Customer service is now the norm throughout almost all sectors of commerce: supermarkets, hotels, banks and fast food chains vie for customer loyalty by trying to keep their clients happy. Consequently, the business benefits of providing high levels of customer service are well documented: research shows that almost 70 per cent of customers who take their business elsewhere do so because of indifferent service, against only 20 per cent who change their supplier for reasons of price and quality.
In the highly competitive world of air transport, customer service is the key to differentiation and longterm profitability. But the goalposts are constantly moving. Today, customers have more choice and are more discerning than ever. Airlines have to tackle four challenges if they are to maintain current levels of customer service:
Ensuring consistency of service quality across the airline when key parts of the business are outsourced;
Maintaining employee morale as the need to improve efficiency leads to more downsizing and outsourcing;
The increasing distance between the customer and the airline's employees caused by the introduction of new technologies; and
Rising customer expectations, leading to a growing need for effective service recovery.
The recession may be over, but many airlines are still being forced into radical restructuring. Robert Crandall, chairman of American Airlines, recently described the aviation industry as 'one of the most miserable businesses in the world.' Throughout the industry airlines are being squeezed because costs are rising faster than yields.
According to Boeing, airline yields are falling by 1 per cent a year. Fares are being depressed partly because longhaul travel is growing faster than shorthaul, and leisure travel is expanding faster than business travel. But airlines also are facing the heat of an intensely competitive marketplace, which is creating a two-tier industry.
On one level are low-cost carriers, which offer little onboard food or entertainment, and can undercut the fares of large airlines. Their success shows that there is a market for price sensitive air travel and their attraction lies in the provision of quick, cheap transport.
The second tier consists of established carriers such as British Airways, United Airlines, Virgin Atlantic and Lufthansa. They offer the customer a 'travel experience', with such perks as chauffeur driven cars, private lounges, meals tailored to individual needs, seatback interactive video systems, and inflight massages. Airlines in this category are seeking to attract the high-yield, high-margin fares of business and first class customers who are prepared to pay premium rates for a premium service. Slashing fares is not an option for them, as low cost carriers will always be willing to undercut substantially. More importantly, an airline's carefully cultivated reputation as a purveyor of a quality travel experience will be damaged quickly once it is perceived to offer cut-price transport.
This environment is pushing almost all the major players to pare costs and improve efficiency. Swissair is cutting costs by 20 per cent and KLM, which has reduced unit costs since 1991, intends to push them down by a further 5 to 10 per cent over the next three years. In September, Jürgen Weber, chairman of Lufthansa, warned that the airline's longterm survival was at stake unless it brought costs under control, and he called for a wage freeze, or even pay cuts, as well as longer working hours. British Airways has stated that it needs to improve business efficiency by ú1 billion (US$1.6 billion) by 2000.
Outsourcing is becoming an increasingly popular response to the pressures within the air transport industry. BA chief executive Robert Ayling says his Business Efficiency Programme means 'stopping doing things we do not need to do and outsourcing where someone else can do it more efficiently.'
However, a major airline like BA must square the need to achieve business efficiencies with its customers' demands for high quality customer service. People travel with BA partly because of its reputation for service and as part of its latest restructuring the carrier will recruit 5,000 people with language skills over the next three years.
But, by outsourcing certain functions, the airline may be in danger of losing its edge in terms of customer service. There is no guarantee that outside contractors will invest in staff training or adhere to the same strict quality standards. The challenge for the airline's managers will be to agree service levels with third party contractors and ensure that they are met.
In addition to the mechanics of service level agreements, airlines must address the unquantifiable elements of customer service - the degree to which employees are motivated and identify with the airline's aims and objectives. In short, the people factor. Targeted training and communication programmes may be needed to ensure that service providers' staff consider themselves first and foremost to be representatives of the airline. In the mid-1980s BA's 'A Day in the Life' programme drew together employees from all departments and encouraged them to think and work as a team. As outsourcing grows, airlines may need to experiment with different models of managing third party contractors in order to ensure consistency of morale, customer focus and service.
Catering, cleaning, baggage handling, ticket processing, IT, and even aircraft maintenance and flight operations have become targets for outsourcing. Increasingly, an airline may be stripped to its bare bones with all peripheral activity undertaken by specialist contractors. The new, lean 'virtual airline' will be free to focus on its core competence, facilitating and smoothing travel.
If the travel experience is a core product, airlines may need to think hard before they outsource their customer-contact departments - check-in and cabin crew employees play a critical role and failure to invest, motivate, train and win the loyalty of these key employees may affect the airline's ability to deliver the service levels expected of a prestigious, premium rate airline.
A further challenge facing airlines seeking to cut costs is the maintenance of high employee morale. It is difficult for airlines to differentiate: they fly broadly similar aircraft and pay similar prices for fuel, landing, overflight and computer reservations systems. One of the variables they do have control over is labour costs and, as staff typically account for 25-35 per cent of operating costs, this is bound to be the main area for making business efficiencies. However, the job insecurity created by outsourcing and downsizing can be very damaging to employee morale, motivation and performance.
