Leanrons-favSix Sigma

The Airline Companies Amaze Me

By Ron Updated on May 15th, 2017

 

In Lean and Six Sigma we speak about the importance of understanding value from the perspective of the customer. If you miss this all the Kanban and Control Charts in the world won’t help you. Most of the airline companies in American don’t get this concept. Let me explain.

I recently booked a trip to Virginia. I scanned the website of the airline company I usually travel with and realized that they didn’t have a return route that suited me. All the routes left too late and I hoped to get home sooner for personal reasons.

So I call up my company’s travel agency to see if there were any other options. The agent found me a one way ticket to Virginia via airline company A for $700. In order to get home sooner I would have to take my return flight via airline company B for $700. So I am up to $1400.

The agent then told me that my other option was to fly round trip with airline company A. I would take the SAME flight to Virginia while having to take my return flight several hours later than airline company B’s flight. Guess how much this ROUND TRIP ticket with airline company A cost? $225 total!

Obviously I took the $225 option since it is only costing me a few hours delay (even though my wife was not so happy). But for the life of me I cannot understand how the same company can charge $700 for a one way ticket to Virgnia while only charging me $225 for the same flight to Virginia PLUS an additional flight home to Dallas.

The morale of the story is to never book a one way trip without verifying how much it will cost to book a round trip… even if you never use the return option.

If you work for an airline company and wish to enlighten me on what it is I am missing, please do. I sure can’t figure it out.

My father in law had an equally shocking experience with another airline company recently… I will share that with you all later.

Ron

  1. Kevin

    April 8, 2007 - 7:54 pm
    Reply

    Watch out. Airlines caught on to the “only use one leg of a roundtrip” trick a couple years ago. I know some airlines monitor people who don’t use the return leg, and if you’re a frequent flyer they’ll begin to penalize you. Of course that just further decreases the “value” they are supposedly providing…

  3. Ron Pereira

    April 9, 2007 - 7:55 am
    Reply

    Hi Kevin, any idea why the airlines do this? Is is a supply/demand thing?

  4. Matt

    April 9, 2007 - 1:36 pm
    Reply

    The airlines also do not like it if you fly back-to-back. It used to be a lot cheaper years ago. That’s when you’re planning on visiting a place twice but each trip will be a short (1-day) duration, and you buy 2 round trip tickets: one starting at your origin, and the other starting at your destination. You use the first leg of each ticket on the first day-trip, and for your next trip (weeks later) you use the second leg of each ticket. Not that I’ve ever done that, I’ve only heard about it.

  5. Mark Graban

    April 10, 2007 - 11:15 am
    Reply

    I’ll answer the question you asked Kevin…. why do the airlines do it?

    BECAUSE THEY CAN

  6. Ron Pereira

    April 10, 2007 - 11:44 am
    Reply

    HI Mark, I guess you’re right.

  7. Maciej

    April 10, 2007 - 4:20 pm
    Reply

    Airlines attempt to set prices based on value/utility, not cost. while obviously in your case they missed the mark, they had some statistical reason for setting this price. Not a far cry from the “because they can” comment.

    Their target market is split into many different segments (e.g. “The Overnight Business Flyer”, “The Family Vacation”), etc. Studying the commonalities and differences between each category, alongside the amount of money each group is willing to pay, they come up with optimal pricing based on various conditions (e.g. cancellation policy, how far in advance you book, whether you stay over the weekend, do you need to arrive early in the morning, etc.)

    While respecting your customer is fine and dandy, the oligopoly that airlines enjoy relieves some of this competitive pressure. They may try to make up for this through other dimensions of customer service, but history has shown that airlines need to take advantage and rape their customers with deep pockets. It’s simply survival in a business with a very low margin of return.

  8. Mark Graban

    April 11, 2007 - 9:04 am
    Reply

    Sorry if I shouted at you, Ron 🙂

    Airlines do many stupid things. I was on an American flight from DFW to Memphis yesterday and I was able to sit up front (using an upgrade credit). American left at least 5 first class seats open and wasted. I’m sure there were frequent fliers sitting in the back.

    GOOD airlines do “space available” upgrades automatically for their frequent customers. They don’t let that inventory go to waste. It’s a goodwill thing toward the customers, eh?

    American sooooo takes its customers for granted, particularly in DFW where they have a lock on the market.

    I asked a business school classmate who works at American about this, and she said:

    1) They don’t want to “give away” upgrades because it devalues the first class seat.

    Um, doesn’t leaving it empty do the same thing??

    2) What are you going to do?

    American knows you have few options as a customer and they stick it to you. Because they can.

    Doesn’t mean they “should.”

  9. Ron Pereira

    April 11, 2007 - 8:26 pm
    Reply

    Great points Mark. And I didn’t think you were shouting. I just realized I typed “HI” but that was just cause I can’t type!

    🙂

  10. Anonymous

    April 12, 2007 - 5:26 pm
    Reply

    EL Cid,
    Mark, I have to agree with you (in spades) Continental (JD Powers rated best FF program) gives highest level FF member on the plane the empty seats. Doesn’t cost them any real money, but is great to build loyalty. But alas, AA ownes DFW (for now, I hear that there is a conspiracy afoot to prevent AA from taking over the world. JOIN THE RESISTANCE NOW)
    EL CID

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