Nimish
Member
Joined: 16 Dec 2006
Posts: 9757
Location: Bangalore, India
|
 Posted: Fri Apr 11, 2014 7:25 pm Post subject: Unhappy customers = High profits! |
 |
|
Counter intuitive as it initially sounds, but it seems possible when you get down and consider what it really means.
From: http://www.businessweek.com/articles/2014-04-10/the-most-hated-u-dot-s-dot-airline-is-also-the-most-profitable
| Quote: | The Most Hated U.S. Airline Is Also the Most Profitable
Spirit Airlines (SAVE) inspires a special kind of wrath among the American traveling public: It’s the industry leader in customer complaints by a wide margin. Over the last five years, Spirit’s rate of complaints to the Department of Transportation was three times higher than other U.S. airlines, according to a report (PDF) released today by the U.S. Public Interest Research Group Education Fund.
...
Its customers will probably find this annoying, too: In spite of the rancor it inspires, Spirit has become the most profitable U.S. airline in terms of its operating margin and return on invested capital. Spirit’s 16.2 percent margin is highest among U.S. public airlines, as is its 26 percent return on capital, according to data compiled by Bloomberg. Allegiant Travel (ALGT), the nation’s other ultralow-cost airline, has the second-best operating margin—12.7 percent—followed by Alaska Airlines (ALK) and Delta Air Lines (DAL). Spirit shares have gained 439 percent since its mid-2011 public offering at $12.
“Customer complaints generally have a loose but inverse negative correlation to return on invested capital,” Wolfe Research analyst Hunter Keay says, noting that well-liked JetBlue Airways (JBLU), Virgin America, and Southwest Airlines (LUV) lag financially. “The commitment to make the customer happy costs money.” Keay says the low-cost model rightly treats airfare as a utility. “There really does not need to be a service component attached to consuming airfare.”
To that end, Spirit, along with other ultralow-cost carriers, has done all it can to drive ticket prices as close to zero as possible. The point is to attract new customers with low fares, then squeeze them into a spartan, cramped cabin and charge them for any and all amenities: water, carry-on bags, seat assignments, and the like. Spirit’s planes pack far more seats in the cabin than do other airlines, 178 on an Airbus (AIR:FP) A320—that’s 28 more than on the same plane at United Airlines (UAL) or JetBlue. And Spirit’s seats don’t recline.
On the flip side of this financial success, Spirit is still growing rapidly. It plans to almost triple its 54-jet fleet by 2021. A cheap fare may be able to lure first-time customers, but it cannot necessarily keep them. Over time, if travelers increasingly dislike the experience, it’s possible that Spirit’s financial performance could stall. On the other hand, airfares are rising across the board (consolidation will do that), and plenty of people may decide that saving $100 or more is worth a little temporary indignity.
... |
What parallels does this have in the Indian context (if any)? I don't think we have any airline that's truly reaching for the bottom of the barrel in terms of services - but would that help?
_________________
We miss you Nalini! |
|
The_Goat
Member
Joined: 03 Mar 2007
Posts: 3260
Location: South of France
|
| Posted: Fri Apr 11, 2014 9:33 pm Post subject: Re: Unhappy customers = High profits! |
|
|
| Nimish wrote: | Counter intuitive as it initially sounds, but it seems possible when you get down and consider what it really means.
|
Oh yes, just look at Ryanair. Everyone hates them but they are the most profitable airline in Europe.
It just goes to show that people will put up with anything if the fare is low enough. And it is really no big deal for 1-2 hour flights.
| Nimish wrote: |
What parallels does this have in the Indian context (if any)? I don't think we have any airline that's truly reaching for the bottom of the barrel in terms of services - but would that help? |
I think this is exactly what Air Asia India is planning. Remains to see if it will work.
_________________
I don't know which is the more pampered bunch : AI's widebodies (the aunties) or Jet's widebodies (the planes).
-Jasepl |
|
FAQ
Search
Memberlist
Usergroups
Register
Profile
Log in to check your private messages
Log in