In order to counter this, airlines must keep employees fully informed of all changes within the organisation, through vehicles such as face-to-face meetings, newsletters and training sessions. Communication should aim to be reassuring but frank, explaining that the changes are a matter of maintaining the airline's position in a tough marketplace, and that the airline is taking all possible steps to minimise the impact on employees. If redundancies occur, efforts should be made to help the casualties find new jobs or relocate them within the company. Retraining, counselling and consultation sessions are essential to demonstrate company concern and maintain morale.
Profitable people
While it is now a management cliché to say that people are an organisation's most valuable asset, airlines that fail to nurture the skills and expertise of their employees risk damaging the level of customer service they provide. Research shows that 70 per cent of customer perceptions of a flight are related to staff behaviour. Airlines which focus solely on tangible product features, such as seatback videos and private lounges, are ignoring a critical element in the creation of sustainable competitive advantage - their people.
Technology is revolutionising customer relationships in all sectors. Advances in technology have already had a dramatic effect in retail banking, with automatic teller machines replacing face-to-face interaction at the counter. Even pizza outlets can now store past orders on a database so that they can offer 'your usual pizza' when you call up to place an order.
Among airlines, ticketless travel is becoming a reality. Sophisticated electronic systems that remove the need for paper tickets - which can easily go astray and create a cumbersome back office bureaucracy - can slash check-in times. Computers now carefully track the travel patterns of frequent flyers and gain more knowledge about customers, enabling airlines to provide a level of individualised service unprecedented in the history of mass transport.
Until recently, individualised service was confined to seat and meal preferences on board. Many of today's passengers have access to on-board phones and faxes, together with a choice of movies and computer games. Tomorrow's technology could provide e-mail, language courses and pre-ordered in-flight videos. Customers may be able to browse through a vast catalogue of gifts for collection on arrival.
But the technological revolution is also creating a dilemma. As technology enables airlines to become closer to their customers, it is also helping customers to distance themselves from the airline. They can make reservations and check in without ever speaking to a member of the airline's staff.
Eliminating personal contact can, of course, cut out a key ingredient of service differentiation. To counter this trend, airlines should encourage their employees to be proactive, so that they can facilitate and add to the customer's travel experience, without being intrusive. Some airlines already employ roving customer relations executives, who help customers who are uncertain about the new technology or require assistance with their travel arrangements.
Senior managers must embrace technology wisely if they are to avoid investing large sums of money in creating a customer focused organisation that the customer has few opportunities of experiencing.
Air transport is highly complex. Even with the best of intentions, mistakes do happen and things go wrong. Customers can be very unforgiving, so consistency of service delivery when disaster strikes is vital. Prompt and flexible responses are required to mitigate the effects of these situations. Increasingly, effective service recovery will separate the best from the rest.
Staff must be empowered to take responsibility when things don't go to plan. They need the freedom to use their judgement and experience to put things right. One successful example of staff empowerment and initiative involved a group of executives who missed a connecting flight due to the late arrival of their inbound aircraft. In order to ensure they got to their important meeting on time, the airline decided to charter a small aircraft for the final leg of their journey. This may be extreme - a prompt and sincere apology will often suffice -but it showed a real commitment to the customer. Faced with this level of effort, most customers would accept that, whoever or whatever caused the initial difficulty, the airline had earnt a right to their future business.
If handled correctly, recovery from the brink of 'disaster' can be commercially advantageous. A recent survey of companies in the service industry by consumer research company Tarp showed that a surprising 30 per cent of customers would remain loyal even when they were dissatisfied with the levels of service they received from a company. Among those satisfied with the service, 65 per cent return.
However, an astonishing 85 per cent of customers who encountered problems but felt their complaints were handled well, returned to do business again. As it is five times more expensive to attract new customers than to retain existing ones, responding appropriately when things go wrong makes commercial sense.
To achieve the highest level of customer service, airlines must rise to these challenges. Senior managers need to step back and take a long look at the industry and the place of their airline within it. They must decide whether they are in the market to provide no-frills, A to B transportation or a high-margin, high-service travel experience, and then stick to it.
Continuous improvements
Establishing a sustainable competitive advantage through the delivery of truly exceptional customer service will require continuous improvements to service levels just to keep pace with changing customer needs and expectations, as well as the initiatives of rival airlines. Organisations pursuing vigorous cost-cutting and efficiency programmes must be careful not to starve their organisation of its most valuable asset - highly motivated, professional people.
Balancing the cost and service implications of employing new staff instead of experienced ones is another vital issue. Many airlines want to employ a mix of new, young and enthusiastic staff to work alongside their more experienced colleagues. The ratio will, of course, have cost implications. New workers are likely to require more training and communications programmes than experienced employees, although this is often compensated by differences in pay scales.
However, a high turnover of staff can be expensive and may erode corporate bonds, reduce morale, and leave the airline bereft of experience. Longterm employees can reinforce customer loyalty, attract better customers, gain customer and employee referrals, and educate juniors.
Product innovations can and will be swiftly copied by competitors, so airlines must look elsewhere if they want to gain longterm advantage. It is the people, not the procedures and products, that promise to be the ultimate differentiators between the average and the truly excellent airlines.
Source: Airline Business
