Why Airline Mergers Don't Work: Scale Is Not a Blessing

On March 24, 2008 my first post on Why Airline Mergers Don’t Work opened with the following paragraph:

Ever wonder why over the last 30 years Southwest Airlines management (NYSE: LUV) spent only $0.03 on mergers and acquisitions for every $1.00 of shareholder value they created? By comparison Delta management (NYSE: DAL) spent $2.35 for every $1.00 of value they created. And Northwest (NYSE: NWA) spent $1.61 on M&A for every $1.00 of value they created. In Louisiana we have a name for this kind of strategy: Jumping over a dollar to get to a nickel.

In a nutshell, I found that airline mergers don’t work because the bigger an airline gets, the greater its exposure to low price carriers like Southwest. This exposure forces management to meet lower fares in more markets, which puts inescapable downward pressure on ticket prices, revenues and earnings. In air travel, scale is not a blessing, it’s a curse. Of course the two biggest M&A losers cited above went ahead with their merger and now have become what Delta advertising proudly proclaims is the world’s largest airline.

VALUE vs. REVENUE ORIENTATION
Sales revenue and market value interact in circular, subtle and often unobservable ways. After years of research on the interaction between market value and sales revenues I gave it many different names. Perhaps the most descriptive is this one:

Risk-Adjusted Differential: RAD.

Like they say about Smucker’s jam, with a name like that it better be good. It is. Here are three of the most important characteristics of RAD:

1. The risk-adjusted difference [RAD] between a firm’s share of value [SOV] and share of revenues [SOR] in a group of its peers is an index of managements’ orientation toward value creation vs. revenue generation. When the difference is positive, the firm is value oriented. When it’s negative, the firm is revenue oriented. When the difference is zero, management is equally value and revenue oriented.

2. Dividing a firm’s time series of RAD observations by its sigma creates a normally distributed variable with an expected value of zero. When RAD is two sigma above or below this expectation a 95% confidence interval on value vs. revenue orientation is created.

3. As a result of these underlying properties one can transform RAD into the probability that a firm’s management is value or revenue oriented by looking up any given observation and its standard deviation in a Z table.

The purpose of this article is to apply these conclusions to nine U.S. airlines over the most recent 14 quarters. The results are at once intuitively meaningful and surprising.

VALUE-REVENUE ORIENTATION
The following table lists the ticker symbols of nine major airlines followed by their mean Risk-Adjusted Differential [RAD], sigma and associated probabilities that management has a long-term value vs. revenue orientation. You can easily verify these probabilities by looking up the mean RAD and sigma for each firm in an online (Z-Calculator).

The management teams of only two U.S. airlines, JBLU and LUV, have a high probability of being value oriented:

• JBLU had an average RAD over the 14 quarters of +3.1 with a sigma of 1.1. Conclusion? The long-run probability that JBLU management is value oriented is virtually certain.

• LUV, the perennial front runner on this metric, also had an average RAD of +3.1, but with a sigma of 9.3. Conclusion? Given the volatility of its risk-adjusted differentials the long-run probability that LUV management is value oriented drops to 0.6. So there’s a 40% chance they are revenue oriented as well.

Three of these airlines straddle the fence: management is both value and revenue oriented:

• ALK sits right in the middle of the probability distribution. It posted an average RAD of +1.0 with a sigma of 0.8 giving it an even chance that management is both value and revenue oriented.

• DAL, with its vaunted history of mergers culminating in the acquisition of Northwest Airlines, had an average RAD of -0.9 with a sigma of 8.7. Conclusion? The probability that the DAL management team has its eyes on long-run value creation is 0.4. It more likely (0.6) they are revenue oriented, following the time-worn dictum that more market share means greater earnings.

• LCC, another carrier with an unremarkable history of acquisition, had an average RAD of -1.0 with a standard deviation of 4.0 giving its management just a 0.3 probability of being value oriented. LCC management is clearly after revenue, believing that scale creates earnings.

Management of the remaining four airlines have basically thrown value out the window. All four exhibit average RADs less than -2.0. And have had for many more than the latest 14 quarters. Running in and out of bankruptcy hasn’t change the basic posture of any of these carriers:

• AMR and UAUA are equally uncompromising in their revenue orientation with average probabilities of 0.8 and 0.9 respectively.

• By the numbers, CAL and FRNTQ management are dedicated exclusively to revenue generation: the chances their management teams have any real long term interest in value creation is virtually zero.

