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.

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 …

Airlines Continue to Struggle with Customer Relations

Virgin America AirlinerI’ve blogged before on commercial airlines and their penchant for treating customers in a careless fashion. Everyone understands that the air travel industry is a challenging business – and a far cry from the halcyon days of yesteryear when traveling by air was an enjoyably memorable experience. Sure, tickets were pricey. But crowds were few, the atmosphere pleasant, and people felt pampered and special.

Now, commercial airline travel is more like a trip on an overcrowded city bus or, worse yet, being in the middle of a cattle call.

On top of this, it seems that airlines are their own worst enemies when it comes to customer service.

Take Virgin America, for example. It’s only the most recent example of airline customer relations that are essentially in the toilet. Recently when the airline changed over to the Sabre reservation system – no doubt to save money as much as for any reasons pertaining to improved operational accuracy – it did so in a way that left consumer satisfaction completely out of the mix.

When the switch was flipped over to the new Sabre system, many customers couldn’t access the website … and many of those who did were provided wrong boarding passes or other inaccurate information.

Even the airline’s own crew members were given incorrect information about when to show up for work.

Billing procedures? They were equally compromised. Some customers found themselves being invoiced multiple times for the same flight; the most egregious example was one woman who ended up with nine separate charges for the same flight.

The phone system was totally overwhelmed, as would be understandable. With the crush of customers attempting to call the airline to work out scheduling snafus, people found themselves being placed on hold for hours at a time – then mysteriously cut off.

Wouldn’t interfacing with customers be a situation tailor-made for harnessing the power of social media? In the abstract, yes. But in the case of Virgin America, they bombed on this score as badly as everything else.

To begin with, the company’s PR posture was that customers were experiencing only minimal problems with a “smooth transition” to the Sabre reservation system. But consumers were telling a completely different story on Twitter and Facebook.

When things like this occur, smart companies monitor social media platforms diligently and jump in to respond to individual and group concerns immediately. They understand that a disgruntled customer can be turned into a brand evangelist if “service recovery” is done effectively.

Doing this well means two fundamental things:

 Validating customers’ concerns by acknowledging that the problem exists, and taking responsibility.

 Providing real relief. Refunds, discounts, rewards, additional air miles – it’s all part of the arsenal of offerings that Virgin America could use to “turn lemons into lemonade.”

It’s wise to take social media seriously. That means assigning people with brains and a sincere interest in customer care to take charge of social media, and also giving them the authority to respond with honesty, integrity and empathy.

From the looks of things, it appears Virgin America did it all wrong. It quickly became apparent that the true details of the Sabre conversion were at major odds with the “happy face” posture and the company’s claims.

But what happened to customers who voiced their real concerns via social media? They found their posts being deleted. Failing to address customer complaints, while dissing them by kicking them off your Facebook page: How is that a recipe for success?

Consumer research tells us again and again that when companies lose customers, it’s because of what happens “on the ground.” Like Virgin American, they may spend millions on advertising, but those ad dollars are often better spent to improve customers’ personal experience.

Satmetrix, a San Mateo, CA customer experience research and software company, found recently that consumers stop doing business with a company for a variety of reasons … but product or service quality concerns represent a distinct minority of the cases:

 Rudeness or dishonesty: ~34% cited for stopping relationship
 Unexpected charges or fees: ~20%
 Product or service quality: ~20%
 Unfavorable return or refund policies: ~3%

But back to Virgin American. When the airline was first announcing its shift to the Sabre reservation system, it came up with a catchy, irreverent tagline: We’re shaping up our back end. How ironic does that all-too-cute messaging sound now?