Friday, November 21, 2014
Inquirer Daily News

When choosing airline, ask: Am I customer or cargo?

Each airline´s business model tells us what it thinks of us, so we should choose accordingly.
Each airline's business model tells us what it thinks of us, so we should choose accordingly.
Each airline´s business model tells us what it thinks of us, so we should choose accordingly. Gallery: When choosing airline, ask: Am I customer or cargo?

It is the summer travel season, and our attention has turned to the airline industry and the cost of getting to our favorite vacation destinations. But it is not just the dollar expense that concerns us; it is also the emotional and physical stress of flying.

So we moan and rant and rave about the state of the airline industry. But we shouldn't. Each airline's business model tells us what it thinks of us, so we should choose accordingly.

On the surface, all airlines do the same thing: Move people from one place to another. It's the philosophy about that basic process that differs dramatically. Some consider price the most important factor, others look toward service, while some try to balance the two. So when thinking about flying, understanding the airlines' business strategies is critical.

To show that it is all about the business plan, let's compare and contrast two airlines: JetBlue and Spirit. Both are considered low-cost carriers, but that is where the similarity of their business models ends.

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    Spirit

    Spirit's strategy centers on one thing and one thing only: price. Consider what Spirit Airlines chief executive officer Ben Baldanza said in a May 2013 interview on CBS This Morning in response to a question about Spirit's ranking at the bottom of a  Consumer Reports survey: "We do have great customer service because we give them the lowest price possible."

    For Spirit, it is all about cost, and whatever lowers it, do it. The airline is in the airline industry, but its business model more closely follows that of a freight-mover, not a people-mover. Its planes are FedEx or UPS with windows.

    When you fly Spirit, you pay for just about everything and get as little space as possible. It is not about comfort, since service is defined as low price. You have to give Spirit's management credit because it tells you that up front.

     

    JetBlue

    On the other end of the service spectrum is JetBlue. In its 2014 customer satisfaction report, J.D. Powers put JetBlue at the top of the low-cost airline list for the 10th consecutive year.

    JetBlue prides itself on its service and few fees. The first bag flies free. It advertises the most legroom, has planes with free television screens in the seat backs, and you get all the free snacks you want. The focus of attention is the traveler.

    The remaining carriers flying out of the Philadelphia region distribute themselves across the spectrum. Southwest has a business model similar to Spirit's, while American/US Airways, Delta, United, AirTran, and Frontier do some of both, or in some cases, little of either.

     

    Last thoughts

    So, is one model better than another? No!

    Theoretically (a word economists like to throw around), with enough competitors offering varying levels of cost and service, consumers can pick and choose according to their preferences.

    If you don't like flying with your knees touching your chin, or you don't want to pay for a checked bag, or you think you should get a free drink or snack, then, theoretically, there are alternatives you can choose.

    And indeed, consumers do that every day. The reason Spirit's CEO can say that service and price are one and the same is that his no-frills, pay-for-everything model is extremely profitable. People fly Spirit by the boatload, or rather planeload.

    But you don.'t have to be a no-frills, price-is-everything, satisfaction-is-irrelevant airline to make money. Alaska Air, which is at the top of J.D. Powers' satisfaction list of traditional airlines, ranked in the top 10 in profit margin, according to an Airline Weekly 2013 profitability report.

    Unfortunately, the options in the Philadelphia region are not unlimited. We can drive to Atlantic City and take the low-cost, no-service Spirit, or we can drive to New York and fly the relatively low-cost, high-service JetBlue.

    The alternative is to choose from the airlines available at Philadelphia International Airport. Low-cost, high-service Southwest has been retrenching here. JetBlue; Delta, another highly rated airline; and other smaller airlines have limited service. Or, we can fly the combined American Airlines/US Airways, the near-monopolist at PHL. That company's business model seems to consist of poor service accompanied by high prices.

    For Philadelphians, the choice is clear: Either quit complaining and fly the airline that best meets your needs, even if it costs too much and you hate the flight, or find out why so many politicians and business leaders thought reducing airline competition was good for the region.

     


    Joel L. Naroff is president and chief economist of Naroff Advisors Inc., in Holland, Bucks County.

    jnaroff@phillynews.com

     

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