Humanizing the airline business

Never before was there so much publicity given to customers’ complaints about mistreatment by the airlines in North America ever since the David Dao incident when the seated passenger was forcibly removed from an United Airlines flight by security personnel. Stories of being bumped off a flight abound, and added to these other stories that include flight cancellations and misconnections, checking into an incorrect flight that took the passenger half way around the world, and death of a treasured animal in the cargo hold.

The beef is more about the way such a situation was handled by the airlines than the fact that it did occur. Take, for example, the incident of a 15-year old boy, technically classified as a minor, who was travelling from Denver to Thunder Bay via Toronto on Air Canada. He missed his connection when the flight out of Denver was delayed, and Air Canada duly rebooked him to fly to Thunder Bay the following day but did not offer any accommodation or vouchers for food.

Courtesy Air Canada

In an interview with BC News, Derrin Espinola said he felt “trapped… very hungry, very tired, very scared.” No one helped, even as he went from counter to counter to explain his situation. While Air Canada had issued a statement to say it was “truly sorry”, the blame appeared to have been placed on runway construction works at Toronto’s Pearson Airport and “exacerbated in this case by adverse weather”.

Was this really Espinola’s fault for having faith in the airline’s trusted his service? His mother, Karin Patock, who tried in vain to reach the airline by phone, said she chose Air Canada for its policy about flight delays as stated on its website: “Youths travelling alone (ages 12 to 17) will be taken care of by our agents. We will also arrange for accommodations, meals and transportation if needed.”

The spate of stories now made possible by the power of the social media may have caused many travellers to not believe that airlines in pursuing the dollar do really care for all that they boast to be better than their competitors. But they are beginning to listen, or so it seems as each time a nasty incident like this happens, they apologize readily and are said to be reaching out to the affected passengers and even compensating them as some form of amelioration for their distress, however irreparable.

In the case of denied boarding, which will continue to be practised by most of the airlines with the exception of JetBlue Airlines and Southwest Airlines in their stated policy, the major airlines have vowed to reduce overbooking and increased their compensation for volunteers who give up their seats.

Certainly the authorities have also taken note of the frustrations of passengers within the purview of their legislative responsibility to protect the rights of travellers.

Airline advertisements generally paint the romance of caring crew and other personnel to reduce the stress of travelling. Mind you, many of them do live up to their word. Recent incidents could signal a timely re-focus on procedural constraints and methodology in tackling difficult situations. The social media has given voice to travellers, and what is happening is a humanizing of the airline business as a reminder to carriers that they are dealing not with mere business numbers but people who deserve to be treated with dignity.

More offloading stories: What’s right, what’s wrong?

Suddenly, following the United Airlines incident of a passenger being forcibly removed from the aircraft in an overbooked situation (see The saga continues: United Airlines CEO promises no repeat of David Dao incident, Apr 14, 2017; United Airlines flew deeper into a PR storm, Apr 11, 2017; Fly the friendly skies? Not on United Airlines, Apr 10, 2017), air travellers are awakened to the harsh reality that even when they hold a fully-paid for confirmed seat, there is no guarantee they may not be bumped off.

Suddenly too, stories about more incidents of being bumped off are circulating via the social media.

#1
A passenger travelling with her husband and a child happily publicized a windfall when Delta Air Lines compensated her US$11,000 for giving up their seats.

Yes, Delta has announced a change in its policy to compensate volunteers an amount as high as US$10,000 for giving up their seats. More specifically, gate agents can offer up to US$2,000, up from the previous maximum of US$800, and supervisors can offer up to $9,950, up from $1,350.

That’s mighty generous of Delta, and why not if it means taking down the competition? However, a recently published list of the ten worst US carriers for overbooked flights did not list Delta, which means the offer may not be made as often as you might think.

Many people believe if United had upped the compensation, it would have been spared the bad PR patch it went through.

