US Airways Dividend Miles (Pre-FlightFund Merger) - One more try...

TomBascom

Sep 4, 02, 6:29 pm

Mr. Baldanza,

I wrote to you last week to express my initial dismay at the changes that were announced on 8/27. Your response and subsequent comments in the press have only added to my sense of outrage. But I've had a long and fruitful relationship with US Airways so I'm going to try one more time.

I have been flying US Airways for many years. As you can tell I have been a Dividend Miles member (XXXXXXX) and at the Chairman's Preferred level for some time. Last year I flew 134,000 miles on US Airways -- quite a lot of that was after 9/11. (FYI I also flew around 75,000 miles on Continental, Northwest and United) This year I made it to Chairman's in June. I travel on business 95% of the time. But you do not consider me the sort of "business traveler" that you wish to have flying your airline because I am able to plan ahead, be responsible with my customer's money and buy "discount" tickets.

I have often chosen to fly on US Airways when alternative airlines offered better schedules. Or more convenient airports. Even when the price has been better elsewhere -- but not when there is a dramatic price differential. I'm in business. I have a responsibility to my company and my clients to use their money wisely. I think that it is a wise use of that money to spend a little bit more to fly on an airline where, in the event of unforeseen problems, I can quickly and easily work through those problems with a dedicated phone line. I think that it is a wise use of that money for me to arrive at the job in an upbeat, happy and rested state of mind because I was able to enjoy a comfortable seat and, if I was lucky, a small snack or maybe even a meal along the way. I believe that it is worth a little something to be able to plug in my laptop and work at any seat on the plane (you still need to retrofit or eliminate the Boeings...) I think that it is a wise use of that money to travel on an airline that affords me priority check-in and early boarding so that my wait times are minimized. These things are worth extra personal inconvenience to me and a small amount of additional cost to my company and my customers.

I have sacrificed innumerable weekends and evenings with my family in order to fly US Airways when other carriers offered schedules that were more family friendly. Why did I do this? Because I thought that it was worth it to accrue miles in your FF program that I could use with my family to enjoy vacation travel. I had even become so enamored of your airline that I've been purchasing vacation travel for family trips -- my own tickets in order to earn miles and status as well as family tickets so that they too could enjoy the benefits of Dividend Miles. Instead of using my miles for my own travel and that of my family, I have been using those miles to bring along additional friends and extended family or sending people on trips that they would never take on their own -- touting to them the wonders of US Airways and the debunking their fears and worries about the airline. In other words I have been using my awards to evangelize new customers for you. But now you want to treat me as a second class citizen just because I chose to buy a discount ticket? Even if I were to swallow your reasoning behind "use it or lose it, no stand-by no-exceptions" as an "incentive" for business travelers (which I most emphatically do not agree with) do you seriously think that I'm going to take the risk of being subject to those policies while on vacation with my entire family and associated friends and relatives?

Your worst economic fears about who the "leisure travelers" really are are true. I don't know why this surprises you -- it has been obvious to me, and everyone in my circle of VFF friends, for years. That might be because our butts have been in your seats every week and we can easily see what is going on. It might also be because we try to make money the old fashioned way -- by earning our customers' business and providing value at a fair price.

This shouldn't be your worst fear. In fact it is your salvation if you choose to act on it. You have a golden opportunity to set the industry on its ear, take the lead and really lock in your customer base (assuming that you can somehow undo the damage that has already been done). Simply acknowledge the reality of who your customers are and what they want from you. Listen to your customers. We don't want high fares. We do want a "business airline". We're obviously willing to go to irrational lengths to keep that but one of those lengths, just as obviously, is not paying exorbitant amounts of money for a ticket. Rationalize fares -- look to airlines such as America West and, yes, even Southwest for examples -- take the blinders off and pay attention to what it is they are doing that customers love. Stop gouging your captive customers. Don't create more and more restrictive rules and ever more complex fares -- relax the ones that you have. Roll back the changes. Dump the Saturday night stay rule. Treat us with respect rather than as yet to be convicted criminals trying to cheat you out of a full fare.

Offer incentives not punishments. Make it fun to fly.

Offer additional flexibility (beyond the base changes that I list earlier) to a class of fares that is priced moderately above V & K (maybe $100). For instance, remove or soften the "stopover" restriction for those fares -- it will help business travelers who are coping with your schedule reductions among other things -- and it costs you virtually nothing. You'll need a few more incentives to make it worth $100 -- maybe allow those tickets to be waitlisted for upgrades ahead of the CP window or something (that last idea needs some thought, don't rush right out and do it...)

