A report released recently suggests that budget airlines are the ones performing well in the market. Despite receiving a lot of complaints – the most in this quarter compared to other airlines in the United States – Spirit Airline is reporting a jump in profits. It is now the most profitable airline in the US, pipping Delta and United by a big margin.
Other budget airlines with relatively poor customer service and amenities are showing similar signs. Frontier Airlines secured a bigger profit after substantially cutting costs and pivoting into a budget airline earlier this year. Even United is taking steps to enter the budget airline market. Are these signs of a prominent trend going forward?
A Wider Market
While the majority of airlines in the budget segment are reporting profits, a larger chunk of the market still demands good customer service. Michael David Palance, an actor, and producer who actively travels for work, says that customer service and in-flight experience are still important factors to him. Many customers are stating the same thing.
“In an extended flight that can be as long as 18 hours, comfort is everything,” said Michael Palance. Most of the budget airlines that are banking top profits this quarter don’t really cater to longer routes. They tend to be domestic flights with much shorter flight durations, and they attract a different type of customer.
While the trend seems to suggest that cutting service to save money is the way to go, not all airlines can incorporate the same strategy and get positive outcomes. American Airlines tried to enter the budget market several times in recent years, only to find that their strongest customer base prefers better services over cheaper flights.
Good for Investors
Another interesting thing to note is the fact that investors still prefer airlines with good service. Experts are seeing this as an anomaly but in a very positive way. Although Sprint and Frontier are making the most money, shares of airlines with good customer service perform much better in the stock market.
A study by Watermark Consulting confirms that the anomaly is happening on the market. The firm compares the results of a customer satisfaction survey for North American airlines with the stock prices of individual airline. The top-performing airlines with high customer satisfaction ratings enjoyed a whopping 295% return on stock, compared to the 146% gain of the bottom carriers’ stocks.
Investment in Customer Experience
It would be interesting to see airlines actually investing more money into improving their customer experience. Carriers are seeing the possibility of sustainable growth and better long-term performance brought by better customer service and good in-flight experience. These factors also influence customer loyalty, further proving that investing in them is well worth the return.
“A great customer experience, and the internal ecosystem supporting it, can deliver tremendous strategic and economic value to a business, in a way that’s difficult for competitors to replicate,” according to the report by Watermark Consulting. As the airline industry becomes more competitive, staying ahead and delivering a unique customer experience are the kind of competitive advantages airlines need to push for in order to succeed.