#2

Courtesy Air Canada

Just as soon as the Canadian authorities quickly reacted to the United debacle and vowed to protect consumers’ rights, a story surfaced of an incident on Air Canada of a 10-year-old child being denied boarding. His mother asked if an adult travelling with them could give up his seat for the child and was told that seat could not be guaranteed for the boy and would likely go to another passenger.

Oh, come on, Air Canada, to think this could happen in a country known for its people’s compassion!

The airline now said they were “following up to understand what went wrong” and that they had apologized to the family and offered a C$2,500 (US$1,866) voucher. If only airlines could understand how money cannot adequately make up for a disrupted holiday and the stress they caused, all the more in this case of separating a child and his parents.

#3
A couple posted their story of being asked to leave the aircraft of yet another United Airlines flight, and this was not a case of an overbooked situation. Apparently they found another passenger lying across their assigned seats, asleep, and decided to sit in a different row which happened to be “economy plus” seats . According to the crew, the couple tried to sit in an upgraded seat and refused to comply with instructions to return to their booked seats.

Well, well, it looks like anything United now does that displeases a passenger is wrong, even if it means following the rules. It is every traveller’s right to heed the call to boycott the airline after the way it treated passenger David Dao, but it is not fair to take advantage of the airline’s vulnerability.

Air Canada introduces seat auction for seat upgrading

Courtesy Air Canada

Courtesy Air Canada

FLYING with empty seats in the premium class in times of low demand is something all airlines have to live with. It often raises the question as to whether it is such a waste. Yet many of them would rather not compromise the product. Sometimes an airline may choose to selectively upgrade passengers for free – usually to frequent fliers – whether because it would release seats in an overbooked economy class or for goodwill.

Scandinavian Airlines used to offer the upgrade for a small fee at check-in when there are too many empty seats in the front of the aircraft. Some airlines announce the offer on board when most passengers are already seated. Indeed, why not make the extra bucks if it does not mean additional catering?

Air Canada piloted an online seat auction for upgrade late last year and apparently met with such success that it plans to fully implement the option. Mark Nasr, managing director of e-commerce, loyalty programs and ancillary revenue, said: “Because of customer demand, we’ve grown the product faster than we were originally intending to.”

However, Air Canada was not the first to do this. Virgin America reportedly was already testing an upgrade auction through an app called SeatBoost on its Las Vegas flights.

So, for bargain hunters, their dream of flying premium and not paying that much may well be within reach. True blue premium flyers may not have cause to complain since they are as less propensed to take the chance.

Air Canada jet gets narrower

Courtesy CBC

Courtesy CBC

I have no complaint flying Air Canada long haul when you get three hot meals. Not complaining this time either, but something seemed a little off the last trip from Vancouver to Shanghai.

My wife in the aisle seat had water spilled on her twice and the cart rammed into the seat. We switched seats, and this time I had quite a splash of water spilled right on to my lap as the attendant tried to open a bottle. The crew made a joke of it as one of them said she would note the seat number and not book her mother on that seat when she travels. No problem. The pants will dry by the time I arrived at my destination.

But the best (or should I say worst) was saved for the return trip when the passenger next to me spilled his glass of orange juice on to my pants all the way down to the shoes! One might think it was just my luck. However, talking to a fellow traveller about flying (not specifically related to the incidents), he said the seats on Air Canada have become narrower. And, of course, the tray table which cannot hold both a meal tray and a glass of orange juice. So too, I would add, the aisle. If you had to go the washroom, you might find it difficult to turn around after you had entered the tiny space.

Airlines – and not just Air Canada – are trying to squeeze in more seats. They should know that for the long haul, comfort still ranks as a key service aspect.

Enter the ultra-budget airline

Courtesy NewLeaf

Courtesy NewLeaf

LESS than a month after Canada’s latest carrier Airlines revealed plans to offer ultra-low fares operating from its base in Winnipeg to six cities within the country, namely Abbotsford, Halifax, Hamilton, Kelowna, Regina, and Saskatoon, it announced it was “temporarily postponing service” and would refund all transactions already made. The first service was to be launched in February.

