So what happened? The turnaround can’t be attributed to a bold, Da Vinci-esque initiative such as new carbon fiber aircraft, the pioneering of new markets or even low-cost innovation. Rather, it was the result of something far more modest: the slicing of airlines’ base offerings into customizable “options and extras.” The most famous of these options was checked-bag fees, but most of the recent innovations have focused on “upselling” passengers into an improved experience (e.g., selling fast-track boarding, lounge-access, extra leg room and others).
This is one of the most interesting articles I have read from Harvard Business Review. For one, I can't disagree more with the premise. The premise of the article is that charging fees is a good thing for businesses. Like many businesses in the "what have you done for me lately" quarterly earnings craze, the airlines have gone with the strategy of making bad profit.
What's bad profit do you ask? It's profit that erodes the long term profitability of the business. Not all profit is created equal. The airlines have sacrificed customer satisfaction and loyalty for short term profit. The article argues it saved the industry and these are innovative. I argue there is nothing innovative about this strategy. It is lazy.
As part of this shift, airlines realized that some people didn’t need everything that was included in the sale of a standard ticket; this opened the door to unbundling the “one size fits all” offer — and led to the introduction of fees for checked bags. Many business travelers never check a bag but historically subsidized the substantial cost for leisure travelers who did. Today, those who need the option pay for it. Many passengers grumbled, but the impact has been undeniably positive for the industry. Last year bag fees alone generated $3.6 billion in revenue in the U.S. Imagine where the industry would be without this?
What? Unbundling? They didn't unbundle, they added on fees. If they were truly unbundling, that business traveler referenced above would start paying less for their ticket. Instead, they kept prices the same or even raised them and tacked on these fees. I can't comprehend this thought process.
What really has saved the airline business? From the outside looking in it seems they have become smarter about their routes. They have cancelled many unnecessary flights, because most flights I go on are completely full. That wasn't the case before, and it's not because the customers are excited about paying for baggage fees.
The airlines seem to have become better at yielding their prices. I don't know if it was a big practice in the past, but the airlines seem to be much more strategic about their pricing model.
Articles like these make me wonder what we are learning about customer service. These strategies allow for an upstart competitor to come in and take major share, think Southwest. Southwest is growing faster than ever and that is because they don't nickel and dime their customers. Maybe the other airlines should find their "true innovation".