Tales from airline insider

One of the great things about attending business school in downtown NYC is the quality and breadth of speakers who come to campus. This week, Rick Zeni, formerly of US Airways and JetBlue, visited my Revenue Management class to talk about pricing in the airline industry. It was one of the first to use dynamic pricing and segmentation to increase profitability. Now, of course, it helps airlines be much less unprofitable than the otherwise would be.

JetBlue is my favorite airline and Rick confirmed that they really do care about CX and service there. The consciously have fewer seats per plane, personal TVs for every seat, etc., and these costs make them less profitable than, say, Spirit Airlines. In terms of CX, JetBlue beats out mainstream carriers, too. If people love JetBlue, asked Rick, why aren’t they able to charge a premium?

People love JetBlue:

"JetBlue's killer legroom JFK-Salt Lake" - flickr post

“JetBlue’s killer legroom JFK-Salt Lake” – flickr post

He asked us to raise our hands if we’d pay an extra $1 to fly JetBlue versus another carrier. Most everyone raised theirs. The problem is that, while many customers would pay a $1 premium to fly on JetBlue, many would not.  If JetBlue loses one $150 fare because it asked for $151, then 150 passengers would have to pay the $1 premium just for JetBlue to break even. Leisure flyers are notoriously price sensitive, so the math doesn’t work.

This is not to say that JetBlue’s efforts are for naught. The idea is that JetBlue’s superior CX helps it to win in a tie. That is, if customers have several options at the same price, they’ll more often choose Jet Blue, boosting the airline’s yield.

Spirit provides an compelling comparison. Spirit attracts customers who care only about price. It is infamous for charging very low fares, then annoying customers with fees – including up to $100 for a carry-on bag. It is also infamous for getting free publicity by creating ads so offensive they get media coverage. According to Rick, Spirit also packs the maximum number of seats on each plane as allowed by law.

Customers notice:

"This is how much leg room you get" on Spirit - Yelp!

“This is how much leg room you get” on Spirit – Yelp!

It riles me when companies that care thismuch about CX outperform companies that make exceptional CX the cornerstone of their business. Of course, profitability matters, too … see: Virgin America. It will be interesting to see how these airlines fare over the longer term.

For the record, I flew Spirit once and it was a maddening experience.

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