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Why Continental Airlines (And A Few Others) Should Go Bankrupt

Lets assume you are a budding entrepreneur, and you decide to open a lemonade stand.  You find a good recipe that people like, and you greet your customers with a smile and good service.  And business is good.  Perhaps because of global warming people are thirsty – but the fact is that you are busy.  And soon competitors open lemonade stands too – but there is plenty of business for all of you.  In fact, you are all so busy that you cannot keep up with demand.  People are lined up to buy everyone’s lemonade, and it is difficult for all of you to serve everyone.  You have more demand than capacity – and you don’t really want to expand capacity – so what do you do?

Well, business 101 would tell you to raise your prices.  Determine the price elasticity of your product.  What is the highest price you can charge while still selling the maximum amount of your product, while still maintaining the quality and customer service that has made your lemonade stand so popular?

Here is what you probably would not do unless you are insane or crave failure.  Lower your prices until you were losing money on every glass of lemonade you sell.  Your low prices bring in more money-losing business – and soon you have lines of dissatisfied, thirsty customers.  You begin to scream at them to “shut up and quit complaining” about the long lines.  Since you are losing money you change your recipe to lower costs and begin to use an inferior grade of lemonade mix that is manufactured in a Chinese factory with questionable hygienic practices. Instead of using good clean tap water to make your product, you make a deal with a local sewage treatment plant to buy “recycled water” at a discount. You implement a policy of charging customers separately for the cup that holds their lemonade.  A few customers get sick, many complain about your business practices, but instead of improving your process and addressing the complaints you initially blame the terrorist attacks of 9/11 for your business issues (“I just haven’t been able to concentrate on making good lemonade since those pesky terrorists came here”, you lament.) After a few years when that excuse runs thin, you blame the high cost of lemonade mix.  And then you go bankrupt.

OK – I realize running an airline is much more complicated than operating a lemonade stand, but they both do share the same business foundation; provide a good product at a price that allows you to make a profit while still in reach of your consumer, and offer customer service commensurate with your price and brand.

The last few weeks have been a tough time for many airlines.  Many smaller operators have gone bankrupt.  Several of the majors are bleeding money fast due to their lapsed maintenance policies. And the consumer continues to pay the price.

As a very frequent flyer (I hold Gold or Platinum status on five airlines, and have flown almost two million miles on Delta) I am perhaps not the most sympathetic one to the plight of the airlines.  The last few years have been miserable for flyers on most airlines.  Flights are packed.  Service is terrible.  The planes are often filthy and not properly maintained.  Airlines charge extra for substandard food.  And perhaps the worst aspect is the complete lack of customer service.  Since 9/11 airlines have plied on our sympathy, and frequently used the disaster as an excuse for their poor management.  Airline employees are often unabashed in their distaste for passengers and customer service.

Two weeks ago I witnessed three Continental employees joyfully abuse a passenger until she was in tears.  They lied about laws governing airline travel, refused to offer any reasonable level of service, and when I threatened to report one of the employees she took off her badge and hid it in her pocket in an attempt to withhold her identity.  When I later complained to Continental management, they offered a lame apology, but primarily offered inane excuses and quoted policy to avoid taking any responsibility.  It was clear to me that their obvious antagonism for their customers came from the top down.

None of this has made any sense.  With flights packed, how is it that airlines don’t make money?  I don’t know of any other business that operates at capacity and still fails.  Of course now they blame fuel costs.  But why not raise rates to reflect higher costs?

Most airlines miss the basic opportunity of business.  The very lowest price is not the only available market.  Not all of us eat every meal at McDonalds or stay at the Super 8.   Most frequent flyers would happily pay more for a better experience.  I am a big fan of Alaska Airlines, and will happily pay more to fly their airline if the schedule even remotely works for me.   I want a clean, roomy, well-maintained plane that lands on time, decent food, and my bags delivered in a timely fashion.  I want good customer service that recognizes my rights as a passenger and a human being.  I don’t really want to fly with a plane load of families heading to Disneyland that the airline is losing money on because they sold them tickets at 1/3rd what I paid.