TIME SERIES SHARPEN THE PICTURE
The results reported above are brought into sharper focus when viewed as a time series. The following chart compares the value leader (JBLU) with revenue leader (CAL) over the most recent 14 quarters.

The neutral point in the Value Orientation Index in this chart is 0.0, identified by the white dotted line. This orientation is value-neutral because the difference between a firm’s share of value and share of revenues in its peer group is zero.

Observations greater than +2.0 over a long period of time are extremely unlikely, since ± 2 (defined by the green and red dotted lines) create a 95% confidence interval. All but one of JBLU’s index values is greater than +2. While every one of CAL’s numbers is less than -2.0. It’s easy to see from this chart why the probability is virtually 1.0 that JBLU management is value oriented while that of CAL is virtually zero. Which firm would you want to put your money on? That depends on your preference for value vs. revenue oriented strategy.

LUV and UAUA are compared in the following chart. This appears to be just another case of one company’s management (LUV) being value oriented while the other (UAUA) is revenue oriented. But, you might also notice there is a surprisingly high correlation (0.6) between the Value Orientation Indices of the two companies. That is due in large measure to UAUA’s exposure to LUV’s price leadership in the market segments they have in common. More evidence that scale in airlines is not a blessing.

The final chart in this series compares ALK with DAL – on of the three smallest ($827 M revenue) and the largest airline ($7,000 M revenue) in this space. ALK management appears to be taking the lead in creating value over the last three quarters with RADs of 1.6, 2.3 and 3.0 corresponding with probabilities of 0.77, 0.95 and 0.99 respectively. DAL managements’ RADs have slipped from +0.9 to +0.6 to +0.2 corresponding with revenue oriented probabilities of 0.50, 0.48 and 0.46 respectively.

The distress sufffered by all nine airlines in the market downturn does not conceal the fact that DAL’s merger with NWA didn't work. Scale is not a blessing in the airline business. Downward price pressure from greater exposure to discount carriers eventually kick in to spoil the future.

The number and size of companies included in this analysis matter very little – the Value Orientation Index is insensitive to both the number and size of companies included. If you want to understand the details behind this analysis, review my 18 minute audio slide show Y’all Buckle That Seat Belt.

Disclosure of positions: None

Comments

[indeolie]

The problem with Southwest as an example is that for the last fifteen years it really was a long-oil hedge fund with an (admittedly very well-run) airline operation on the side. This makes drawing conclusions on their past performance vs their competitors (who got into the fuel 'hedging' game at the worst possible moment) quite misleading.

2009 Sep 25 06:33 AM

[Greg55305]

It's way too early to call the Delta merger with NWA a failure. The two airlines aren't even running under the same operating certificate yet and the current economy is very challenging for nearly all businesses especially airlines.

2009 Sep 25 09:14 AM

[Don't Believe Joe]

Your description of Value Creation and Revenue generation is missing. It's nice that you get a P-Value and use a bell curve to manipulate these numbers, but they are meaningless numbers to most readers. I don't think this article is overly technical, but the base number has to be "based" on something and not subject to bias. We can all make numbers fit pre-concieved notions, and without a description of the initial terms, there is no way to relate the numbers, except in the backwards bias, Southwest shows value therefore it must be good, and the legacies show revenue, and therefore they must be bad.
It would be much easier appreciate your article if it wasn't presented in such obscurity.

2009 Sep 25 10:37 AM

[jetplandriver]

The article misses the larger point. Mergers do "work" for everyone but the average employee and the long-term shareholders.

Senior executives get huge bonuses for their deal-making savy, departing executives get gold parachutes, hedge funds flip the stock, and financial "advisors" and lenders get fat fees. Oh, and let's not forget all the lawyers.

But who cares about the long-term shareholders? For the most part they're the same mega-institutions who called for the merger in the first place. By the time the merger fails to deliver on its promises (like most do,) there's ample scapegoats such as the economy, oil prices, etc.

As Warren Buffet once said, it was worth it for him to hire a $200k/yr. executive with no other duties than to remind him never to invest in an airline.

2009 Sep 25 10:40 AM

[change is the only constant]

The overall premise of your article is profound. You are attacking economies of scale as a better strategy in the airline industry. Whether or not this may apply to other industries is where understanding your analysis becomes critical. The RAD indicator is interesting but extremely difficult to know if it tells you anything. And it doesn't help "tune" your gut to which approach tells you the airline that has a better management.