Newleaf’s fate now rests in the hands of the Canadian Transportation Agency (CTA) which is reviewing the carrier’s aviation licence. Apparently Newleaf was selling seats through a charter arrangement with Kelowna-based Flair Airlines Ltd which held the CTA operating licence. The question is whether the indirect Newleaf should itself be holding a licence directly.

Newleaf CEO Jim Young’s reaction was one of optimism. He said: “We welcome a regulatory system in which businesses like ours can thrive in Canada as they do in other countries.”

That aside, the ultra-budget airline that is sometimes referred to as a discount airline is not an entirely new phenomenon. In his somewhat premature announcement of the launch of the airline, Young said: “Lower landing fees mean we have savings we can pass on to you.” The key word is “affordability”. According to him, “Ultra low-cost carriers are some of the most financially successful airlines in the world today.”

Young may be referring to operators such as Iceland’s WOW Air and the longer haul Norwegian Air Shuttle. WOW Air, for example, is offering US$99 fares connecting Boston and San Francisco in the US with the Icelandic capital Reykjavik. It is next looking at connecting with Montreal and Toronto in Canada.

While you might remind Young of how as many airlines so-called budget too have come and gone, Newleaf is already expressing interest to expand its operations to other destinations within Canada and in the United States.

Young, who was at one time CEO of Frontier Airlines, explained: “By unbundling the entire service you get to choose what you want.” That basically is the budget model, and one that is further trimmed down on costs. As an example, he cited how NewLeaf would be able to save money in part because it does not offer its seats on any third-party travel websites, which charge airlines a fee to post and make sales there. Considering the nature of its operations, that makes economic sense. After all, Young did not see Canada’s two other major carriers – Air Canada and Westjet – as Newleaf’s competitors. He said: “If I had a competitor, it would be the airlines that Canadians are driving across the border for.” He was referring to Canada’s loss of market share to US airlines such as Allegiant Air operating out of airports south of the border, close enough for Canadians to drive across to take advantage of the lower fares.

Young added: “We’re looking to create a new market and stimulate people who aren’t flying today. What I’m going after are people that will make the three-and-a-half hour drive in the middle of winter to go to Grand Forks because they’ve got to get to some place warm or can’t afford to fly from here.”

That argument about developing new market has been the slogan of many a budget upstart, and which has contributed to the success of some of them to go where the full service airlines would not go. Newleaf is therefore targeting a limited but niche leisure market on the back of a strategy that focuses on second-tier airports. It can count on that as a strength to drive its growth, particularly at a time when it could take advantage of the current low fuel costs. Too many no-frill operators in the past had been hit badly by soaring oil prices. The challenge for Newleaf will come when other upstarts similarly motivated jump into the same arena, or when one of the legacy airlines decide that the market has grown big enough for them to join the competition most probably through a subsidiary offshoot such as Rouge, the budget arm of Air Canada.

Legacy airlines across the world have become increasingly wary of the growth of the budget carriers, particularly after the 2008 global economic crisis when air travel trended downwards to cheaper fares. Budget carriers are now competing in the same market, not only for seats in the traditional economy class but also for travellers who want some perks but at lower fares as they introduce their version of business class. North American domestic operations by the major airlines are already adopting the budget model to charge for meals and baggage among a slew of chargeable.

The temptation of growing bigger than intended is always present. This unbridled ambition has led to the downfall of many operators in aviation history, perhaps the reason why the doyen of the budget model Ryanair remains undecided whether it should launch long haul services across the Atlantic, and why some discount carriers such as Allegiant have stayed small. Will Newleaf, when granted the licence to operate, given its ambition to expand far and wide, go down this same road?