Airlines have only themselves to blame for the price pressure they battle.  And when most of them opt to lose money to stay full, it impacts the really good airlines that attempt to maintain a brand but get sucked into a price war.  Perhaps these financial problems with the airlines will flush out some of the mediocrity, and make them operate smarter and with more regard for their customers.

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3 Responses to Why Continental Airlines (And A Few Others) Should Go Bankrupt

  1. Mark Richard says:

    Of all the airlines to mention, you decide to put one of the best-run airlines in your title. Loser airlines like JetBlue and other discount carriers who -lower the bar for everyone- are clearly at fault. Not to mention the idiot travelers who actually think that $65 is a ‘reasonable price’ to pay for a 2-hour ride on a $36 million aircraft filled with nearly $50 thousand dollars worth of jet fuel.

  2. Tim O'Leary (same name, different person!) says:

    There are only two type of air travellers, Time crunched (gotta get there tomorrow) and cost crunched (vacation). Air Carriers charge the “value of the seat”. If a biz traveller needs to be in Grand Forks tomorrow to ink a $5 millon contract he will pay more for the seat since it has greater value to him. Time is more important than cost.

    Price crunched family of five flexible in schedule and dates can plan better and are rewarded for it by paying $65. Yield management voodoo.

    Sorry to say, price IS the deciding factor, very few will be willing to pay much more for better service-look at MGM Grand airlines or the host of other ‘all 1st class’ carriers airframe hulks litter the boneyards in the SW and in Oregon.

    Even business travellers are responsible to the accounting department, boss or the owner(s) who will care about the bottom line vs your comfort. (thank you SOX)

    Frankly, if you want to pay for service, buy or charter a corporate aircraft.

    As far as gate staff….go to a party where no one knows you, tell’em you work for airline ABC and those around you will tell you horror stories about airline XYZ, etc etc.

    Maintenance and operations, maybe you’d favor going back to a time when air travel and airlines were regulated by the government-who could fly where and charge how much…taking the free market (price) outta the loop and having the airlines compete on pretty much customer service-after all they are going to be charging the same fares set by the CAB (Civil Aeronautics Board). Just look at the marketing before and after deregulation, aimed at service vs price.

    Wonder if the bottom line vs the public good and safety will bring back economic regulation. Look at cell phone providers or the history of the baby-bells (what is left after they merged again).

  3. Tim O'Leary (same name, different person!) says:

    There are only two type of air travellers, Time crunched (gotta get there tomorrow) and cost crunched (vacation). Air Carriers charge the “value of the seat”. If a biz traveller needs to be in Grand Forks tomorrow to ink a $5 millon contract he will pay more for the seat since it has greater value to him. Time is more important than cost.

    Price crunched family of five flexible in schedule and dates can plan better and are rewarded for it by paying $65. Yield management voodoo.

    Sorry to say, price IS the deciding factor, very few will be willing to pay much more for better service-look at MGM Grand airlines or the host of other ‘all 1st class’ carriers airframe hulks litter the boneyards in the SW and in Oregon.

    Even business travellers are responsible to the accounting department, boss or the owner(s) who will care about the bottom line vs your comfort. (thank you SOX)

    Frankly, if you want to pay for service, buy or charter a corporate aircraft.

    As far as gate staff….go to a party where no one knows you, tell’em you work for airline ABC and those around you will tell you horror stories about airline XYZ, etc etc.

    Maintenance and operations, maybe you’d favor going back to a time when air travel and airlines were regulated by the government-who could fly where and charge how much…taking the free market (price) outta the loop and having the airlines compete on pretty much customer service-after all they are going to be charging the same fares set by the CAB (Civil Aeronautics Board). Just look at the marketing before and after deregulation, aimed at service vs price.

    Wonder if the bottom line vs the public good and safety will bring back economic regulation. Look at cell phone providers or the history of the baby-bells (what is left after they merged again).

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