The overall premise says bigger is not better, and profitability (and stock price I assume) will not follow. OK, if bigger is not better, and it's a management strategic error to assume so...... what is better for the airline industry than pursuing a lower cost structure in the airline business...... where fuel costs matter so much?

2009 Sep 25 10:43 AM

[boylan]

You are making a mistake in by assuming that the Delta/NWA merge is the same as all prior merges. This merge is really the first merger in the airline business that is actually large enough to create value.

It's success depends on Delta's continued long-term commitment and ability to run a heterogeneous fleet whereby they can most closely match route capacity and cost. The Un-Southwest Airline (although your comment with respect to Southwest's long-term hedging is right on the money).

Delta has already extensively reshuffled their combined fleet to optimize their route structure - 747's flying to Japan from ATL, swapping A330 and 767 on routes to maximize load. Fundamentally the airline industry is a low (no?) margin business and on a long term basis even a small margin advantage is big deal.

Of course, another round of insane labor contracts (that's you UA) and this is all moot.

Disclaimer: I don't invest in the airlines.

2009 Sep 25 12:50 PM

[levin70]

The problem isn't the mergers themselves and I understand the economics behind why they try to grow bigger. If you have ever tried to run a full boat union shop you would understand why they try mergers even when they seem uneconomic from hindsight. Obviously it would appear that you (the author of this article) haven't and thus don't understand the dynamic.

Regards

2009 Sep 25 01:06 PM

[User 491753]

In case of one particular airline, their management spent a lot of time and money trying to sell the airline than run it...and for good reason...they would have been handsomely rewarded!

2009 Sep 25 02:26 PM

[BucketofOnions]

Advantages of a single airplane manufacturer are most of all cost efficiency and negotiation power. Also the focus on a single airplane will concentrate knowledge and knowledge management will be more simple (for example the learning cost to manage and operate a plane types versus more plane types).

There are also disadvantages. Not all planes between either airplane manufacturer are really similar and therefore replaceable. There is a status (and style) difference (Made in the US versus Made in the EU).

Bargaining power is also a disadvantage because of increased dependency on a single partner. There is no longer a trade-off. Flexibility is another disadvantage: a single provider will be less flexible.

And then there is a political component. A political lobby could favor European companies to use Airbus. Much depends on the success of airbus and on the success of the EU itself.
----------------------...
Money without intelligence is like a car without a road.
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2009 Sep 26 01:46 PM

[Victor Cook]

User 457816,
You overlooked the last sentence of my article:

“If you want to understand the details behind this analysis, review my 18 minute audio slide show Y’all Buckle That Seat Belt.”

Clicking on the hyperlink at the end of this sentence you will find these results are based on a set of objective rules using audited financial data. You also will find the results are basically unchanged since Q1’93 for a comparable peer group of U.S. airlines.

Thanks for the heads-up.

~V

2009 Sep 26 06:09 PM

[Victor Cook]

Change is the Only Constant,
Better strategic alternatives do exist.

For example, see my Seeking Alpha article “General Motors’ Natural Share Level: Can GM Be Like IBM?” (December 15, 2008).

A company’s “natural share level” occurs when the incremental cost of the next revenue share point equals the incremental earnings from acquiring that share point. In my book -- “Competing for Customers and Capital” -- I ran these numbers for Southwest Airlines in a similar peer group for Q1’03 on page 126. LUV’s actual share level was 7.6%. That share level produced an actual EBITDA of $139 million. At that time LUV’s “natural share level” was 13.6% with a theoretical maximum EBITDA of $176 million.

By Q2’09 LUV’s actual share level had increased to 10.0%. I haven’t had reason to run the company’s natural share level or maximum EBITDA for the most recent quarter. I guess you’ve given me one!

If you’re interested in how “natural” or “maximum earnings” market share is determined check out my 14 minute audio slide show on “The Rule of Maximum Earnings” from chapter 5 of my book. Here’s a direct link: breeze.tulane.edu/chap.../.

Thanks for your thoughtful comment.

~V

2009 Sep 26 06:22 PM

[a fat panda]

I think that you are comparing apples and oranges when you compare Delta and Southwest. They serve very different markets, and face different levels of competition.

Management/culture is just not the same. Herb Kelleher was a brilliant leader, where as Delta has been run into the ground by idiots. Your point is part of why Kelleher is so great - he didn't chase growth by acquisition. But that is a reflection of his leadership, not the totality of why LUV has beaten every other airline into the ground.

Here is a stat that I have never seen duplicated. In the time that I lived in Dallas, I never knew a single employee who didn't love the company. Can you say that about any other corporation?

