Why Consumers Hate Airlines (and How Air Carriers Can Prevent it)

Fuel price volatility and a sluggish economic recovery have dampened investors’ hopes that the airline sector will recover the altitude lost during the Great Recession.

Now here’s one more sign of turbulence: consumer satisfaction with airlines is sinking. In the most recent survey by the American Customer Satisfaction Index (ACSI), airline passenger satisfaction dropped 1.5% to a mediocre satisfaction score of 65.

As a group, airlines registered the lowest satisfaction score of any of the 47 industries included in the survey. That average score of 65 means airlines are tied with newspapers for the sector with which consumers are least satisfied – even below the federal government (65.4).

Specific airlines did even worse, with four legacy carriers landing in the top 10 most hated companies list: Delta (NYSE: DAL) ranked second with a customer satisfaction score of only 56. US Airways (NYSE: LCC) and United Airlines (NYSE: UAL) tied for sixth with a score of 61and American (NYSE: AMR) ranked eighth with a score of 63.

The year-over-year change was equally significant: Delta’s score of 56 is down nearly 10% from the 62 it posted this time last year and US Airways is down 1.6% from last year’s 62. The data concerning the merged United Continental is a bit skewed because the survey still measures the airlines separately, but Continental slipped a whopping 9.9% to a score of 64. United ticked up from 60 last year to 61 – an increase of 1.7%.

Not every airline is on the losing end of the satisfaction stick, however.  Southwest (NYSE: LUV) is still feeling the love – with a high-flying score of 81.  So what is Southwest doing right that its peers aren’t?  Here are three key differences:

1.     Bags Fly Free. It should surprise no one that airline passengers have grown sick of baggage fees. The ACSI survey found passengers that pay to checked bags are 10 points less satisfied than those who don’t (58 to 68). Southwest’s “Bags Fly Free” policy has generated hundreds of millions in revenue for the carrier as passengers fed up with paying high bags fees have switched to LUV. Delta, the most hated airline survey-wise, collected $952 million in baggage fees alone in 2010.

2.     Stellar Service. Air travelers give Southwest consistently high marks for the service provided by its cabin crews and the ease of check in. US Airways brought up the rear in that category, as passengers panned its cabin-crew service and lack of communication over delays. (US Airways has been censured by the Department of Transportation over inadequate communications.)

3. Merger Snafus. Airlines take a dramatic satisfaction hit following a merger.  After acquiring Northwest, Delta’s satisfaction score tanked. The early data points to the same near-term outcome for United as it absorbs Continental.  Consider the routine task of aligning the two airlines’ flights for their combined future schedule: a system glitch inadvertently reinstated United Flights 93 and 175, two flights that were hijacked and crashed in the 9/11 terror attacks. The error resulted in howls of protest from United employees and the families of 9/11 victims.


That last point should give Southwest pause is it merges AirTran into its operations.

In a low-margin sector like airlines, customer satisfaction matters a lot and sooner or later, angry passengers will yield dissatisfied investors. Delta, American, United Continental, and US Air shares are trading an average of 36% under their 52-week highs; LUV is down just 23% — and in this market, every little bit counts.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

Article printed from InvestorPlace Media, https://investorplace.com/2011/07/consumers-hate-airlines-delta-american-continenta/.

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