Five Management Mistakes Most Airlines Regularly Make

Airlines around the world have been a cyclically profitable business. Some airlines thrive while others fail, and the reasons for this have more to do with management than the business model or the geography. Certainly, a well-run airline can be challenged by macro-economic tensions or high energy prices. But the airlines that do well react to these situations differently, and in ways that help ensure the long-term value of their enterprise.

Among the airlines that have failed or are on the way to failing, there are some common themes. That said, not every business model works but investors notice this and rarely finance new ideas that repeat mistakes. A well-run, long-haul, all-business class airline has failed many times and there isn’t a large pipeline of these ready to start. Many investors like low-cost airlines, but once running many are seduced by the idea of higher fares or succumb to the view of close friends who say things like “if your airline only offered this…..” Here are five common mistakes that most airlines make, but few make all of them and those that did aren’t around any more:

Listen To What Customers Say But Not What They Do

Formally known as stated versus revealed preferences, social scientists have known for decades that what people say is not always what they do. A favorite example here is wi fi onboard. Every survey of customers shows that customers want wi fi access onboard and will pay for it. But once installed, very few people use the product and almost no one pays for it. If they have to pay, it often annoys them because they get free wi fi almost everywhere else. I’m not saying that it’s wrong to offer this service. I’m saying it’s wrong to offer it if justified only on what customers say. It may be considered as an ante to the game for many airlines.

Some airlines have run surveys for the next new city to add to the network. This is a fun marketing event and gets the customers involved. But it gives the schedule planners no new information about the options available. More importantly, surveys about travel demand, interest in premium products, and more come out all the time. Airlines have all the data they need by looking at actual bookings and trends, and can test all kinds of ideas that way too. Surveys are great for showing what people think. But it’s how they behave and spend that drives the bottom line.

Choose Prospective Revenue Over Certain Costs

This happens at many airlines. They choose to burden their cost structure with ideas that should improve their revenue, but this doesn’t always happen. But the costs stay.

In 2000, American Airlines spent $70 million dollars to remove two rows of seats from their airplanes. They had convinced themselves, with the support of survey data, that giving more room to customers would result in customer willingness to pay more. While making the physical change, which took months and took planes out of service for a short while, they spent a lot more running ads about how great this was. Four years later, in 2004, they spent more money putting all the seats back, because they learned that while people liked the space, they didn’t pay for it.

This concept can be generalized: Don’t permanently raise the cost structure for only the prospect of more revenue. Investing in the physical product is great, and the business model may demand a certain approach. As changes are made, though, management can be diligent to ensure that the revenue enhancement earned is as certain as the costs incurred.

Trust Emotion Over Data

Airline planners, looking at monthly financial reports for each route flown, are sometimes heard saying “ but that really should be working” when looking at a 12-month loser. Planners are some of the most data-driven people at the airline, and even they sometimes fall victim to this bad habit.

Airlines have a lot of data. As an industry, they don’t hire enough data scientists to make the best information from this. Leaders often are moved more by anecdotal comments at a neighborhood party or a sense that what they think is right must be more important than what customers are are actually revealing. Building an airline for what they want is an an example of this challenge. One successful airline investor has been quoted saying that he wouldn’t want to fly on an airline that he’d invest in. This statement, while a bit obnoxious, shows a good understanding of the airline’s target customer.

Another airline executive used the term “refrigerator scheduling” as an insult to other airlines. He noted that British Airways once flew from Charlotte to London and from Baltimore to London. When Charlotte underperformed, rather than just canceling the route they started to fly a single plane from London to Baltimore, and continue it on to Charlotte. As a foreign carrier, they had no legal right to pick up people in Baltimore to take to Charlotte, so they just let people off in Baltimore and flew on to Carolina with fewer customers. He likened this to catering a big party and then having food left over at the end. Rather than throwing the food out, you put it in the fridge and the throw it out a week later. Sure enough, after a short time British Airways cancelled the Baltimore-Charlotte tag and stopped serving the Charlotte market directly. Emotionally, pulling out of that market was too difficult initially.

Assume Customers Are Engaged

Airline marketers are often proud of the materials they create. Whether it’s detail of pricing options, or explaining service options, or pumping up the beauty and efficiency of their fleet, they create all kinds of ways to explain their business to customers.

Then, when the plane boards, many customers barely know what airline they are flying, let alone the details of the plane or the specifics of the policies. Just because the airline creates things to explain, they can’t assume that all customers are engaged and read these materials or take time to understand nuances among airlines. This doesn’t mean that airlines shouldn’t try to explain. It means they need to recognize that many customers will not know these materials and plan for that in their service training and staffing.

Use The Wrong Benchmarks

The best consumer websites aren’t at any airline. Yet many airlines will compare their websites to their competitors and feel good when their’s is easier or faster. Instead, airlines should benchmark against the best websites anywhere, including Amazon or eBay.

Similarly, when comparing their costs or revenues, airlines should compare to the best worldwide standards, not only the local market. The most cost-efficient or revenue-optimizing airlines may not be in the U.S., so when benchmarking to only that standard an airline doesn’t set the bar high enough. This idea should apply to all things, including maintenance, IT, and more. Compare to the best anywhere, not just the generally mediocre results of other airlines.

There are many ways that management can affect an airline’s future. Sticking to facts, knowing who your customer really is, and having conviction about your business model are all ways to avoid these five common habits.