Perhaps not, as it would appear that the current budget model exemplified by carriers such as Ryanair and easyJet is not trim enough, and if lower cost will stimulate demand, there is room for Newleaf to grow. Yet one begins to wonder how much lower you can go.

This article was first published in Aspire Aviation.

As the price of crude oil plummets, fuel surcharge holds sway

fuel-priceAs the price of crude oil continues to plunge to record lows and all indications are that it is likely to remain low, the burning question on the air traveller’s lips must that which asks if and when airlines in good conscience would pass the savings back to their customers. In 2008, the price was as high as close to US$140 per barrel; today it has collapsed to US$30.

That situation has persisted long enough for the airlines to make the move, and it appears it is not likely to happen, not any time soon if at all. Giving back is so hard, indeed. The fuel surcharge was implemented, the argument being that the volatility of the oil price is something beyond an airline’s control. So much for understanding that it must be a cost of doing business! It is ludicrous to assert that because of that, the cost should be taken out to be borne by the customer. What other costs are not borne by the traveller as part of the fare?

Sure, the public can choose not to fly. But it is not as straightforward as that. In truth, the authorities too are neither keen to see the major airlines floundering. The repercussion can be widespread. Consider how some governments had very quickly doled out rescue packages to save a national airline on the brink of collapse.

The airlines know they are in a position of strength, supported by an international body that constantly warns about unprecedented losses when there should be more attention focussed on efficiency. In good conscience, it is only fair that when airlines pass on rising fuel costs to their customers, that they should similarly reduce the surcharge when the price of fuel falls. They are all too ready to cite the familiar and over-used counter arguments that even as the price of crude oil falls, they have not benefitted since they have already paid up too much in the past, that they have only passed on a modicum of the actual cost to their customers, and that they have suffered heavy hedging losses. So they took a bad gamble and the customers have to pay for their mistake. What, when they benefit from hedging gains?

Last year American carriers reported better than expected profits, largely attributed to the low fuel price and increased demand on the back of an improved economy, but none saw it reasonable to pass on the savings or part of it back to their customers as they rewarded their shareholders handsomely and argued that surpluses would be reinvested in their product in the interest of the customer.

Today there is the temptation to use the gain arising from the fuel surcharge to make up for the high costs in other areas of doing business. Take, for example, Air Canada, suffering from the fall in value of the Canadian dollar which results in reduced revenue vis-à-vis the high cost of foreign expenses. In fact, airlines can congratulate themselves on the clever implementation of the fuel surcharge model, which has led to a slew of other surcharges that are so ambiguously nomenclature that the consumers are nonetheless any wiser of what they are paying for over and above the fare. These ranged from so-called government levies to other operating requirements that airlines do not deem to be theirs to bear.

The good thing is that some governments recognize the prickly issue and have cautioned airlines to play fair with the customer and not misrepresent the cost of an airline ticket. As far as the air traveller is concerned, it is the bottom-line fare that matters, whatever the components. And as the fuel price keeps heading downward, there is no better time than now to do away with the fuel surcharge and other similar surcharges. Australian flag carrier Qantas and rival Virgin Australia have already moved in that direction. Of course, the consumer must expect a higher fare price when the cost of doing business, whether from a rising fuel price or other expenses, increases. Perhaps airlines fear losing the surcharge protection when in an open competitive environment, there will be pressure on them to improve efficiency and productivity.

US airlines vs Gulf carriers: Redefining Open Skies

THE new American mantra for aviation is fair skies, not open skies. With the rise of the Gulf carriers and their increased presence in the US, home carriers are banding to press the Department of Transportation (DOT) to review the long-standing Open Skies policy and the agreements executed thus far. Their grouse: Unfair competition because of large government subsidies received by Emirates Airlines, Etihad Airways and Qatar Airways that place US carriers at a disadvantage.