2009 Sep 27 04:06 AM

[Tack]

The fundamental problem with almost all airlines (here again, Southwest "gets it" the most) is that they so utterly misunderstand their own businesses and have developed near-suicidal marketing and pricing approaches that unless they wake up to new realities, most will fail, whether merged or unmerged.

As an executive (now retired) in capitally-intensive, fixed-cost industries during my career, one thing I learned very quickly is that volume is everything. When fixed costs comprise a huge segment of a business, it's never possible to achieve a positive result by adopting any program that reduces volume and gross revenues. Whatever savings may be attached to associated variable costs will be outweighed by the fixed costs, now allocated over a smaller base.

So, on the surface, a merger would seem to make sense, i.e., expand volume faster than the expansion of fixed costs. The problem remains, however, that the airlines have totally forgotten how they generate revenue and how to grow that revenue. Consequently, they are seeing fewer and fewer passengers who wish or need to partake of their "services" (I use that term euphemistically).

Think about it for a minute. Is anybody attracted to being humiliated at airport check-ins? to being financially punished for not "planning" a trip in advance? to getting penalized for changing or canceling a trip? or how about paying absurd fees to bring along your luggage? or paying 2-3 times as much to go 500 miles as 5000 miles?

This is a mentality associated with arrogance and would work more "perfectly" in mandated-as-compulsory products, like health or auto insurance, but, it's insanity in a business where people make discretionary decisions. And, that's what the airline business has increasingly become, a business where the need and/or desire to use the product has become optional.

Now, businesses have access to worldwide, instantaneous Internet communications and teleconferencing. The absolute need to send somebody at exorbitant cost to a meeting is greatly reduced. The greater competition in almost all world business segments also dictates that companies manage their finances, not just pay whatever the airlines wish to charge, as if there were no alternatives.

And, consumers are finding that they can enjoy life just fine without flying around the world, or even around the country. It used to be that a trip was something exciting to look forward to, a special event. Now, the very thought of getting one's pockets picked and treated like some sucker to be exploited makes travel unappealing, and that's before we even get to the hassle, disrespect and humiliation that passes for "airport security." (I think the shoe bomber did more to damage the American economy that any other terrorist act, but that's another thread.)

Airline executives seem utterly oblivious to the changed rules of the game of air travel and its increasingly optional nature. At a time when they should be turning themselves into pretzels trying to figure out how to be more customer friendly and attract more air travelers and revenue (not by nickle-and-dime fees, either), they are engaged in a nihilist race with each other to see who can drive passengers away the fastest. It's insanity, no less.

For a very long time, I've thought there would be a huge opportunity for an airline to come into being, whose operating plan included no fees or penalties of any kind and had a simple revenue plan: all seats would be priced on a base fee to cover fixed business costs, plus a mileage add-on to cover the distance traveled. Ergo, the price all of travel would be proportional to the distance one goes.

Such a plan is too simple, of course, for the convoluted thinking of the airline executives, although Southwest probably comes the closest. But, for the others --merged or not-- who keep seeing travelers as cattle marching inexorably up the chutes of the slaughterhouse, their days are increasing numbered.

2009 Sep 28 06:32 AM

[change is the only constant]

Victor,
Thank you for addressing my question. Believe it or not, your answer and the definitions for "natural" share and incremental profitability are clear. I do think, however, what you are calling natural you mean theoretical. There is a huge difference.

Theoretical implies a clean model, and natural implies those messy things like quarterly "losses and gains" due to things unquantifiable or unknown effects.... like word of mouth marketing and plane cleanliness. Managing the unquantifiable is like betting right when you win. If an airline competitor is able to generate a difference, it is not going to be sustainable unless it is quantifiable AND unable to be gleaned by competitors. In the "natural" world management is constantly looking for better and smart seems lucky. In the theoretical world, smart IS lucky.

2009 Sep 28 10:51 AM

[Victor Cook]

Indeolie,

Your conclusion would hold water except for one thing: Southwest has held the same lofty position on the value creation scale since Q1 ’93. That makes it 37 years of value leadership, most of the time without the need for fuel hedges.

You can verify this result in the 18 minute audio slide show “Y’all Buckle That Seat Belt” based on Chapter 2 of my book “Competing for Customers and Capital. Here’s a link to that presentation: breeze.tulane.edu/chap.../.

Thanks for the opportunity to clear up this commonly held misconception.