Offer an incentive to make changes ahead of time -- maybe something like the kiosk bonus (essentially worthless but it feels good.) Rethink the whole reissue process -- you're making a mountain out of a molehill.

Reduce or eliminate fees. Get rid of change fees, as such, altogether (Southwest doesn't have them...) A lot of these rules aren't just costing you customers -- they're driving up your labor costs. You need more highly skilled people and it takes them longer to do what ought to be simple tasks. Watching agents check people in is scary -- and having had a few of those long running transactions at the ticket counter I know that it isn't necessarily a major problem that is taking all that time.

Be radical -- eliminate F tickets & drop full Y to a sellable price level (2x V) and make the upgrade automatic. Establish a process for (voluntarily and with some sort of defined compensation) downgrading confirmed upgrades in favor of passengers paying full fares (if this really is a problem -- I can't see how it could be though because unless inventory management is totally messed up on a particular flight those people had first dibs on the seats in the first place...)

Relax capacity controls on awards. Think about phasing those controls out entirely as you recover.

If you do these things AA, DL, CO, NW, UA and the rest won't be able to touch you. No US Airways preferred flier would dream of leaving. On average, we'd be paying more than we do today and we'd be happy about it.

While you're at it bring muffins, bagels and especially cinammon rolls back to F on your morning flights. That idea you floated this morning about charging a la carte is awful :-)

sbtinme

Sep 5, 02, 8:38 am

I always respect what Tom has to say. I appreciated the tone and content of this letter to Baldanza. Just for grins, I sent a copy to my brother who is a senior management consultant in a number of industries. He flies virtually all the time --- sometimes 4 trips in a week all over the planet.

He sent me back the following analysis and feedback:

I can appreciate that Tom does have
an indepth perspective into the Airline Biz; on a separate note, his flawed
logic is that he is not USAirways' ideal customer. He may fly a high
volume, but he truly is probably a low-margin customer for USAirways (he
probably over uses all facilities, calling constantly for upgrades, etc).
As am I in many instances. His quotation of flying over weekends and doing
crazy things 'because he is required to do so' to work within the structure
is wrong -- the structure has artificial barriers that many people would
not be willing to circumvent, and he is.

It is my opinion that there are 2 separate issues here:

>>One issue is that the airline industry is a commodity -- and, again,
airlines around the world are re-aligning accordingly to recognize that by
taking the steps that this guy suggests (eliminate unnecessary costs and
become more of a 'greyhound' of modern days). His suggestions I agree
with. But, these new USAirways policy changes appear to have little to do
with cutting costs but increasing revenue (very different tactic).
>>Issue two is that USAirways approach to me weeds out those who pay full
price and those who pay the discounted prices. Like most other industries,
those who pay the 'full price' (not high volume necessarily, but high
margin) usually do get preferential treatment. USAirways has gone out on a
limb, but consider yourself to be that full-price passenger who does fly
frequently. This would mean assured upgrades and thinner crowds in the
lines / in the lounges. Would this not attract that higher-margin customer
to USAirways? I assume they have done their homework and realize their new
policy will lose many of the high volume/low margin customers and have
calculated that is more favorable to them in the longer run. I don't
necessarily agree with this approach, but I recognize it as a valid
strategy and may be a viable option if others follow suit in the industry.

A separate analogy -- in the UK banking industry, the top 10% represent
120% of the profit to the industry (this says that the other 90% of the
customers COST the bank money). In this analogy, one could argue that
losing the bottom 90% would be good for the banks; but the better answer is
to realign costs/services with fees/revenues collected (they are not
charging enough for the service).

Lord knows where USAirways will land on this one. But I don't think Tom appreciates that not all customers are profitable ones.

ahc

Sep 5, 02, 8:59 am

Originally posted by sbtinme:
not all customers are profitable ones.



I find it hard to believe, if US carries award tickets for $25 each on its books (per other thread discussions), that--given proper inventory controls--I am not profitable at the margin even when flying on a $300 transcon fare (not that US is offering many of those these days). I am paying $300 rather than $0 for what we are constantly being reminded is a "perishable commodity."

I can understand a NetJets-type company surviving with a full-fare-only business model (though UA pulled out of their executive jet venture recently, I believe), but a major airline? Don't they need customers like us to fill seats on planes to a wide variety of destinations many times/day, thus preserving the flexibility (what is left of it, anyway) that full-fare pax demand?

