Analyst recommends AA implement soda charge
 

Oh, jeez. About the last (modest) free domestic airline perk may be in danger: a respected Wall Street analyst is clamoring for AA to start charging for sodas.

http://blogs.barrons.com/stockstowat...rrons&ru=yahoo

There's precedent for this, of course: Doug Parker tried it a few years ago at US. Initially, President Scott Kirby claimed that passengers actually LIKED the change: because it freed up the aisles and reduced bathroom wait times! But when competitors didn't match, Parker restored the free soda. It wasn't worth losing business for such a modest expense.

But Wolfe Research's Hunter Keay says AA could make an additional $30-some-odd million if it started charging for soda. With the industry now consolidated, he thinks there's a better chance the charge would stick. He's probably right about that.

That said, I'm a bit skeptical that Parker will go for it. The domestic flying experience is, objectively, pretty rotten right now. It compares very unfavorably to domestic service elsewhere in the world. Flush with record profits, does AA really want to make it more unattractive? Is there not some point -- perhaps already reached -- where domestic coach travel is so annoying and unpleasant that folks pass on taking discretionary trips? That could cost AA more than $30 million. Honestly, I think they'd be wise now to restore the free pretzels (which only cost a few pennies a bag) to improve the customer experience and potentially reduce the "I'll just stay home" mentality.

The analysts love to "add value" by making suggestions like this through research notes. Further, he will remain unaffected because his company's travel policy probably permits him F/J priveleges for which his liquid refreshements are comped. Let the low fare Euro-trash airlines charge their two Euros for the small bottle of water. Leave AA alone.

DL is actually the best out of the big three (AA/UA/DL) because DL (as of now) still offers complimentary light snacks in Y (biscoffs, pretzels, and peanuts), in addition to complimentary soft drinks and water/coffee.

Hope this article won't shake things up and take us back to 2008, when drinks in Y were la carte on US (and US only).

^+1
AA has penny-pinched its premium food product and customer experience so much since US Air took over that it is easily and quickly become just stupid to fly it when better options are avail.

JetBlue Mint easily won my weekly $2200 fare budget from AA. The JetBlue customer experience is actually something you want to fall in love with where as AA has devolved into something undesirable and disenchanted.

It's remarkable how fast AA became crap with the new management direction of reducing the customer experience and quality. I don't think I'm the only premium business traveler who has figured it out either.

I think DL generates good will by doing that. Most frequent flyers think they offer the best in-flight service of the Big 3. Many of us avoid them because of their poor frequent flyer program, but that's another story.

As I mentioned above, the cost of providing some of those "snacks" is minimal: America West had the pretzels down to a few pennies (I think peanuts are significantly more expensive!). Frankly, if I'm running a hospitality business, I'd want to lavish "frills" on my customers that cost me virtually nothing but have significant impact. That's what "snacks" do. But the airlines now seem to think they're transportation companies, not hospitality companies. Nobody seems to think that being "nice" to passengers will generate any additional future revenue. I'm not so sure about that.

Actually, I've been hearing mixed reports about the customer service at the "new" American. There certainly hasn't been any wholesale reduction in food and beverage expense: some things were harmonized, some were reduced, then some stuff was added back. I think most believe that Parker does not want to run AA as a "budget airline." That's why this soda thing may not fly. We'll see.

As far as the smaller airlines offering more value, that can certainly be true -- especially for non-elite travelers. Honestly, without status, I'm really not sure why anyone would prefer AA, UA or DL over JetBlue, Southwest, Alaska or Virgin. I wouldn't.

This recommendation came from Hunter Keay:td:. That puts it in its appropriate perspective.

He also has no twitter handle to accept feedback :)

He is purely a numbers guy with "customers" as a burden ; Smisek @ UA must love him

It came from an anal yst.

We can find Keay comments far more inflammatory
 

http://blogs.rollcall.com/the-contai...ravelers/?dcz=

“Airlines have really struggled with managing down a sense of entitlement from the consumer, which is still a problem and that’s really going to take decades to go away,” Keay told an aviation conference in Washington.

People who flew in the 1970s “think about that with fond memories. I’m sorry, but those people have to basically die” in a “multi-decade-long washing out of entitlement” until passengers expect to pay for what they get.

Keay does not know what he's talking about. I like Baker better, far more sensible and I believe he is on FT ^

Companies should start telling Wall Street to bugger off and start doing this in house. I have the documents at work explaining why they use Wall Street analysts instead of offering their own estimates and forecasts. It was a pretty weak case IMO and offers very little benefit to the investing community.

Do note that analysts are wonderful at creating noise traders, however, which makes it a bit easier to profit conditional on completely ignoring any of their recommendations.

This isn't a particularly convincing article. "Customers like fees" is not the same as "customers like paying only for what they use".

It's the difference between:

1. charging $25 for each checked bag but leaving ticket prices the same, and

2. reducing ticket prices by $20 and charging $25 for each checked bag.

As for the question of, would you really choose which airline to fly on based on whether they give you stuff for free or charge you for it, I think that the answer is yes, especially if the competitors advertise appropriately.

Wow, is this a math guy? His math is as follows: current soda expenses are $37.5 million (200 million * 75% * .25 per can = 37.5 million). He then says, if they charge, they can expect 10% of customers to pay, at $2 each. He says 200 million * 10% * $2 = $39 million. That's not so bad, he's only off by $1 million so far. He then says soda costs on 20 million cans would be $5 million, for a net of $32 million. Ok, so now he's off three million. Of course, he totally forgets that from the paragraph before, they are giving $37.5 million away now. So, in fact, his estimate of $32 million should be $69.5 million based on his own math.

Regardless of the merits, the guy didn't even use a calculator.

LOL.

It's a nutty idea. I'm surprised they don't suggest vending machines. The FA's, now freed up, could walk around with billboard ads.

It's a good thing he didn't start counting the cost of fuel needed to transport all those free cans of soda! Or the carts in which they are stored (imagine the savings!):)