-honored practices that people have come to expect as the normal course of business, you do so at the risk of major blowback.

But we have another recent developing in the hospitality industry that points to a different result. In this case, it’s in the passenger airline segment.

last classDelta and a few other airlines have been successfully rolling out a new class of travel euphemistically called “basic economy” or “super economy” class.

[Others call it “economy minus” or “last class” air travel.]

Essentially, what the airlines are now offering are the lowest available airfares that will get travelers to their place of destination – and that’s it. All of the basic amenities available to traditional coach class travelers are missing.

If one chooses to travel “super economy,” here’s what’s in store for them:

  • Seats with less leg-room than coach (if that’s even possible)
  • No free snacks or drinks
  • No free in-flight entertainment
  • No free carry-on bags
  • No advance seat assignments
  • No itinerary changes or ticket refunds (even with a service charge)
  • No frequent flier miles

For giving up all of this, customers are being quoted prices for air travel that are so low, they rival ground transportation rates.

But for travelers who don’t have to worry about changes in their travel plans … don’t care about in-flight comforts … or don’t travel frequently and therefore find frequent flier programs irrelevant to their personal situation, the tradeoffs appear to be worth it.

Because the passenger airlines need to make physical adjustments to their planes in order to offer “super economy” class, a lot is riding on the consumers’ acceptance of these tradeoffs. So far, Delta Airlines has found sufficient success with its pilot program to plan for its expansion.  And United and American are now getting ready to offer their own programs.

The key difference between the airline and hotel pilots boils down to providing a price incentive.

Even with time-honored or habitual practices, if you make it financially lucrative enough, you’ll get the behavior changes you’re seeking. Bottom-line, that’s the bottom line.

Speaking personally, seeing as how I feel strapped for space on airline flights already, I doubt I’ll be traveling “super economy” class anytime soon, except perhaps on very short hauls.

But I know for a fact that I’ll never book a room that’s subject to a cancellation fee.

How to Lie with Statistics: Commercial Airlines Edition

airlineIt’s become rather predictable. Government pronouncements claim that because the national unemployment rate is down to around 5%, it means that the U.S. economy is humming along.

But in fact, that conclusion doesn’t square neatly with the reality that the unemployment percentage is calculated based on the lowest level of workplace participation in decades.

So, which is it?  A strong economic upturn … or a middling recovery?  When the average citizen is the judge rather than breathless PR flacks, it’s the latter.

The same could be said about the airlines.

The amount of “happy-talk” about passenger airline travel is quite high these days.  Some of the news is undoubtedly welcome:  The lowest jet fuel prices in recent memory are making it cheaper to fly cross-country today than in years.

But upon further scrutiny, another spate of good news seems to be little more than blue smoke and mirrors. For a number of years now, the passenger airlines have been crowing about their on-time flight arrival performance.

The statistics purport to show that on-time performance rates for commercial airlines have been steadily improving.

But look a little closer … and the skies aren’t quite as clear-blue as all that.

A study by OAG Aviation Worldwide, a UK-based analytical firm that analyzes travel data, finds that airlines have been padding their flight-time schedules going on 20 years now.

Here’s a representative example of what’s been happening:  OAG evaluated 1,400+ commercial flights scheduled between Los Angeles International Airport and San Francisco International Airport.  Back in 1996, not even one of the flights between these two airports was scheduled to take longer than 90 minutes.

And yet … by 2015 the airlines had allotted flight times of between 91 and 110 minutes for nearly half of the flights scheduled between those two airports.

Of course, it’s axiomatic that if the scheduled flight times are lengthened upwards of 10%, that will take a so-so on-time flight arrival statistic and transform it overnight into a pretty impressive one.

… And the transformation’s been accomplished without changing a thing where it actually counts: on the ground (or in the air, I could say).

logoFor the record, no one at the airlines is acknowledging this statistical sleight-of-hand. Asked to comment on the OAG study’s findings, a spokesperson for the trade group Airlines for America (A4A) responded with this rather mealy-mouthed statement:

“We have the same goals as our customers, which is to get them, their luggage and packages to their destination safety and on time.”

Well, at least they’re not fudging on the safety part …

Which are the 10 Scariest Airports in America?

By Phillip Nones

Happy landings
“Welcome to Charleston, West Virginia. You can stop hyperventilating now.”

I’ve flown in and out of many airports in my time, encountering the usual plane delays and occasional rough-weather bumpy rides along the way.

But the most frightening airport I think I’ve ever experienced is the one in Charleston, West Virginia.  It’s situated on top of a mountain, and the runway ends mere feet away from a cliff-like drop-off.

Other people I’ve spoken with are spooked by the airports in San Francisco and Boston, where the runways protruding into the ocean give the eerie sensation of landing on water.

In any case, when Airfarewatchdog.com came out with its “Top 10 Scariest Airports in America” ranking recently, I wasn’t surprised to see that the Charleston airport made the list.

Shown below are the ten airports in question, headlined by Reagan National Airport.  See how many of them you’ve flown into … and if you agree that they deserve the notoriety:

#1 Scariest:  Reagan Washington National Airport, Washington, DC – Perched precariously as it is between two overlapping no-fly zones, approaching and leaving this airport is akin to threading a needle.

#2:  Telluride Regional Airport, Telluride, CO – It’s the highest-altitude commercial airport in North America, with no touch-and-go landings permitted.  Basically, the pilot gets one shot to land the plane.

#3:  Catalina Island Airport, Avalon, CA – Its elevation and location on the edge of the island makes planes prone to major-league turbulence and downdrafts.

#4:  LaGuardia Airport, New York, NY – As Airfarewatchdog.com puts it, the airspace around this airport is “uniquely crowded” (read:  dangerous).

#5:  San Diego International Airport, San Diego, CA – It has a downtown location.  No more needs to be said.

#6:  Yeager Airport, Charleston, WV – My “favorite” white-knuckle airport makes the list:  the one with the runway atop a mountain that’s situated between two ravines.

#7:  Rocky Gutierrez Airport, Sitka, AK – Obstacle course ahead:  When the weather is stormy, rocks and other debris pile up on the runway at this island airport facility.

#8:  Midway Airport, Chicago, IL – Short runways and a “convenient in-town location” make for some interestingly rapid dropdowns from the sky … not to mention “pull-back-on-the throttle” takeoffs.

#9:  John Wayne Airport, Santa Ana, CA – Air sickness bag alert:  Appropriately Californiaesque state and local noise restrictions require takeoffs at full throttle … then cutting back immediately on the engines.

#10:  Pitkin County Airport, Aspen, CO – The exact opposite of Charleston, WV:  This airport is situated in a valley wedged between two mountains – no doubt massively fun during one of Aspen’s notorious snowstorms.

Based on your own experiences, which one of these airports should be ranked “#1 Scariest”?

… Or are there other U.S. airports that you think qualify for “Top 10” honors?  I’m sure other readers would be interested to hear your perspectives.

Come to think of it, if you have any “scary airport tales” from anywhere in the world, here’s your chance to enlighten us …