US airlines have been hit but a series of high-profile customer fiascos in the last two months.
It started with the forced removal of a passenger, Dr. David Dao, in a United Continental Airlines (UAL) plane in April triggered a loud public outcry and of course, a lawsuit. Dao had to be hospitalized due to critical injuries, his bloodied face forever stored in the memories of scores of mobile phones that recorded what was arguably one of the most incredible displays of poor customer service in recent US aviation history. Earlier in March, UAL was already criticized for not allowing two girls to board a flight for wearing leggings.
Then came reports that an American Airlines attendant hit a passenger with a baby stroller and that a family was offloaded from a Delta airlines plane over a toddler’s seat. Add to these stories the countless small undocumented miseries that passengers encounter while flying the US skies everyday: small seats, reduced legroom, hidden fees, reduced in flight services, delayed flights.
The ESG Angle
These incidents speak to the continuously declining quality of service in the US airline industry. US domestic passengers in coach class have been subjected to a continuously declining quality in service as a consequence of consolidation in the industry. The airline industry is oligopolistic; some say it’s monopolistic. In any case, the consolidation of the industry has led to poorer quality of service, such as reduced leg rooms and more fees, even as perks for first and business class expanded. The reduction in services led Columbia Law School professor Tim Wu to call the industry’s strategy as one of “calculated misery” for passengers.
Consolidation is not the only factor to blame. Some have also put the blame on consumers themselves who demand for the lowest fares, forcing airlines to be more creative with their Clearly, the process of decline in quality of service can be linked to numerous factors but the incident at UAL especially hit a raw nerve.
The Business Impact
United’s stock price dropped by 4.3% on April 11th, losing approximately $950 million in value. A call to boycott UAL in China, one of United’s biggest markets, also spooked investors. These temporary market reactions served as warning to United management of the materiality of poor customer service.
However, the reality is the market allows UAL and other airlines to get away with poor customer service. In fact, the market demand for profits have also led to the customer inconveniences that have made flying an unpleasant experience for the majority who cannot afford a business class ticket.
Just five days ago, American Airlines announced it was going to further reduce legroom in its new 737s to squeeze in more customers. Since dropping to a one year low of $65.28 on March 21, 2017, UAL’s stock has recovered to $75.30 as of May 5, 2017, the incident with Dr. Dao long forgotten.
In the seemingly polarized world of flying, airlines continue to win and customers continue to lose. The only consolation is 401Ks are reaping the benefits of higher airline stock prices. The question though is whether airlines can sustain this or will poor customer service ultimately bite them?