This is not a new argument presented by opposing airlines; even in the days of restrictive bilateral negotiations, it was a hurdle many airlines from the less developed countries in Asia faced as they expanded into the more lucrative markets of the western hemisphere. Their successes from delivering a product reputed for excellent customer service and operated on high productivity had been clouded by accusations of payouts by their home governments that enabled them to compete on cost.

Courtesy Airbus

Courtesy Airbus

Emirates president and CEO Tim Clark warned: “If you go down this minefield, you must ask yourself to what extent all the foreign carriers serving the US are subsidised. Take China, take Thailand, take Malaysia, take Japan, take New Zealand. I could go on forever.”

Mr Clark may have unwittingly in his defence roped in other carriers into the contentious ring. But the US is unlikely to be interested in the reference, at least not for now. Broad brush strokes do not work; just because one person is not censured does not guarantee immunity for another person in a similar situation. Having said that, this does not necessarily mean the US has a case. The issue is much more complex than that. For one thing, the success of the Gulf carriers makes them more noticeable.

Note, however, Mr Clark is not saying Emirates is similarly subsidised by the UAE government. On the contrary, he insisted the airline did not receive any, rejecting the report produced by the American carriers that the three named Gulf carriers received US$42 billion in subsidies. Mr Clark said: “The requirement from the government of Dubai has been and remains the same. There will be no support for your operations, you will be required to make money.”

All the arguments for and against in the debate – depending on which side of the wall you stand – seem to centre on the issue of government subsidies, complicated by political affiliation and extending beyond support for the airlines to other related businesses including the funding of home airport development that is viewed as directly benefitting them. Where do you draw the line when ownership of several projects is traced to a common designator? In many countries, airport development is undertaken by the government as a national project and the facilities are viewed as common to all users.

Refuting the American accusation, Gulf carriers are pointing out how American carriers have also received government support. All the major airlines have sought refuge in the bankruptcy laws at some point. There were government bailouts after the 911 attacks. In some ways the US aviation policy is protectionist: The domestic market is not widely open to foreign carriers, and the government’s approval of consolidation to create mega entities only serve to limit competition. Etihad chief executive James Hogan countered that American carriers have been granted antitrust immunity (ATI) to protect lucrative transatlantic routes operated jointly with European carriers: American Airlines with British Airways, Delta Airlines with Air France, and United Airlines with Lufthansa. Mr Hogan said: “I think this is a protectionist move to protect the ATI routes across the Atlantic; that’s the irony.
Etihad courtesy etihad

The debate must bring us back to the genesis of Open Skies. For more than twenty years, the US has been championing open and greater competition that has resulted in lower airfares and more choices for travellers of airlines and destinations. US airlines themselves have supported the push, benefitting from new markets outside the US. Since 1992, the US has signed more than 100 open skies agreements. But the playing field is changing as global competition intensifies with the growth of more successful foreign carriers reaching into the heart of the US. It is fair to expect a customary review when circumstances change, but any compromise on the principle of competition may be a step back.

Mr Clark warned that the agenda of the American carriers is threatening “the bedrock of the modern day aviation system. By challenging open skies, you are not just challenging the aero-political situation, you are challenging the very essence of economic liberalization the US has championed for decades.” He expressed hope that the US administration “will not stand for this nonsense.” The American carriers on the other hand insisted that they “welcome robust competition provided the playing field is level. A reopening of those open-skies agreements is the first step and the right step to ensure competition is preserved and enhanced.”

The crux of the matter appears to be what constitutes a level playing field. Will a revised Open Skies policy be qualified by an attempt to box it in? The thrust of the policy has been competition, but makes true competition? Is the US being anti-competition in opposing the entry of Norwegian Air Shuttle, even with nary a hint of government subsidy? As Mr Clark warned, “Once you talk about fair skies, you enter into a quagmire of definition, and you have to be very careful how you go.” Indeed, is there such a thing as truly fair skies? Even as more countries have declared their support of liberalisation, many of them are still protective of their turf, rightly or wrongly. A case in point: Singapore Airlines (SIA) has tried and failed to gain access across the Pacific from London Heathrow to the US east coast, and across the Pacific from Sydney to the US west coast. Yet other airlines that came lately were granted those rights, which is anomalous to the often cited fear of overcapacity that would hurt the industry.

