Do aviation investors need better sight of the passenger experience?

This article, written by Jerry Angrave, first appeared in the BlueSky blog for Terrapinn ahead of the World Low Cost Airline Congress held in September 2013

There’s no doubt that airlines are having a tough time at the moment for reasons that are well documented.  And, in common with many other industries, it’s also fair to say that some are handling the situation better than others.

Investors can therefore be forgiven for asking “Why is that?  Why do some cope and adapt while others make hard work of it?”  Searching questions, for which answers and reassurance are sought.

Understandably, at times of commercial pressure the message to employees, investors, partners and regulators has to be as positive and realistic as possible.  That inevitably means keeping a spotlight shining firmly on costs and revenue streams and on unlocking strategic value in the organisation.  When it comes to reporting past results and future plans, much of the communication then becomes metric-oriented to prove that it’s working.

Yet that potentially myopic focus is only telling part of the story that stakeholders want and need to hear.  Increasingly, investors looking to judge the long-term value of an organisation are demanding more visibility of the link between what it was like to be a passenger today and how that affects where tomorrow’s revenue will come from.

Alongside the numbers, future profitability lies in the ability to make flying with a particular brand an experience that doesn’t give people any reason to look elsewhere next time.  It doesn’t always have to be the proverbial “wow” experience; at the very minimum though, it does need to be one that plays to what passengers value and what they see as value for money.

In recent weeks there have been financial reports and strategy papers from airlines where I’ve seen little or nothing about the deliberate management of what it’s really like to be a passenger.  If that’s intentional, so be it.  But, when today’s passengers are having dinner tonight and sharing stories about what their journey was really like, giving the impression of not caring about what they say and how it makes them feel doesn’t seem right.

It’s an obvious thing to say but investors know that they will only get their money back with a yield on top if passengers keep spending, irrespective of what measures are reported.  Selling landing slots, achieving 100% on-time performance or reducing mis-handled bags by 1% will count for nothing if the things that passengers value most at every touchpoint – a helpful employee attitude, clean aircraft or good information when there’s a schedule change, for example – do not enjoy the same level of attention.

Perceptive, qualitative insights help shape what needs to be done differently for passengers but metrics have their place here too.  In a recent blog, one of the father-figures of the Net Promoter Score (NPS), Fred Reichheld, made the point that such a measure is a “useful gauge for investors”.  The score is predicated on being a proxy for how likely someone is to recommend a brand to others and, implemented in the right way, it is indeed a useful tool.  In my view NPS has its limitations, but not without reason are external stakeholders asking for visibility of such measures to increase the reliability of their assessment about the core health of a business.

Wider economic evidence about the relevance of a focus on customer experience came recently from Watermark Consulting in the US.  They studied the performance of organisations in the S&P 500 over a five year period and found that those who led in terms of customer experience programmes enjoyed a 22.5% return.  Compare that with a 1.3% drop for the index overall and for those who lagged behind on customer experience, their return was down by 46.3% over the same period.

I get that the commercial stakes are high and that it’s critical for investors to know that the right financial and strategic choices are being made.  But I do believe they would feel even more reassured about debt financing abilities if the messages about revenues, costs and alliances were balanced with the articulation of robust customer strategies and effective customer experience programmes.

Some airlines will no doubt be doing this already; there’s an old piece of career advice along the lines of “Do a good job and let people know you’re doing a good job”.  So maybe, it’s not just about showing that the financials are being managed effectively.  At the very least, investors deserve to have a line of sight to the impact that an airline’s commercial and operational decisions will have on what their passengers think, say, do and spend in future.
Jerry Angrave
Managing Director, Empathyce
Customer Experience research and advisory services
[email protected]