Short Term Revenues at the 
Price of Long Term Loyalty

By Lior Arussy

I would like to congratulate all the customers of Northwest Airlines who loudly raised their voices. The airline announced cancellation of their plan to charge a premium price of $15 for exit row seats. The short lived plan apparently received such loud objections from customers to the point that the airline was forced to cave in. To those customers who believed that their opinion could make a difference, congratulations. Your voice did make a difference and stopped another stupid plan to milk customers for one more dollar.

To be fair, the practice was not invented by Northwest. Airlines are masters of now charging for what they once provided gratis as part of their service. Meals now cost an average of $5-$7 on flights. Snacks will be the next frontier from which they attempt to maximize revenues from customers.   Few airlines still honor the basic value of the flying experience. During a recent experience in making an airline reservation my wife discovered that the low rate she obtained came with a price: no advance assigned seating. This condition was not disclosed to her during the reservation process.

Upon hearing this, my creative juices went into overdrive and I came up with some additional ideas for the airlines:

  • Preferred access to the toilets - with vouchers going for $8 per usage

  • Premium toilet paper in the toilets - at a cost of $3.50 per roll

  • Clean blanket for $15 - and you get to keep it for future flights

  • Guaranteed no seating next to babies (all four directions) - $25 per trip

  • 5% discount on the cost of your ticket for helping the crew distribute meals (limited participation per flight, so get your request in early)

  • If you manage to actually sleep more than 15 minutes - you need to pay a premium for the privilege (TBD based on the amount of time you actually sleep)

  • If you sit next to an empty seat, you will be charged 50% of the full fare of that seat (what a deal!)

  • If the attendants smile at you sincerely, you will be charged $5 per smile

While working on my list, I found an amazing article on CNN that topped all my ideas. The article was titled “Airbus denies standing room seats”.  It described a secret Airbus plan to offer a standing room only “seats” in their new A380 planes. Those standing seats allow them to pack even more passengers in the already huge aircraft. According to the report, the standing room option allows passengers to be propped against a padded backboard held in place with a harness. How comfortable that must be!  What’s next? Travel in the cargo area fetus style?

Some airlines will argue that they are forced to take these measures because of the intense price reductions forced on them by customers. They may cite Ryanair, the European discount airline, as an example of using these types of practices. However, this is an incorrect comparison. Ryanair sells all seats at low costs and does not apply the traditional discriminatory pricing methods, such as higher costs for last minute reservations. The airlines are notorious for charging different prices based on time sensitivity related to the reservations process. It is common for a business traveler who paid $800 for his ticket to sit next to a leisure traveler who paid $150 for the same exact privilege to travel. When it comes to pricing, the airlines have excelled at differentiating between their customers.   But when it comes to service and delightful experiences, they deliver a lousy one size fit all - to all. They treat all customers the same way, in accordance with what they believe is the value of the lowest paying passengers.

Although the airlines will argue that such moves increase their profitability, they fail to answer the simple questions: how much do such moves cost them in loyalty? What is the real price of these short term revenue spikes? How much do they cost the airlines in erosion of customer loyalty? The responses of the Northwest customers demonstrate that such petty moves aggravate customers. This irritation will quickly translate into a costly depreciation in loyalty. There is a price to be paid by the airlines for all these attempts to charge for what used to be free. Instead of the airlines charging for basic services, they would do better by creating amazing experiences and then charging for those innovative services. How about an electric massage in the seats? I am convinced that people would pay for that service to address typical flight discomfort. This would be an innovative service perceived by customers as additional service which will command the extra fee. What about special customized meals for a fee? I would like to order a Wolfgang Puck pizza on my flight. I would be happy to place my order and pay an extra $15 for the privilege.  When the service is customized to my taste and I select it, I will pay more. There is no shortage of ideas. There is shortage of willingness and creativity on the airlines part to do it.

Taking existing services that were originally provided as integral part of your value proposition and making up new prices for them is dead wrong. It is not going to save the airlines anything in the long run, despite the initial spike in revenues. Airlines will pay for this temporary spike with long term loyalty depreciation and further price pressure from customers. Customers demand lower price, when they do not see the value they receive for their money. If airlines continue to reduce the value and charge for every pillow, they will only accelerate the own commoditization and therefore the customers’ price pressure. Irritating customers simply results in a reciprocal response. The choice is rather simple: respect your customers, delight them and enjoy their loyalty or stay in the downward spiraling cost reduction business.

Read other articles and learn more about Lior Arussy.

For permission to reprint or reuse this article, please contact Lior at [email protected].

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