Airlines, Beer and the Recession. How not to Boost Revenue.

In a March 2008 blog posting titled Customer Service and Recessions I discussed the dangers of nickel and diming customers in order to raise revenue during economically slow times. I also wrote about the dangers of irresponsible cost cutting (cuts that negatively impact customer service) during bad times. The reason is customers don't forget this stuff and when a recession ends, they may take their business elsewhere.

Well, it didn't take our good friends at the major airlines long to provide a great example of this. Here are a few recent news stories:

- The major airlines have brought back the Saturday-night-stay rule . In the late 1990s, the major airlines depended on this hated rule to pressure business travelers to buy fares that were often five times higher than leisure fares. By 2001, with competition from Southwest Airlines and JetBlue who offered simple fare structures that did not include Saturday-night-stay provisions, the major airlines did away with this rule. One travel industry analyst had this to say about the return of the rule: “I know the airlines need to generate revenue, but there’s got to be another way to do it than to try to hose business travelers again. Do they think we have no memories?”

- US Airways to charge for soft drinks. US Airways was the first airline to charge for meals several years ago and they will now be the first major airline to charge for soft drinks. US Airways President Scott Kirby says: "I think we'll be aggressive on those fronts."

- American Airlines recently unveiled a raft of measures meant to squeeze more money from traveler's. One of these fees is to charge customers a $15 charge for checking just one piece of luggage. These fees are on top of fees already collected by major airlines including making a reservation by phone and getting a sandwich in the coach cabin. American hopes to "raise hundreds of millions of dollars from new fees" - for services that once were free. What does Gerard Arpey, the CEO of American Airlines, have to say about this: "customers [should] pay for the services and features they truly value."

Hmmm. I value a working Oxygen mask and a bathroom - will I need to deposit coins to use these?

So it was no surprise I read United Airlines plans to shut down their discount airline Ted, ground more planes and cut more jobs. American is also in trouble as are other major airlines.

But interestingly, while the major airlines blame their woes on high oil prices and continue to nickel and dime customers, Southwest Airlines and Jet Blue are adding flights and Southwest reported a year-over-year passenger gain in May. These two airlines also have some of the highest customer satisfaction ratings. And too date, they have not adopted a nickel and dime strategy. As a marketer I don't think this is a coincidence.

I'll close with a more humorous example of why not to nickel and dime your customers.

An article titled Pint-Size Problem reports that beer lovers are "nursing a grudge as some bars switch to smaller glasses". As beer prices rise due to the price increases of hops and barley, some major restaurants have replaced the 16-ounce pint glasses with 14 ouncers - but have kept prices the same. " Dedicated beer drinkers are fighting back" reports the article and "are protesting “cheater pints” and “profit pours” by outing alleged offenders on Web discussion boards and plugging bars that maintain 16-ounce pints".

One major restaurant that has adopted this policy is Hooters. What does Archie Gleason, the director of marketing for Hooters, have to say about this? "We can get 20 more beers out of a keg that way”.

Another restaurant that has adopted this policy is The Damon’s Grill restaurant chain, which switched to 14 ouncers from 16-ounce glasses and didn’t lower prices. And what do they have to say about this? Tanny Feerer, a vice president for Damon's Grill says, " Fourteen ounces is enough.”

I think Tanny, Archie, Scott and Gerard all went to the same business school - the University of ND (nickel and diming).

No matter how tempting it is, be very careful about nickel and diming your customers in a recession. Your customers will thank you when good times return.

Posted by Mark Willaman

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