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Competition and customer care

July 24, 2014

For those who have the pleasure of traveling on US air carriers, the fact that they win awards for being the least comfortable will come as no surprise. And just in case you were not already feeling exploited, they are apparently also the world’s most profitable airlines.

The airline industry is a great example of what happens when politicians intervene and competition becomes distorted. It is a story of both good and bad. Interestingly, as the supposed home of market capitalism, the US seems to be the region that has got it most wrong.

Whether you look at factors such as passenger comfort, or the quality of on-board food, or the inconvenience of extra charges, or the reliability of departure and arrivals, US airlines generally beat the rest of the world hands-down for lack of quality, reliability and customer care. As a market that is protected from overseas competition, it seems that airlines compete on the dubious basis of the least bad. Those that seek to break the mold struggle to survive.

Other world regions and carriers are not universally better, of course. Some of the European low-cost carriers can certainly stand shoulder to shoulder with the US airlines when it come to abusing their customers. But the difference is that they do not pretend to offer quality; they are unashamedly low-cost and their customers know what to expect. Yet even they are generally reliable when it comes to arrival and departure; it is rare for their passengers to experience hours sitting on the tarmac.

A reason for the more positive experience in Europe is the impact of consumer-based legislation which requires airlines to compensate passengers for delay. The airlines squealed, but in reality it has driven a tremendous increase in quality and fleet management, benefitting both the consumer and the provider. Also, the extent of deregulation has in most regions added substantially to customer choice and the effectiveness of competition.

However, when it comes to passenger comfort, it is airlines from the Middle East and Asia that are winning awards. It would be nice to report that this is due to inspired product development and outstanding management. But unfortunately that is often not the case. Once again, we see the hand of Government intervening. National airlines are seen as strategic assets and therefore in many cases receive significant subsidies and side benefits, such as cheap fuel.

For the passenger, there is no sign of open competition any time soon and market distortions will continue. Meantime, airlines continue to explore ways to further cut costs and maximize revenues; the latest example is the development by Airbus of a new seat, based on a bicycle saddle. And you thought existing planes were uncomfortable …..

 

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