Wednesday, July 22, 2009

The stupidity of short-term thinking

photo courtesy: Innaminnafly

I'm flying to Europe for six weeks in August (and I won't be blogging much during that time as I know you are all dying for a break! :-) ). And, I'm VERY VERY annoyed at the airline industry right now.

Travel is a luxury item, and with the economy struggling as it is, only crazy people (like me) who are footing their own bills or business people who have someone else footing their bills are doing the traveling. The once high-flying (pun-intended) airline industry is struggling to pay their own bills, and is consequently trying to punish anyone who is trying to help them out.

Normally, with packed flights through most days of the year, airlines keep peak season rates relatively low. But with such low demand, airlines are trying to make their profits entirely in the peak poor, unfortunate idiots like myself are stuck with abnormally high rates. (I try my best to avoid peak traveling seasons in general, because I dislike crowds intensely. But this time, I had no choice.)

This is what I call stupid short-term thinking. While they make money in the short-term (really??), in the long-run, they are "shooting themselves in the foot." And here's why:
  • They are losing on the majority of people sitting on the fence about traveling. I know plenty of people who suddenly have a lot of time on their hands and have been contemplating traveling, but have given it up because of the exhorbitant rates. Airlines are betting on the few who HAVE to fly, not on the potential of people who might fly if their deals were better.
  • They are losing out on customer loyalty. What few airlines realize is that a lot of frequent travelers are loyal, and are powerful word-of-mouth marketers. I am loyal to Virgin Airlines for example (amazing customer service and in-flight service!!), and Southwest Airlines, and I used to be to JetBlue before their customer service started sucking. When you bully people into doing things they don't want to do or don't think is fair, they will hold it against you. In this case forcing us to pay unfair fees and putting up with awful customer service while it will get us this time, will lose us in the long run (this is why I will NEVER fly Northwest/KLM again!)
  • Allowing poor business practices to continue, even flourish: The larger US Airlines have the absolute worst service in the world, and they have no excuse. For years, the US government notoriously protected their airline industry, allowing awful business practices to endure. When the markets finally opened and protectionism was terminated, these "institutional airlines" (US Airways, Delta, American Airlines, United, etc) struggled. Their burgeoning bureaucracy made them inefficient against innovative, nimble, emerging airlines like Southwest Airlines, JetBlue, Frontier, and others. The older airlines have only survived by capitalizing on their monopoly routes, their loyal customers, and building alliances with better airlines around the world.
Still struggling, the institutional airlines turned to stupid short-term thinking, taking their ire out on the customers. Fly one of them and you'll find yourself paying for everything. None of the institutional airlines have on-demand entertainment, a common availability amongst every first-world airline. If you want it, you pay for it. Many of these airlines are locked into lengthy and heavy contracts with labor unions; so their staff are often old, cranky, angry people who have seen a once glorious job go sour. Naturally their customer service is terrible. Further, they've cut down on seat spacing, have aging fleets, ancient in-flight entertainment, and make you pay for everything, including your water and your luggage (in addition to your already sizable airline ticket).

Its ridiculous to me that these airlines are thriving in this economy. And why?? Because the now cost-conscious consumer is forced to go with the cheapest deal, not the best airline. While hunting around today, for example, Delta Airlines was charging $1121 for a round-trip ticket to Paris; Lufthansa, a relatively superior airline, was charging $1600 (which is currently average for all non-American carriers). Normally, I would pay the extra $100 or $15o over Delta just to get better service. But this time, I can't even afford the $1121. But its my only choice, so I take it. So here we have it...the market is working against us and them.

Yes, airlines have investors and shareholders. But shareholders are reasonable people. Everyone knows that the economy is doing terribly. It would be ridiculous to expect that Delta would churn out record profits at this time...

My point is this...short-term thinking, without considering the bigger picture is very stupid and dangerous. While the ailing US institutional airlines continue to get through another year, its only a matter of time before they will have to bow out. After all, GM just did...only a matter of time with the rest...

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