~V

2009 Oct 02 10:32 AM

[Victor Cook]

Fat Panda,

You're right. I am comparing apples and oranges; and different markets; and different levels of competition; and different fleets; and different fuel hedging bets; and different cultures; and so on. That’s the whole point.

I designed the risk-adjusted differential to standardize the outcomes of these and many other strategic choices in order to inform investors about managements’ overall value-revenue orientation. If these differences didn’t exist the risk-adjusted differential would be zero for all companies all the time!

Thanks for giving me the opportunity to clarify this important issue.

~V

2009 Oct 02 06:05 PM

[User 495805]

If I understands correctly, the last time I checked media source, Delta and NWA is in the process of integrating and the carriers dont even have certificate to operate as one carrier yet and summer operated practically as two separate carriers, I dont think you ve done any research on the subject, your blowing people off with graph as if youve done tons of reserach... your not believable .....

2009 Oct 05 01:36 PM

[Victor Cook]

Tack,

Your comment that airline management should try “… to figure out how to be more customer friendly and attract more air travelers and revenue” cuts right to the core of the problem. If mergers don't work, what's an airline CEO to do?

While my article defines the problem, it doesn't offer a solution. For a road map on how to find a way out of this dilemma I recommend airline CEOs read J.C. Larreche's book "The Momentum Effect: How to Ignite Exceptional Growth." Here's what Sir Richard Branson, who knows a thing or two about the airline business, says on the cover:

"This book shows you how to build momentum and leave your competitors trailing in your wake."

What might airline CEOs learn from it? One example of the insight that jumps from the pages of Larreche's book is that the relationship most air carriers have with their passengers never develops beyond their online booking, ticket purchases, onboard experiences and baggage handling. As JC says on page 154:

"There is no emotional connection. To generate the momentum effect requires a much deeper and more committed relationship than that offered by passive customers who just don't complain. Companies should measure their success by the number of delighted customers they have--people so thrilled with a product or service that they can't help but tell others about it."

We often hear the idea that "less is more." But that concept always is expressed in terms of money. The following comment in JC's book (page 27) explains when less is more from the airline passenger's point of view:

"... less should mean that they get exactly what they need and nothing more, with no superfluous elements that create complexity and could destroy value."

Reading this sentence started me thinking: are there any airline services that create complexity and destroy value? Yes. Baggage handling. This conclusion led me to write a series of articles exploring ways to “… be more customer friendly and attract more air travelers and revenue.” In the last article in that series I proposed a radical solution to the baggage handling problem: remove baggage from the passenger air transport system and shift it to the cargo air transport system. If you’re interested in the pros and cons of this idea start with seekingalpha.com/artic....

Thanks for the opportunity to put this idea back on the table.

~V


On Sep 28 06:32 AM Tack wrote:

> The fundamental problem with almost all airlines (here again, Southwest
> "gets it" the most) is that they so utterly misunderstand their own
> businesses and have developed near-suicidal marketing and pricing
> approaches that unless they wake up to new realities, most will fail,
> whether merged or unmerged.
>
> As an executive (now retired) in capitally-intensive, fixed-cost
> industries during my career, one thing I learned very quickly is
> that volume is everything. When fixed costs comprise a huge segment
> of a business, it's never possible to achieve a positive result by
> adopting any program that reduces volume and gross revenues. Whatever
> savings may be attached to associated variable costs will be outweighed
> by the fixed costs, now allocated over a smaller base.
>
> So, on the surface, a merger would seem to make sense, i.e., expand
> volume faster than the expansion of fixed costs. The problem remains,
> however, that the airlines have totally forgotten how they generate
> revenue and how to grow that revenue. Consequently, they are seeing
> fewer and fewer passengers who wish or need to partake of their "services"
> (I use that term euphemistically).
>
> Think about it for a minute. Is anybody attracted to being humiliated
> at airport check-ins? to being financially punished for not "planning"
> a trip in advance? to getting penalized for changing or canceling
> a trip? or how about paying absurd fees to bring along your luggage?
> or paying 2-3 times as much to go 500 miles as 5000 miles?
>
> This is a mentality associated with arrogance and would work more
> "perfectly" in mandated-as-compulsory products, like health or auto
> insurance, but, it's insanity in a business where people make discretionary
> decisions. And, that's what the airline business has increasingly
> become, a business where the need and/or desire to use the product
> has become optional.
>
> Now, businesses have access to worldwide, instantaneous Internet
> communications and teleconferencing. The absolute need to send somebody
> at exorbitant cost to a meeting is greatly reduced. The greater competition
> in almost all world business segments also dictates that companies
> manage their finances, not just pay whatever the airlines wish to
> charge, as if there were no alternatives.
>
> And, consumers are finding that they can enjoy life just fine without
> flying around the world, or even around the country. It used to be
> that a trip was something exciting to look forward to, a special
> event. Now, the very thought of getting one's pockets picked and
> treated like some sucker to be exploited makes travel unappealing,
> and that's before we even get to the hassle, disrespect and humiliation
> that passes for "airport security." (I think the shoe bomber did
> more to damage the American economy that any other terrorist act,
> but that's another thread.)
>
> Airline executives seem utterly oblivious to the changed rules of
> the game of air travel and its increasingly optional nature. At a
> time when they should be turning themselves into pretzels trying
> to figure out how to be more customer friendly and attract more air
> travelers and revenue (not by nickle-and-dime fees, either), they
> are engaged in a nihilist race with each other to see who can drive
> passengers away the fastest. It's insanity, no less.
>
> For a very long time, I've thought there would be a huge opportunity
> for an airline to come into being, whose operating plan included
> no fees or penalties of any kind and had a simple revenue plan: all
> seats would be priced on a base fee to cover fixed business costs,
> plus a mileage add-on to cover the distance traveled. Ergo, the price
> all of travel would be proportional to the distance one goes. <br/>
>
> Such a plan is too simple, of course, for the convoluted thinking
> of the airline executives, although Southwest probably comes the
> closest. But, for the others --merged or not-- who keep seeing travelers
> as cattle marching inexorably up the chutes of the slaughterhouse,
> their days are increasing numbered.

