Wall Street analyst warns of growing passenger entitlement

WASHINGTON, DC – In comments that some believe are more reminiscent of the delusional rantings of Donald Trump’s hairpiece, a leading Wall Street analyst says airline management face a formidable challenge – there is a growing sentiment among passengers that believe airline travel is a right rather than a privilege. And in some cases, airline CEOs find themselves under attack for simply turning a profit.

During a Commercial Airline Summit hosted by airline lobbying group Airlines For America (A4A), Wolfe Research managing director and senior analyst covering airlines Hunter Keay remarked that if a passenger is using a bus or a train, “chances are you are traveling on something that is subsidized by the government. Commercial air travel is the major exception to that.” However, people “apply the same type of expectation sets” for sitting on an Amtrak train as they do when boarding a Delta flight “and that’s not correct”.

Keay pointed to a generational shift occurring, and as “social media becomes more ubiquitous, flying is viewed as more of a right, not a privilege. That’s only going to get worse for people in this country that believe air travel is something they’re entitled to and that sense of entitlement is something that airline CEOs are always trying to deal with.”

As airline management discuss profitability during regular earnings calls, “someone’s going to come at them,” said Keay, citing labor unions and regulators as examples. Referencing a CEO’s statement a couple of years ago in which he declared he hated fare increases, Keay concluded “that is the type of stuff airline CEOs have to say on calls [that are] literally in place specifically for investors…you’ve got to scratch your head.”

Commenting on the continually growing segment of airline ancillary revenue, Keay unflinchingly concluded: “Passengers like fees…they do.” The logic driving that conclusion is that product unbundling puts more choice in the hands of the customer. Keay used the analogy offered by one airline CEO that “you go out to dinner with five people and you have a soup and a Diet Coke, and they order a $500 bottle of wine and then you have to split the bill. I don’t think you’d like that very much.

“That’s what happens when you fly Southwest, who doesn’t have bag fees. You’re subsidizing other people’s behavior and that doesn’t benefit you.”

Southwest’s distinction as the only US airline that does not charge for checked bags is “a point of pride for us” and and serves as a point of distinction for the airline, Southwest CEO Gary Kelly stated at the summit. “It is astounding how many people hate bag fees, hate change fees. Any one of us can make all the intellectual arguments in the world [for baggage fees], but people don’t like it,” Kelly hit back.

“Push fees” such as bag and change fees are unpopular with passengers, agreed Keay. However, customers tend to enjoy the choices accompanied by “pull fees” including trip insurance and seat selection. “I think people are okay with that. Those are going to be the future of ancillary revenues,” he said, without mentioning the economy class seat squeeze that is driving passengers to pay more for choice seats to ensure a baseline level of comfort and legroom.

Hawaiian Airlines CEO Mark Dunkerly, also in attendance at the event, noted that perhaps Keay’s conclusion that passenger like fees was a “slight overstatement”. However, he did remark that consumers do like choice. “We’ve gone down the list of attributes of the customer experience and we’ve made judgments about what we want to provide for free and what what we want to charge for. I think the liberty to make those choices and to give consumers choice is an important thing for the benefit of the consumer.”

Lori glassesAbout the Author

Lori Ranson has spent more than a decade covering the commercial aviation industry, specializing in the North American market. Previously she was Americas Air Transport Editor for Flightglobal, where she led a team of journalists and worked with freelancers to produce content for Flightglobal, FlightglobalPro, Flight Daily News and Airline Business magazine. Prior to that, she worked as a Senior Editor for Aviation Week, covering low-cost and regional airlines.

Lori is currently a Senior Analyst at the Centre For Aviation and a freelance journalist. Her coverage has touched on all aspects of commercial aviation, including marketing and distribution, network development, safety, maintenance, repair and overhaul, aircraft programmes, alliances, regulatory developments, finance and the passenger experience. Lori has appeared on FOX News.

Email: Lori@ransonnote.com
Twitter: @Ransonnote

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