October 31, 2011

The Problem with Airlines: Is it Us?

Dennis O'Donnell


I was recently on a flight from Philadelphia to California on US Airways, who regularly gets destroyed in customer satisfaction surveys…but I had a great flight. This flight was comfortable, in coach class, and I promise you USAir is not paying me to write this. It was because of this flight that I have a new theory about the streak of poor airline satisfaction ratings: flying isn’t really that bad – we’re becoming more irrational as consumers, and there’s data to prove it.

According to J.D. Powers and ASCI, the #1 reason for the poor ratings against airlines is simple: prices. Call it extra fees, fares, whatever you want – the price of flying upsets consumers. From this starting point, there’s a cascade of irritating issues – cramped seating, terrible food, à la carte pricing, and dreadful service. But one point is repeated in both surveys: the prices are too high, and the fees are getting ridiculous….would you agree?

There’s just one problem with our complaint, however: prices have consistently dropped since 1995 – they’re at historic lows. As long as you believe in the idea of inflation, that is. Absolute prices, not accounting for inflation, have basically remained steady. In 1995, the average plane ticket price was $292; in 2010, that number was $337 – an increase of 15%. But take a look at what happened to the rest of the United States in the meantime: Gas jumped from $1.14 to $2.79 – a 144% increase. The Economist’s Big Mac Index shows the price of a Big Mac jumped from $2.32 to $3.73, or 60%. So accounting for inflation, which is very real, the actual price of flying has dropped about 19% – the figure used to calculate inflation here is the Consumer Price Index – the Big Mac Index and fuel prices I just used for illustration.

Airline Prices

So every year, we tell airlines “stop raising prices, or we’ll go elsewhere”, and every year, they respond to our (confusing) threats. They cut prices even more, but at the expense of our comfort. It starts the cascade of other experiences we really dislike – no free meals, impersonal service, more cramped planes (all cost-saving measures) – I’d be willing to bet these all stem from our inability as consumers to convey what we really want – value. If we just keep asking for cheap – that’s just what we’ll get.  Personally, I wouldn’t mind a reasonable price bump for real gains in comfort – maybe some real food options, or more ergonomic seats – in fact, I’m a regular purchaser of minor upgrades (<$25).  Priority boarding, aisle seating, and being in the front of the plane is easily worth $15 – another $15 for a good meal or entertainment isn’t a hard sell – it’s value.  I think the problem comes from paying $15 for something you think you should already get with the service (like checked baggage)….based on the data I see, airlines aren’t charging too much, they’re possibly charging too little, and definitely not giving consumers a perceived value.  However…zooming through the air at 30,000 feet going 600mph in a leather chair with ice in your glass for only $300 really isn’t a bad deal – think about it.

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