Wednesday, October 31, 2007

Why I Won't Be Buying any Airline Stocks

This Weekly Standard article asserts that the key to improving the overall airline passenger experience is to provide the appropriate competitive kick to airport authorities (and their underwriting airlines) so that they're forced to improve their security and capacity problems. The recent deregulation of destination airports and landing slots between the US and Europe is cited as an example. But on the passenger comfort side:
Of course, none of this will matter if America's airlines do what they are signaling they intend to do: keep capacity low enough to enable them to raise fares, lower service standards, allow their fleets to age rather than order new aircraft, and use the sardine can as a model for the seating configurations of the few new planes they do order. Gordon Bethune, former CEO of Continental Airlines, once commented on reductions in the quality of service that "You can take so much cheese off the pizza that nobody will eat it." Perhaps. But for now the skimpy pizza is the only food on offer.

Having just gotten off a Boston-to-DFW-to-Austin flight about 15 hours ago, my simmering business-traveller resentment is fresh. I would do almost anything to avoid business travel.

I suspect that the airlines know this, but they think that the biz set is a captive customer base. As long as they have to travel, they'll shop for the best deals and the best service, but there's no category-killer out there waiting to scoop up all the business.


I work in telecom. I've seen the telepresence systems that are coming onto the market. You can conduct a large amount of business every bit as effectively over them as you can face-to-face. These aren't your cheesy room videoconferencing systems. They're like being there. As long as you don't have to socialize with your customers to conduct business with them, they're vastly more cost-effective than travel. Obviously, landing an account requires that face-to-face socializing and trust-building. But servicing existing accounts doesn't.

Back in the 70's, the US automakers asked all kinds of questions about driving experience and comfort. As a result, they built large, comfortable cars with low quality and lousy gas mileage, secure in the knowledge that they were optimally balancing market needs and profits. But they lacked the imagination to ask questions about fuel economy and quality. As a result, Japanese automakers swooped in and disrupted their markets.

The airlines are in a similar spot today. All their market research is oriented around questions like, "Since you have to travel, what will constitute acceptable service?" But the question they should be asking is: "What will make you stop travelling?"

The answer to that question is likely to result in a 50% reduction in business travel over the next ten years. The airlines don't see it coming.

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