Or am I missing something?

At the very least, Tom's point that even quite expensive fares are included in US's draconian restrictions seems to suggest that someone hasn't done their homework.

Beckles

Sep 5, 02, 9:02 am

Originally posted by sbtinme:
A separate analogy -- in the UK banking industry, the top 10% represent
120% of the profit to the industry (this says that the other 90% of the
customers COST the bank money). In this analogy, one could argue that
losing the bottom 90% would be good for the banks; but the better answer is
to realign costs/services with fees/revenues collected (they are not
charging enough for the service).

This is an interesting analogy, and something I have thought about myself a little.

The ideal situation for an airline would be to only have folks paying M, B, and Y fares ... all business travelers paying business fares. The problem is you can't fill the planes with that, so what do you do? You can cut down your schedule ... of course, that will make those same flyers less likely to fly your airline because they want schedule ... or you can go to smaller planes ... but again, those same flyers don't want to be flying RJ's and turboprops on every flight, especially Transcons.

So, what does that leave you ... you have to fill up the rest of the seats, and you do that through "leisure fares". Now, even though those fares may be "subsidized" by higher revenue passengers, those passengers still contribute something, and most significantly they actually lower per unit costs because of the economies of scale. In other words, even if you sized an airline to just the M, B, and Y fares, those fares would actually go up, even though they're no longer subsidizing lesisure travelers, because the airline would be so much smaller and less efficient.

In the end, I think the real answer is that US needs to find a way to reward those high value travelers, and stripping the lower value travelers of our benefits won't work if no one else matches it, because you're not attracting any new passengers and only driving away loyal ones. Sure those of us who travel on leisure fares may not be very profitable, but in the end, US needs to consider if its easier to sell us 20 tickets/year than it is to sell 20 vacationers one ticket/year ... because they will still have to sell those 20 discount tickets to someone in the end ...

TomBascom

Sep 5, 02, 9:50 am

Originally posted by sbtinme:
I always respect what Tom has to say.
The check is in the mail... http://www.flyertalk.com/forum/wink.gif

... his flawed logic is that he is not USAirways' ideal customer.

I appreciate that. Two points:

1) I believe that I represent a significant portion of the actual customer base.

2) Their ideal customer does not exist in quantities sufficient to make the business model work.

He may fly a high
volume, but he truly is probably a low-margin customer for USAirways (he
probably over uses all facilities, calling constantly for upgrades, etc).


Actually I'm pretty low impact. I hardly ever call and I rarely have any kind of issue. I book on the web, make a quick call to get put on the UG queue, use the kiosk when it's working, board when I'm called and generally stay out of the way. If I could do more things electronically that I currently have to call for I would.

As am I in many instances. His quotation of flying over weekends and doing
crazy things 'because he is required to do so' to work within the structure is wrong -- the structure has artificial barriers that many people would not be willing to circumvent, and he is.

We disagree here. I think that quite a few people are circumventing these barriers. That's why they keep dreaming up more.

It is my opinion that there are 2 separate issues here:

>>One issue is that the airline industry is a commodity -- and, again, airlines around the world are re-aligning accordingly to recognize that by taking the steps that this guy suggests (eliminate unnecessary costs and
become more of a 'greyhound' of modern days). His suggestions I agree with. But, these new USAirways policy changes appear to have little to do with cutting costs but increasing revenue (very different tactic).

Actually that's what I've been saying from the beginning -- but he wouldn't know that. This is all about forcing us back to full fares. The "protect the perks" stuff is a smoke screen (just for starters none of it would actually have an impact for 18 months -- if then.)

>>Issue two is that USAirways approach to me weeds out those who pay full price and those who pay the discounted prices. Like most other industries, those who pay the 'full price' (not high volume necessarily, but high margin) usually do get preferential treatment. USAirways has gone out on a limb, but consider yourself to be that full-price passenger who does fly frequently. This would mean assured upgrades and thinner crowds in the lines / in the lounges. Would this not attract that higher-margin customer to USAirways? I assume they have done their homework and realize their new policy will lose many of the high volume/low margin customers and have calculated that is more favorable to them in the longer run. I don't necessarily agree with this approach, but I recognize it as a valid strategy and may be a viable option if others follow suit in the industry.