2009 Oct 05 04:30 PM

[Delta Don]

As a retired airline employee i agree with Mr. Cook 100%. My former employer was number one in the Industry while I was employed and there priority was customer service and they were profitable. They then decided to down size and offered early retirement and I took it at the age of 52. Since these continuing practices they lost their more experienced workforce that were raised on providing customer service into a revenue machine which forced it into bankruptcy. Now after coming out of bankruptcy a merger with NW has further deteriorated
their customer service. The added charges for baggage,standbying for a earlier flight,changing flights plus the lower standard of service does not improve customer relationship. Drop the charges and raise the price of the ticket to what they need to generate traffic and provide service to the customer that makes the consumer satisfied and to desire to use their service again and once again be Number 1 in the industry with Customer Satisfaction.


On Oct 05 04:30 PM Victor Cook wrote:

> Tack,
>
> Your comment that airline management should try “… to figure out
> how to be more customer friendly and attract more air travelers and
> revenue” cuts right to the core of the problem. If mergers don't
> work, what's an airline CEO to do?
>
> While my article defines the problem, it doesn't offer a solution.
> For a road map on how to find a way out of this dilemma I recommend
> airline CEOs read J.C. Larreche's book "The Momentum Effect: How
> to Ignite Exceptional Growth." Here's what Sir Richard Branson, who
> knows a thing or two about the airline business, says on the cover:
>
>
> "This book shows you how to build momentum and leave your competitors
> trailing in your wake."
>
> What might airline CEOs learn from it? One example of the insight
> that jumps from the pages of Larreche's book is that the relationship
> most air carriers have with their passengers never develops beyond
> their online booking, ticket purchases, onboard experiences and baggage
> handling. As JC says on page 154:
>
> "There is no emotional connection. To generate the momentum effect
> requires a much deeper and more committed relationship than that
> offered by passive customers who just don't complain. Companies should
> measure their success by the number of delighted customers they have--people
> so thrilled with a product or service that they can't help but tell
> others about it."
>
> We often hear the idea that "less is more." But that concept always
> is expressed in terms of money. The following comment in JC's book
> (page 27) explains when less is more from the airline passenger's
> point of view:
>
> "... less should mean that they get exactly what they need and nothing
> more, with no superfluous elements that create complexity and could
> destroy value."
>
> Reading this sentence started me thinking: are there any airline
> services that create complexity and destroy value? Yes. Baggage handling.
> This conclusion led me to write a series of articles exploring ways
> to “… be more customer friendly and attract more air travelers and
> revenue.” In the last article in that series I proposed a radical
> solution to the baggage handling problem: remove baggage from the
> passenger air transport system and shift it to the cargo air transport
> system. If you’re interested in the pros and cons of this idea start
> with seekingalpha.com/artic....
>
>
> Thanks for the opportunity to put this idea back on the table.<br/>
>
> ~V

2009 Oct 10 11:19 AM