In 2011, Emirates tussled with Canada which rejected its application to operate more flights to Toronto. The Canadian government was concerned that UAE carriers (including Etihad which was also applying for access to Canada) would enjoy an unfair advantage over Air Canada in tapping into its international traffic, the outcome of which would be the loss of Canadian jobs; the unfair advantage was similarly pinned down to subsidies Emirates received from the UAE government. In apparent retaliation, the UAE evicted Canada from its military base near Dubai and imposed a hefty visa fee for visiting Canadians. It is so easy for what is a commercial matter to be politicised, adding to its complexity.

The industry is divided. An organization known as Americans for Fair Skies is campaigning in support of the US government. It says: “This is an important first step towards restoring fairness to our skies and stopping the largest trade violation in history.” Outside the US, not surprisingly, Lufthansa had openly stated its support of the US carriers. When Carsten Spohr assumed appointment to helm the German carrier, he expressed concerns about encroachment by Gulf carriers in Europe and set himself the task of tackling that issue. Interestingly even Etihad, an affected party to the dispute, actually “applauds” the US government “for setting up a transparent process to deal fairly and responsibly with the claims. Etihad Airways is committed to setting the record straight regarding these unsubstantiated allegations.” While Emirates argues in defence, Etihad is issuing DOT a challenge.

Conversely, not everyone in the US is supporting the US carriers’ pressure on its administration to review its Open Skies policy, if not specifically the agreements executed with the Gulf carriers. US airlines may feel the pinch of competition by foreign carriers, but US airports are welcoming of the increased traffic that those carriers bring. Then there are consumer groups who are benefitting from lower airfares, better service and wider consumer choice. Business Travel Coalition chairman Kevin Mitchell wrote in a letter to the government: “Now that US airlines have secured antitrust immunity, industry consolidation and concomitantly rising airfares and ancillary fees, and are achieving record unprecedented profits, some carriers shamelessly seek to close off US markets to competition from foreign carriers.” JetBlue chief executive Robin Hayes for one is not joining the protesters.

Mr Clark would remind the US government how Gulf carriers have contributed to not only the growth of traffic but also providing access to markets not previously served by any US carrier. An example was the connection between Seattle and Hyderabab in India via Dubai. He said: “Look at where these people are going and ask yourself where was Delta, where was Untied, where was American when the world was becoming more globalized?”

While DOT said it would address the concerns raised by the US carriers, its spokesman Brian Farber qualified that the administration “remains committed to the open skies policy which has greatly benefitted the travelling public, the US aviation industry, American cities and the broader US economy through increased travel and trade, and job growth.” There will be wide ramifications, no doubt. Open Skies is not just about a specific airline’s bottom line. In defending the case for Gulf carriers, Mr Hogan had said: “We make no apologies for offering new competitive choice for travellers. Open skies should be about customer choice.” But is it really, one wonders, in practice?

It is unlikely that the US government will turn the Open Skies policy topsy turvy and go for a clean slate, renegotiating the agreements with the Gulf carriers. One can anticipate new restrictions in the road ahead, and tweaks where ambiguity permits. Its impact will be global. Some European parties are already watching closely moves by Gulf carriers to gain a bigger slice of the European pie, not just the competition in offering seats but also in the bold acquisition of stakes in European carriers. In Australia, Etihad is a co-owner of Virgin Australia. Emirates operates a mega alliance with Qantas. It would be interesting if the Australian government grants Emirates, but not SIA, rights to fly transpacific from its ports.

Unbeknownst to many, there may be a price to pay for success. The Gulf carriers may have become victims of their own successes, in the same way that it is once said of SIA in its heyday.

This article was first published in Aspire Aviation.