What I think your brother, and the rest of the "high fares? heavy restrictions? no problem" crowd is missing is that these high fare customers already have all of those privileges. They are already at the head of the line for everything and they aren't being denied access to anything because of us cockroaches. (Ok, the preboarding lines are out of control -- but that can be fixed and does not, by itself, justify these measures.) The problems to high fare pax that have been floated as being caused by us low fare people are poor management -- not tricky peons outsmarting the system.

And I'm willing to bet that a lot of supposed denial of services problems that high fare paying pax experience occur because they unwittingly bought a slightly discounted ticket.

The other thing that "high fares? heavy restrictions? no problem" people keep missing is that we already have tickets that trade heavy restrictions for a low price -- they're called "unpublished" fares (Priceline and the ilk). But the market judges their value to be a lot less than US Airways is now trying to sell them for. If super low price were really the driving factor for people like me then those are the tickets that we would have been buying.

A separate analogy -- in the UK banking industry, the top 10% represent
120% of the profit to the industry (this says that the other 90% of the customers COST the bank money). In this analogy, one could argue that losing the bottom 90% would be good for the banks; but the better answer is to realign costs/services with fees/revenues collected (they are not charging enough for the service).

Lord knows where USAirways will land on this one. But I don't think Tom appreciates that not all customers are profitable ones.


Actually I do. But I don't buy that I'm unprofitable. U is going to fly that plane whether I'm on it or not (the same goes for the rest of the infrastructure). The difference between the $25 that it costs them (round trip) for me to sit down in an otherwise empty seat and whatever I actually paid is revenue that they would not otherwise have. What they need to do is get me (and those like me) to pay more. I'm ok with that to a degree -- just not to the degree of paying what they're asking at the high end. They aren't offering any middle ground and are "leaving money on the table".

vicrock

Sep 5, 02, 9:53 am

I think the biggest question here is what percentage of US flyers are in the "target zone" for profit margin?

IOW what percentage of us are cockaroaches?? <>G

And, on top of that - how are these rules going to increase the target customers?

us2

Sep 5, 02, 10:41 am

Interesting discussion of the economics of the business here. I'd note that the issue here is that there's a difference between an airline covering its fixed costs, which are huge, and covering the marginal cost of a passenger. ANY fare that covers the marginal cost of a passenger on a flight helps the bottom line by contributing additional revenue to the carrier. Even that upgraded $200 r/t to the west coast adds to the bottom line if the seat would have otherwise gone empty. The problem in the industry is that fixed costs -- salaries, aircraft, maintenance, ground facilities, etc. are too high relative to the revenue the airlines are pulling in.

Purging lower margin Preferred customers will not solve that problem; it exacerbates it -- as they try to find hordes of one or two time a year fliers (those most likely to be put off by the bankruptcy) to replace their Preferred customers who desert and fill a chunk of the cheap seats. Unless US offers a truly superior product relative to its competitors, and RJs ain't it -- those high fare passengers will not materialize. And, Southwest's $299 max one way walk-up fare is not helping the strategy either...

YVR Cockroach

Sep 5, 02, 10:52 am

Originally posted by us2:
ANY fare that covers the marginal cost of a passenger on a flight helps the bottom line by contributing additional revenue to the carrier. <snip>

Purging lower margin Preferred customers will not solve that problem; it exacerbates it -- as they try to find hordes of one or two time a year fliers


Well put and exactly how I feel. Those who argue cheap flyers aren't profitable don't know their cost accounting. There's high fixed costs and low variable costs in the airline industry. Unless you've filled your planes completely, it's better to have cheap revenue pax than none.

Just wondering if US's management is trying an all-or-nothing gambit, proverbially grasping at straws, or a do-something strategy. I worked at a now-defunct Fortune 500 company whose CEO admitted to other senior managers he didn't know what he was doing.

TomBascom

Sep 5, 02, 11:17 am

Originally posted by vicrock:
I think the biggest question here is what percentage of US flyers are in the "target zone" for profit margin?

IOW what percentage of us are cockaroaches?? <>G


88%

http://www.btnonline.com/businesstravelnews/headlines/article_display.jsp?vnu_content_id=1659264

Note: 88% being cockroaches does not equate to 12% being ideal customers -- the true leisure traveler is missing from the numbers as is the non-corporate business traveler. Both are significant market segments.

If I read the article correctly 9% of corporate fares are "full". I have to think that means that a lot less than 9% of total fares come out to be "full".