CRM in European Low-Cost Airlines

Posted 24-Nov-2004 02:36 AM
Dear Mr. Hill,

I am currently working on my Master's thesis that aims to evaluate the extent of CRM implemented in European low cost carriers (LCCs). One of my key sub-questions attempts to answer whether or not these European LCCs pay direct attention to the individual needs of customers or whether customer satisfaction to them is a mere by-product of their simplified, cost-conscious, business model? Are the customers' initial expectations of the low cost segment so low that applied CRM really is just an "expensive distraction" as I believe you quoted in an earlier discussion on the site? Thank you and looking forward to your valuable insights and opinions on the topic.

Yours sincerely,
Timo Ilva
(M.Sc.) Student, Helsinki School of Economics.
Helsinki, Finland.

Graham Hill
Guru
Member

Posted 10-Dec-2004 01:55 AM
Timo

Thank you for your interesting question.

CRM means many things to many people. In the context of an LCC, I think it is wise to include all the customer management capabilities that the LCC uses at different touchpoints in the 'customer experience' in the definition of CRM. The touchpoints in the customer experience include marketing, reservations & ticketing, check-in, gate operations, the flight itself, baggage operations and the frequent flyer programme. These are all touchpoints that collectively influence the customer's perception of the airline and thus their willingness to fly with it again.

Thinking of CRM as systems or processes connected with marketing, sales and service would be a serious mistake in the airline industry. In reality, it is mostly about the travel part of the experience.

Most LCCs in Europe compete on the basis of low cost. For most that means an over-riding emphasis on operational efficiency. These airlines use aggressive price-based advertising to bring customers in, direct channels for sales, paid-for customer service, virtual tickets, low-cost secondary airports and offer no-frills on-board. Heaven help you if they lose your luggage!

But not everyone can compete with the likes of Ryanair on cost. Newer LCCs are starting to differentiate themselves by reintroducing some of the frills that can make LCC travel an ordeal. Things like telephone reservations with a human, business class, primary airports, even rudimentary frequent flyer clubs.

Most LCCs do not, probably cannot, pay attention to individual customers' needs. Not if they want to manage their costs. Instead, they offer a good basic product targetted at an underserved segment—cheap air travel from A to B with no-frills. Customers buy on that basis and set their expectations lower accordingly. As service quality, expectations and disconfirmation are key driver of customer satisfaction, customers setting their sights lower are less likely to assess the lack of frills as disappointing. And the key driver of satisfaction is 'on-time arrival' (25%), something that the LCCs do just as well as the majors. That is part of the reason why Southwest always does so well in US JD Power studies.

There is some evidence that the introduction of LCCs into Europe has significantly changed customers' perceptions of what is 'fair value' in flying. If I can fly from Köln to Manchester from a handy modern airport, in a clean modern airplane, looked after by friendly staff, all for Euro 50 with an LCC, why should I accept a Euro 250 price for essentially the same product but with worse customer-service from Lufthansa! The answer is that I will not anymore. And neither will millions of other customers who have the choice.

Interestingly, Continental scored best in the recent JD Power surveys in the US, largely attributed to the quality of their people on the ground and in the air. This just shows how critical good customer-facing staff are in driving satisfying customer experiences, particularly in contact-intensive industries like airlines. What goes for Continental in the USA also goes for all the European LCCs too.

Graham Hill
Independent CRM Consultant