Quite a few years ago (ok, more than 2 decades, ouch!) I worked at IBM, selling to a large enterprise. IBM’s strategy at the time was all about bundling a full set of service/support (including on-site Systems Engineers for large accounts) as part of the price of mainframes.
That strategy started to break down with the entry of mini-computers and then PCs, with new buyers exerting control from outside the so-called “glass house” where mainframes lived. The upshot was my customer finally saying “no thanks” to the bundling, and requesting a la carte pricing that separated products, services, and support. It was a painful transition for IBM, which had to figure out how to sell and deliver fee-based services on their merits.
The airline industry has been dealing with the same thing, although the dynamics are a bit different. With rare exceptions there is little differentiation between carriers, and lots of consumers that simply want to get from point A to point B as cheaply as possible. Sites like Expedia and many others encourage price shopping, which keeps pressure on airlines to display the lowest fare possible.
In Europe, Ryanair seized this opportunity to offer a low-low fare that included a seat, oxygen, and not much else. At one point, bombastic founder Michael O’Leary said he was considering charging a fee to pee!
Along with low fares came poor customer satisfaction ratings. But it didn’t seem to matter. Rynair kept growing and O’Leary told passengers who complained to “bugger off.” That started to change in 2014, when O’Leary had a change of heart and began investing more in customer service. By 2015, he credited a rise in profits to this more customer-friendly stance.
In the US market, Spirit Airlines has been following a similar path, but appears to want to avoid some of the Ryanair missteps. Or perhaps, work through them more rapidly. “Ultra low” fares attracted passengers, but, like Ryanair, were followed by ultra low customer satisfaction ratings. Spirit entered the ACSI rankings at a stunningly low 54 in 2015, and increased to a still airline industry-worst 62 in 2016.
In 2013, then-CEO Ben Baldanza said “customers care about price” and “We have great customer service because we give them the lowest price possible.” Like O’Leary (before he got CX religion), Baldanza pointed to growth and investor performance as validation.
The drumbeat of negative press and declining stock price led to Baldanza’s ouster in early 2016. New CEO Bob Fornaro says the airline will continue its low/unbundled fare strategy, while also “improving its passenger experience this year, in addition to making the carrier more reliable.”
Based on many industry surveys, clearly Spirit has some work to do on its operational performance, including improving on-time performance, baggage handling, and customer service. But there are also improvements in store for the booking process, according to Rana Ghosh, Sr. Director at Spirit Airlines, who heads up the “ancillary revenue” initiative. That includes all the products and services outside the core ticket, such as baggage, a bigger seat, snacks, or hotels and cars.
Ghosh says “passengers are looking for the best value possible” but not everyone wants the same things. In a recently announced partnership with personalization vendor Qubit, Spirit intends to improve how it segments customers and then target offers for the ancillary services most likely to meet their needs.
For example, a small business owner might be interested in a larger seat, checked baggage, hotel and rental car. By using Qubit’s automated segmentation tools, an analytics-based persona could be created, tested with a subset of the entire audience, then rolled out if successful.
Ideally the result will be a win/win: the passenger gets a personalized booking experience and Spirit gets the additional revenue it needs to make the unbundled strategy work. Passengers should start to see some of these improvements later this year.
Qubit was chosen, says Ghosh, because of its all-in-one platform and cultural fit. Both are relatively small but fast-growing firms that see themselves as industry disruptors. In my previous post, I wrote that Qubit is pushing into the MarTech personalization space with a Digital Experience Platform that includes “adaptive targeting.”
Conceptually, there’s a lot to like about Spirit’s plan. I don’t mind paying more for items that I really want, while getting a good value on the core product.
The challenge will be — as it usually is with good ideas — execution. The promised improvements in operations will take time to implement and, I dare say, will cost something. That “something” will eventually be reflected in even the base fares that Spirit offers.
The booking experience is critical because it sets expectations. I think Spirit’s current web site does a good job explaining what it is selling:
Our fares are fully unbundled. No “free” bag. No “free” drink. Other airlines bake those options right into their ticket price. We don’t. A ticket with us gets you and a personal item from A to B.
The planned Qubit-based personalization could improve the booking experience while helping passengers make informed choices… and setting expectations. That’s all to the good for those that book directly with Spirit.
However, according to a NY Times article, new CEO Fornaro also wants to reduce surprises for first-time Spirit fliers. About one-third of customers book via third-party sites, which don’t do the same job setting expectations.
I gave this a quick test on Expedia, searching for a flight from Ft. Lauderdale to NY LaGuardia. Spirit’s posted fare was just $80 roundtrip, compared to a range of $132 to $149 for other major US carriers. Wow! All things being equal, if I didn’t want all the services bundled into the price, I might go with Spirit.
The problem is that the $80 fare increased by nearly $30 when I selected it. Expedia informed me: “Your ticket price changed from $80.00 to $109.98. The airline could not confirm the original price due to pricing or availability changes that occurred after we posted the latest prices on our site.”
The price change didn’t instill confidence in the low fares, and it raised some questions about exactly how I would pay for other services. There’s no obvious way on Expedia to select a bigger seat or pay for a checked bag, for example. That means more complexity, and perhaps some surprise charges, later on.
So Spirit not only has to upgrade its own booking experience, but also improve how it works with third-party sites. Still, I say this new strategy has some promise. As consumers we’ve all been trained by Amazon.com that low prices and good experiences can go together. Let’s see if Spirit can make it happen, too.