The President of United Airlines thinks airfares should be twice as expensive as they are today. United’s CEO Oscar Munoz takes things a step further: paying United Airlines more is good for you, you just don’t realize it.
His argument is that more money for the airline means more money to invest in the product. You as the customer benefit even if you “don’t always understand.”
Munoz said policies like raising customers’ baggage fees will help the airline operator achieve these customer-oriented goals.
“It’s important to reinvest in the business…I think it’s one of the things about this industry that people, our customers, don’t always understand. All that money that we’re getting back is being piled back into the business.”
“We want to make you, as our customer, feel good about flying us. And so our customer-centricity, our customer properties, are something we really want to sort of engage.”
United was first major to increase bag fees, dumping the news out with the trash the Friday afternoon before Labor Day. Munoz says higher fees are good for customers but pointedly despite higher prices United doesn’t offer a checked baggage delivery guarantee like Delta and Alaska do.
Live and Let’s Fly thinks Munoz’s point is reasonable, that higher revenue gets reinvested back into the airline for the benefit of customers since United is making several new investments in travel experience, though concedes that most customers won’t be persuaded.
I think that Munoz has it exactly backwards.
- United’s isn’t ‘returning some of the revenue to customers’ they are investing in their product so they can make more money by attracting more business especially premium business.
- They introduced their worst product to date, basic economy, at a time of record profits.
- Their product investments don’t all benefit the same people, for instance they are improving business class seats and introducing business class lounges but business class customers don’t pay these bag fees.
- At best the Munoz argument suggests that during the most desperate of times US airlines have tended not to invest in their products because there wasn’t much premium business to attract and their competitors weren’t investing either.
However he doesn’t draw a connection between higher bag fees (where the payoff is greatest in tax avoidance for the airline) and a struggle for survival.
Customers may be willing to pay more to travel — United’s President frequently says that demand for his product is inelastic, they can charge you more and you’ll still buy. However checked bag fees fall disproportionately on the most price sensitive customers — non-elite flyers buying coach tickets for leisure rather than expensing the charges for work.
Rather than telling customers they should pay more and like it, a far better strategy is to work as hard as possible to deliver a better product at a lower price. At least that’s how it works in competitive industries.